News Details
2022.01.31
2022 Tax Reform Outlines -Special Provision for Book Value Reduction of Subsidiary Shares
1. Introduction
On 10 December, 2021, the ruling coalition parties released the summary of tax reform outlines for 2022. In this News, we will mention the amendments to the special provision for reduction of book values of shares in subsidiaries.
2. Special provision for reduction of book value of shares in subsidiaries
The special provision for reduction of book value of shares in subsidiaries was introduced in the 2020 tax reform, which prevents tax avoidance caused by the creation of capital losses from the transfer of subsidiary shares after receiving dividends from a subsidiary.
In detail, in cases where a company receives dividends which are over 10% of the book value of its subsidiary shares, the book value of its subsidiary shares is reduced by the amount equivalent to the portion of non-taxable dividend income.
On the other hand, the following exemption rules are applied to the special provision.
① Shareholding ratio by Japanese domestic shareholders
In cases where the subsidiary is an ordinary Japanese company with 90% or more of its total outstanding shares continuously held by ordinary Japanese companies or Japanese resident individuals, etc.
② Amount of retained earnings as of the specified control date (*)
In cases where the amount of retained earnings should meet the following condition.
｛(Amount of retained earnings of a subsidiary as of the latest fiscal year-ending before the resolution date for dividends) - (Total amount of dividends received by a parent company)｝≧ (Amount of retained earnings of a subsidiary with certain adjustments at the latest fiscal year-ending before the specified control date)
※ Specified control date
The date on which a Japanese company most recently became to control its subsidiary
③ Term of specified control relationship
In cases where dividends are paid on or after the day when 10 years have passed since a Japanese company most recently became to control its subsidiary.
④ Amount of dividends
In cases where the amount of received dividends is JPY 20 million or less.
3. Contents of amendments
In line with the 2022 tax reform, the following amendments will be applied to the special provision.
A. Amendment to the amount of retained earnings as of the specified control date
Under certain conditions, the amount of retained earnings during the period can be added as follows.
｛(Amount of retained earnings of a subsidiary as of the latest fiscal year-ending before the resolution date for dividends) + (Amount of retained earnings during the period) - (Total amount of dividends received by a parent company)｝≧ (Amount of retained earnings of a subsidiary with certain adjustments at the latest fiscal year ending before the specified control date) + (Amount of increased retained earnings during the period before the specified control)
B. Amendments to rules for preventing tax avoidance
Some rules for preventing tax avoidance due to the inappropriate use of exemption rules are provided in the special provision; however, under the 2022 tax reform, some of the relevant rules will not be applied.
4. Conclusion
We mentioned the amendments to the special provision for the book value reduction of subsidiary shares. 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)
Outline of the 2022 tax reform (in Japanese)
(Accessed on December 24, 2021)
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