1. Introduction
According to the survey by National Tax Agency in 2013, the number of corporations ending fiscal year in March, is 507,523, which is19.6% of the total number of corporations of 2,590,950. This ratio is higher than any other months.

Therefore, in today’s column, we focus on the companies ending fiscal year in March and mention the following topics which may have an impact on filing corporate tax returns in FY 2014.

 ●　Abolishment of the special corporate tax for reconstruction one year ahead of

　　　schedule
 ●　Reforms in taxation on entertainment expenses
 ●　Enhancement of tax measures for promoting expansion of income

2. Abolishment of the special corporate tax for reconstruction one year ahead of schedule
Originally, an additional tax of 10% of corporation tax was planned to be imposed as special corporate tax for reconstruction for three years starting from fiscal year of 2012.

However, the special corporate tax for reconstruction has been abolished one year ahead of schedule.

Therefore, the effective tax rate will be changed from 38.01 % to 35.64% in case of the corporations located in Tokyo, whose capital amount is more than 100 million yen.

Before reform:
(Effective tax rate) =
(Corporation tax rate ✕ 1.1 + Corporation tax rate ✕ Corporate inhabitant tax rate + Business tax rate) / (1 + Business tax rate)
= (25.5% ✕ 1.1＋25.5% ✕ 20.7% + 7.55%) / (1＋7.55%)
≒ 38.01%

After reform:
(Effective tax rate) =
(Corporation tax rate + Corporation tax rate ✕ Corporate inhabitant tax rate + Business tax rate) / (1 + Business tax rate)
= (25.5%＋25.5% ✕ 20.7% + 7.55%) / (1＋7.55%)
≒ 35.64%

3. Reforms in taxation on entertainment expenses
Until FY2013, in principle, the amount of entertainment expenses shall not be included in gross expense in computing taxable income under corporation tax law.
For Small and medium-sized enterprises (“SMEs”(NOTE1)), the amount of entertainment expenses shall be included in gross expense in computing taxable income up to JPY 8 million, which is called lump sum deduction of JPY 8 million.

From FY2014, the period for applying taxation on social and entertainment expenses has been extended for two years and companies will be allowed to include 50% of their expenses for food and drinks in deductible expenses.
Please refer to the below (Table 1).
Also, SMEs may choose either of this tax reform and the current lump sum deduction of JPY 8 million.

Please refer to the below table.

(Table 1)

(NOTE1) SMEs means a corporation with an amount of stated capital or capital

　　　　　contributions of 100 million yen or less, but a subsidiary of a large-scale

　　　　　corporation (a corporation with the amount of stated capital or capital

　　　　　contributions of 500 million yen or more) shall be excluded from SMEs.

4. Enhancement of tax measures for promoting expansion of income

Until FY2013, if a company’s salary payment to employees was increased by 5%or more, compared with the base year, 10% of the increased amount of salary paid was credited against corporation tax.
But if the above credit amount exceeds 10% of the company’s corporation tax, it shall be limited to 10%of its corporation tax (20%, in case of small and medium-sized corporations (NOTE2).

From FY2014, the period of effect of this provision will be extended by two years with the following revisions.

(1) Requirement of employee paying remuneration growth rate (Current 5% increase)

　　　　(a) FY2013, 2014; 2% or more
　　　　(b) FY2015; 3% or more
　　　　(c) FY2016, 2017; 5% or more

(2) Requirement of average paying remuneration has been reformed from all

　　 employees to continuous employees. Also, the average payment remuneration

　　 shall exceed the compared average payment remuneration.

(NOTE2) A small and medium-sized businesses means a corporation with an amount

　　　　　 of stated capital or capital contributions of 100 million yen or less (excluding

　　　　　 a subsidiary of a large-scale corporation), or a corporation without capital

　　　　　 and with full-time employees of 1,000 persons or less.

5. Conclusion

We are deeply grateful if you could read through our second column, “Points of Attention in FY2014”.
The above reforms are aimed for enhancing consumption and income of both companies and individuals.
The information contained herein is general and not intended to address the circumstances of any particular individuals or entities. Although we try to provide accurate information at this time, there is no guarantee that such information is effective as of the date it is received or in the future. Therefore, please don’t make any judgment without any advice from professionals.

If you have any further questions, please feel free to contact us.

(Reference)

●Ministry of Finance Japan, n.d. “FY2014 Tax Reform (Main Points)” <http://www.mof.go.jp/english/tax_policy/tax_reform/fy2014/tax2014a.pdf> (2015/3/3)

●Y. Gomi and T. Honjo (2014) “2014 CORPORATION TAX ACT of Japan” <http://www.sozeishiryokan.or.jp/corporation_tax/corporation_tax2014e.html> (2015/3/3)

●Y. Gomi and T. Honjo (2013) “2013 CORPORATION TAX ACT of Japan” <http://www.sozeishiryokan.or.jp/corporation_tax/corporation_tax2013e.html> (2015/3/3/)

●National Tax Agency (2013) “Tax Statistics” <https://www.nta.go.jp/kohyo/tokei/kokuzeicho/hojin2013/pdf/04_hojinsu.pdf> (2015/3/5)