2020 Japan tax reform outline

Japan tax alert 13 February 2020

The ruling parties (a coalition comprised of the Liberal Democratic Party and Komeito) released an outline of the 2020 tax reforms (hereinafter, "Outline") on 12 December 2019. This newsletter provides an overview of the major amendments and revisions contained in the outline.

The Abe Cabinet continues to implement initiatives to overcome deflation based on the policy that economic revitalization is essential to ensuring the nation's fiscal health.
Tax regulations are deeply connected to the state of the economy and society. A major challenge for the 2020 tax reforms is the establishment of tax regulations that are adapted to the structural changes underway, such as the digitalization of the economy, and which simultaneously contribute to the sustainable growth of the Japanese economy.

As part of the corporate tax measures aimed at encouraging business innovation and increasing the international competitiveness of Japanese companies, new tax rules will be introduced to support companies' open innovation initiatives and to encourage investment in 5G infrastructure. Furthermore, the consolidated taxation regime has been fundamentally revised for the first time since its introduction, and will be replaced by a new group profit and loss sharing regime in April 2022.

Another challenge is preparing tax regulations which meet the needs of an aging population of 100-year lifespans and low birth rates and the diversification of work-styles.

However, these reforms will contain no major revisions to individual and asset-related tax regulations, in part due to the increase of the consumption tax rate in October 2019.

Furthermore, the reviews of international tax rules underway at the OECD are mentioned in the preamble to the Outline (Fundamental Concepts of the 2020 Tax Reform). The Outline provides clarification concerning the five perspectives Japan is to utilize when participating in such discussions, and exhorts the government to ensure the influence of those concepts by leading the international debate.

Please note that the contents of this newsletter may be partially revised, deleted or added to in response to future Diet deliberations on the reform bill.