1.　Introduction
In Japan, every year in late June, you hear the news that hundreds of companies kick off their annual shareholder meetings each and every day. In most cases, these companies apply for the extension of filing due date of their final tax returns.
In this News, we will mention the special treatment for the extension of filing due date for corporation tax returns which was amended in the FY2017 Tax Reform.

2. Former treatment
Under the Japanese Corporation Tax Law, a company must file its corporate final tax returns based on the final settlement of accounts within two month after its fiscal year-end.
However, if the company appoints an financial auditor and cannot finalize the financial statements within two months after its fiscal year-end, a one-month (in case of consolidated tax filing, two-month) filing extension is allowed upon approval by the tax authority (i.e. tax return due within three months from its fiscal year-end).

3. FY2017 Tax Reform
From the application on or after 1 April, 2017, if a company meets both of the following, it is allowed to extend filing due date of its final returns up to a maximum period of six months from its fiscal year-end.

① A company appoints an external financial auditor, and
② A company is usually in a situation where the annual shareholder meeting for the final settlement of accounts is not convened within three months after its fiscal year-end due to a provision in its articles of incorporation.

The application should be submitted to the tax authority by the end of the relevant fiscal year. A company with the settlement of accounts in March may apply the new rule from the fiscal year ending March, 2018 at the earliest.
Likewise, an extension of filing due date will be allowed in local enterprise taxes.

4. Background of Reform
The timing of holding an annual shareholder meeting has a close relation to the tax filing due date, which is because the final corporation tax should be calculated based on the final settlement of accounts approved by the annual shareholder meeting.

Under the Companies Act, a company must hold an annual shareholder meeting within three months after the record date of an exercise of a voting right. In actual cases, companies match the closing date of financial accounts with the record date and hold an annual shareholder meeting within three months from the closing date. Since the Companies Act does not require a company to match the closing date with the record date, it is possible to set an annual shareholder meeting more flexibly. However, for instance, in case a company whose fiscal year ends in March intends to hold an annual shareholder meeting in July, there is a problem that its filing due date of corporation tax returns comes before the annual shareholder meeting (in May in principle, or in June if applying for extension).

The Japanese Government has been engaged in strengthening corporate governance. One of the efforts is that in this reform, a company can extend its filing due date of final corporation tax returns beyond three months from the closing date, aiming to promote constructive dialogues between companies and shareholders / investors.
Before the tax reform, most companies whose fiscal year ends in March held the annual shareholder meeting in late June (the filing due date of corporation tax returns).

With the application for the new rule, the company can extend its annual shareholder meeting until late September. The new rule is expected to decentralize annual shareholder meeting dates, and give sufficient time for preparing the disclosure of companies’ financial information and making dialogues between companies and shareholders / investors.

5. About SMEs and foreign companies
Before the Tax Reform, the Japanese Corporation Tax Law allowed a company to extend its tax filing due date “from the reason that the company has to be audited by an external auditor.” So, small and medium sized enterprises (SMEs) with no auditors applied a one-month tax filing extension from the Basic Interpretive Regulation under Corporation Tax Law. After the Reform, since the phrase, “from the reason that the company has to be audited by an external auditor” was deleted from Corporation Tax Law, SMEs can now apply its one-month extension in accordance with Corporation Tax Law by stating that “the annual shareholder meeting shall be convened within three months from the last day of each fiscal year.” in its articles of incorporation. As a result, in this reform, the treatment written in Basic Interpretive Regulations was stated explicitly as a rule set up under Corporation Tax Law.

Although the one-month extension does not change, it could be a good opportunity for SMEs to reconsider the filing due date.
In addition, although not included in this Tax Reform, the following companies are also eligible for a tax filing extension as companies with “special reasons.”

・A foreign company whose head office’s financial accounts is not settled within two months from its fiscal year-end
・A joint company (Goben-gaisha) which needs a certain time for settling its financial accounts due to the relations with its foreign shareholders

This tax reform would also give such companies a chance to reconsider their tax filing schedules.

6. Conclusion
Please be aware that the extension rule is limited to the filing due date of final corporate tax returns. There is no extension rule for the payment due date of corporation tax, etc. or filing due date of a consumption tax return.

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)
FY 2017 Tax Reform
http://www.meti.go.jp/main/zeisei/zeisei_fy2017/index.html
Accessed on 30 August, 2017