1. Introduction
On 14 December 2018, the ruling coalition party (the Liberal Democratic Party and New Komeito) released the 2019 Tax Reform Proposals (“Proposals”), and the Cabinet approved the Proposals on 21 December 2019.
In this News, among the contents of the Proposals, we will focus on the revision of the scope of deemed large-scale companies under the Special Taxation Measures Law.

2. Current scope of deemed large-scale companies
Under the current Special Taxation Measures Law, the preferential tax treatment for small and medium sized enterprises (SMEs) is limited to certain small and medium sized companies.  Companies with stated capital of JPY100 million or less categorized in (*1) are deemed as large-scale companies and not eligible for tax incentives under the Special Taxation Measures Law.

(*1) Deemed large-scale company
・50% or more of the shares are directly held by a large-scale company (*2): or
・Two thirds or more of the shares are directly held by multiple large-scale companies (*2)

(*2) Large-scale company
・A company with stated capital exceeding JPY100 million
・A company with no capital whose number of regular employees exceeds 1,000

In other words, under the current Special Tax Measures Law, companies indirectly held by large-scale companies are treated as SMEs and qualify the special tax treatment.

3. New scope of deemed large-scale companies
Under the “Proposals,” the following companies will be added to the above-mentioned scope of large-scale companies. Therefore, second-tier subsidiaries of large companies will be excluded from the scope of SMEs.
・A company 100% of which is held by a large company (*3)
・A company 100% of which is held by multiple large companies (*3) in a 100% group

(*3) Large company
・A company whose stated capital is JPY500 million or more
・A mutual company or a foreign mutual company whose number of regular employees is over 1,000
・A trustee company pertaining to a corporate taxation trust

4. Conclusion
In this News, we mentioned “New Scope of Deemed Large-Scale Companies” in the Proposals.
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)
2019 Tax Reform Proposals