Treatment of Contribution in kind by foreign corporations in the Japanese Tax Reform Plan in 2011

According to Tax Reform Plan of 2011, the following items are to be enacted.

1. As for the requirements regarding deferral of taxation with regards to foreign corporation which own Japanese Branch etc., in transfer of assets, the requirements of "Business Continuation" and "Share Management" are to be annulled.

2. After the capital contribution in kind, if the company does not fill the requirements of "Business Continuation" and "Share Management", the taxation imposed on the capital is to be annulled.

The above is enacted from the case occurred after April 1, 2011.

If the foreign corporation which own Japanese branch etc., is to close its branch after the capital contribution which contain latent gain, if some conditions are to be met in order to be treated as eligible capital contribution in kind, its capital gain is to deferred and the eviction taxation will not be imposed.

On the other hand, if the foreign corporation is going to transfer abroad asset by capital contribution in kind to Japanese domestic corporation (e.g. 100% subsidiary of foreign corporation), it is to be regarded as nonqualified capital contribution in kind and proceeded by "actual values treatment".