Japan: Anti-tax haven (CFC) proposals in 2017 tax reform

Japan: Anti-tax haven proposals in 2017 tax reform

The ruling coalition (the Liberal Democratic Party and New Komeito) on 8 December 2016 agreed on an outline of 2017 tax reform proposals, among which are proposed amendments to the Japanese anti-tax haven (CFC) regime.

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Under the proposed 2017 tax reform, the Japanese CFC regime would be extensively amended in light of the final report and recommendations made under the base erosion and profit shifting (BEPS) Action 3 (Designing effective controlled foreign company rules).

For instance, the rules providing that the CFC regime applies only to a foreign related company that has an effective income tax rate of less than 20% would be repealed. Also, it would be proposed that a foreign related company that has an effective income tax rate of 20% or more would be subject to the CFC regime when it is one of three types of companies—a "paper company," a "cash box" or a "black-list company.” Further, there are proposals to establish a threshold test of 30%. 

The proposal currently is in outline format, and is currently unclear with respect to some of the contemplated changes. The details of the tax reform measures themselves will be revealed in the bills to revise the tax laws and in the succeeding amended tax laws, cabinet orders, and ministerial ordinances. 

 

Read a December 2016 report [PDF 273 KB] prepared by the KPMG member firm in Japan: 2017 Tax Reform

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