TMK structures – media coverage and potential future tax changes

Japan Tax Newsletter – 24 July 2025

A recent article in the Nikkei discusses “TMK” structures under the Singapore treaty, claiming that these have been utilized by foreign investors to reduce their Japanese tax liabilities, and raising questions about whether this could be challenged by the Japanese tax authorities or the Ministry of Finance.

TMK stands for Tokutei Mokuteki Kaisha, which translates as Special Purpose Company. TMKs are commonly utilized in real estate investments in Japan. As a Japanese domestic company, a TMK is subject to Japanese corporate income taxes. However, if a TMK satisfies certain requirements, the dividends paid to its equity shareholders are deducted from its taxable income.

Summary of Key Points:

The article reports that foreign investors have utilized TMKs to invest in Japanese data centers, logistics hubs, and other real estate, subsequently moving the profits earned back to Singapore as TMK distributions.

As mentioned above, provided certain criteria are met, these distributions can be deducted from a TMK’s profit, effectively reducing its Japanese corporate income tax liability to a relatively low level. It is noted that dividends are typically taxed at approximately 20%; however, this rate is often reduced under bilateral tax treaties. The combination of the TMK corporate income taxes deduction and the treaty “loophole” is perceived as allowing foreign companies to “double dip” on tax breaks.

According to the Japanese tax authorities, approximately JPY 640 billion in TMK distributions were paid from TMKs to Singapore between 2020 and 2022. At the 5% rate stipulated in the bilateral treaty, this would result in around JPY 32 billion in taxes paid, while some estimates suggest that JPY 99 billion (approximately $690 million) in taxes that would have been paid under the usual 20% rate were “avoided.”

The Japanese Ministry of Finance has sought to prevent the obtaining of certain lower rates of withholding tax when negotiating new treaties or revising existing ones, advocating for profits exempt from domestic corporate income taxes to be excluded from such treaty benefits. This approach is now reflected in Japan’s treaties with Hong Kong, Germany, the U.S., and others.

While Japanese tax authorities considered ordering multiple TMKs that distributed profits to Singapore to pay taxes, they reportedly opted against this due to a perceived lack of malicious intent.

However, there are indications that the Japanese tax authorities may broaden their scrutiny of TMK structures, which could signal future legislative changes. Experts quoted in the article suggest that revisions to domestic tax laws or the Act on Securitization of Assets could be employed to close the loophole, especially given the slow progress in treaty renegotiations.

Further Context

The article reflects ongoing discourse surrounding TMK structures, including those related to so-called grandfathered TMKs, and their alignment with international tax policy. While no formal announcements have been made, the article may indicate a shift in regulatory direction.

We are closely monitoring developments and will keep you informed as more concrete information becomes available.

In the meantime, if you have any questions related to this development, please connect with EY Japan’s Inbound services team.

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