Japan to tighten taxation rules on overseas dummy companies

Kyodo

The government will tighten taxation rules on dummy companies set up in foreign countries with low corporate tax rates in order to prevent tax avoidance, government sources said.

The new taxation rules call for imposing the nation’s corporate tax rate on dummy corporations overseas regardless of tax rates adopted by local governments, with an eye to adopting the measures in tax system revisions for fiscal 2017, the sources said Tuesday.

The move comes as an increasing number of countries have agreed to adopt tougher international tax rules amid growing public criticism against tax avoidance following the so-called Panama Papers revelations.

Under the current tax system, the government imposes its corporate tax rate, which is currently 29.97 percent, on the combined income of a parent firm and its overseas subsidiaries if they are set up in countries with corporate tax rates of less than 20 percent and deemed dummy companies.

If the subsidiaries are located in such countries as China and Malaysia, which impose corporate tax rates of 20 percent or higher, local corporate tax rules are adopted except on the income from stock dividends, which is subject to Japanese tax.

As for tax revisions for fiscal 2018, the government also plans to oblige financial experts to report to the tax authorities how they advised individuals and firms to avoid taxes and punish them if misconduct is found, the sources said.