Global Tax Alert | 16 December 2013

Japan releases 2014 Tax Reform Outline

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Corporate tax

An early repeal of the special reconstruction surtax by one year was finalized.2

50% of entertainment expenses related to meals (excluding internal entertainment) will be deductible (currently 100% non-deductible). SMEs3 can choose either the 50% deduction or the current fixed deduction of JPY8 million (US$80 thousand).

Suspended net operating loss carry back rules applicable to large corporations will be extended for an additional two-year period.

A suspended application of a capital gains surtax derived from a land transfer will be extended to 31 March, 2017.

New tax incentives (i.e., special bonus depreciation, tax credit) for acquisitions of machinery in a zone that will be designated as a National Strategic Special Zone will be introduced.

Consumption tax

A reduced tax rate for certain consumable items will be implemented on or after the standard rate reaches 10%, provided that necessary revenues are secured and such reduction is acceptable to enterprises. The coalition leading parties' tax system council will continue to discuss details on implementation of the reduced tax rate and will reach a conclusion by December 2014, which will be included in leading parties' tax reform outline.

Concrete measures of levying consumption tax on cross border digital economy services will be discussed towards the 2015 tax reform.

International taxation

The basic principle of taxation on nonresidents/foreign corporations will be changed from the current ”force of attraction principle” to an ”attributable income principle” that is in line with the Authorized OECD Approach by amending the current tax law to reflect this change. This tax reform will be applied to corporations for taxable years beginning on or after 1 April 2016.

An indirect service transaction with a related party through an unrelated party will be included in the scope of the transfer pricing regime.


1. For those included in the October Outline, see EY Global Tax Alert, Japan's tax reform outline announced, dated 4 October 2013.

2. For details, see EY Global Tax Alert, Japan reduces corporate tax rate, dated 3 December 2013.

3. SMEs are generally defined as an entity with capital of JPY 100million (US$1 million) or less. An entity that is wholly owned by a shareholder whose capital amount is JPY500 million (US$5 million) or more is excluded from SMEs.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Shinnihon Tax, Tokyo
  • Emi Kono
    +81 3 3506 2182
  • Hiroyuki Nishida
    +81 3 3506 2026
Ernst & Young LLP, Japanese Desk, New York
  • Kojiro Oka
    +1 212 773 0228
Ernst & Young LLP, Asia Pacific Business Group, New York
  • Chris Finnerty
    +1 212 773 7479
  • Jeff Hongo
    +1 212 773 6143
  • Kaz Parsch
    +1 212 773 7201
  • Bee-Khun Yap
    +1 212 773 1816

EYG no. CM4040