TOKYO: Japan’s ruling coalition decided Monday to ease up on a policy taxing offshore shell companies domestically, allowing exemptions for companies that can show they are on the level. Japanese tax law currently imposes domestic taxes on overseas subsidiaries that do no real business and are located in jurisdictions with corporate tax rates under a certain threshold. The ruling Liberal Democratic Party and government had proposed reforms for fiscal 2017 that would raise this threshold to include all jurisdictions with a tax rate below Japan’s. However, voices in the business world objected that legitimate companies were being unfairly burdened. In response, new revisions to the fiscal 2017 reforms will exempt companies shown to perform real business from domestic taxes.
In many cases, companies establish subsidiaries in Hong Kong not to dodge taxes but to supply materials for mainland China manufacturing or processing plants, or to oversee operations at the facilities. Under the new revision, companies that can prove their “main role in contributing to manufacturing” will be freed from taxation in Japan. Taxing authorities and businesses have litigated over taxation practices under the current framework. Income from sources such as airplane leases is currently exempt from taxation, as are shell companies established for resource development — as long as they fulfill certain conditions.
