Key Tax Accounting considerations of Japanese Corporate Tax Rate Reduction & Tax Base Broadening Provisions

| December 2011


On November 30, 2011, the House of Councillors passed the following bills, resulting in their being substantively enacted and enacted for IFRS and US GAAP respectively:

  • Special Measures to Secure the Financial Resources to Implement the Restoration from the Tohoku Earthquake (the "Restoration Funding Bill"); and
  • Amendment to the 2011 Tax Reform Bill (the "Re-revised Bill").

Included in the Restoration Funding Bill is the introduction of a 10% Japanese corporation tax surcharge ("Corporation Surtax") which will apply to the "base" corporation tax (i.e., the amount calculated before certain adjustments and credits) for three years beginning with fiscal years starting between April 1, 2012 and March 31, 2015.

Included in the Re-revised Bill are amendments to reduce the Japanese total corporate income tax rate of just over 40% by 4.5% (and reduce local taxes by approximately 0.5%) while also broadening the corporate tax base. The measures to broaden the tax base include the introduction of an 80% cap on current year NOL utilization, an extension of the NOL carry-forward period from seven to nine years for NOLs incurred in fiscal years ending on or after April 1, 2008 and other measures amending the rules on allowable depreciation and bad debt reserves. These amendments will take effect in fiscal years beginning on or after April 1, 2012.

This NewsAlert summarizes the potential tax accounting implications of these changes under US GAAP and IFRS. For more detailed information on the proposals, please see the linked PwC WNTS Asia Pacific Tax News Alert of December 12, 2011 on this topic.

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