1. Introduction
On 16 December, 2022, Japan’s ruling parties announced the 2023 Tax Reform Proposals (the Proposals). In this News, we will focus on the reforms of domestic laws which coincide with international agreements related to revisions of international taxation.
Please note that the contents of the Proposals could be changed in the Diet deliberations.
2. Global Minimum Taxation
In the Proposals, for the purpose of reducing international corporate tax competition, the Income Inclusion Rule (IIR), which is part of the OECD‘s Pillar Two Initiative, will be introduced. A domestic company belonging to a specified Multinational Enterprise (MNE) will be imposed top-up tax in respect of the low taxed income of a constituent entity and subject to a 15 % global minimum tax across all territories.
The specified MNE means that it has gross revenues equivalent to EUR 750 million (about 110 billion yen) or more in at least two of the four fiscal years immediately preceding the target fiscal year.
The filing and payment due date is within 15 months (18 months in certain cases) from the day after the last day of each fiscal year. However, filing is not required if there is no global tax minimum amount of the target fiscal year.
In addition, a new reporting system will be introduced. Certain information related to the specified MNEs should be provided to the tax authority in English via e-Tax.
This rule will be applicable from a domestic company’s fiscal years beginning on or after 1 April, 2024.
3. Revision for CFC Rules
Considering the administrative burden caused by the introduction of a global minimum tax on applicable domestic companies, the Japanese Controlled Foreign Company Rules (the CFC Rules) will be simplified.
In detail, the effective tax rate of specified subsidiaries for exempting the CFC Rules will be lowered to 27% or more (the current rate is 30% or more).
Certain documents required to specified subsidiaries subject to partially CFC Rules will not be required to attach to tax returns and just preserved instead. In addition, the documents related to the shareholders of specified subsidiaries will only be substituted by a diagram.
This rule will be applicable from a domestic company’s fiscal years beginning on or after 1 April, 2024.
4. Conclusion
In this News, we mentioned “the 2023 Tax Reform Proposals.” In order to address tax challenges arising from the digitalization of the economy, it is expected to set new rules or revise current rules related to international taxation. Companies expanding their businesses overseas should keep attention to the information of international tax revisions.
Please note that this News only introduces general outlines and does not include professional advice. So please make sure not to make any decisions without taking professional advice individually. If you have any questions, please feel free to contact us.
(Reference / in Japanese)
2023 Tax Reform Proposals
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