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The 2011 tax reform proposals submitted by the Cabinet Office’s Tax Commission, known as Taiko, (“2011 Tax Reform Proposal”) were released on December 16, 2010, when it was approved by the cabinet. These proposals will now be submitted to the lower house of Parliament (Diet) for consideration and review. The 2011 Tax Reform Proposal is not law and may change upon public and parliamentary review and discussion.
Highlights of the 2011 Tax Reform Proposal for corporate taxpayers in particular include:
- Reduction in corporate effective tax rates by approximately 5% from a headline rate of 40% to 35%;
- Limitation of the use of net operating loss carry-forwards to 80% of taxable income; and
- Increase in the current seven (7) years loss expiry period to nine (9) years.
The reduction in corporate tax rates and limitation of the use of net operating loss carry-forwards are applicable for the fiscal years beginning on or after April 1, 2011.
