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The tax panel of the ruling Liberal Democratic Party plans to introduce a consolidated corporate tax system in fiscal 2002 to help companies restructure, panel sources said Sunday.

The LDP’s Tax Research Commission plans to incorporate the scheme in a package of tax reforms for fiscal 2001 to be proposed in December, the sources said.

A consolidated corporate tax system is considered indispensable for a holding company-based business that wants to streamline, and many companies are being encouraged to adopt the new system and a holding company structure so they can enjoy the enhanced competitiveness and tax breaks that such a tax system will afford them, the sources said.

Under a consolidated corporate tax system, a company and its subsidiaries are treated as a unit and profits and losses are offset within the group for tax purposes.

If a parent company is in the black and its subsidiary in the red, the group’s tax burden will be lighter than with under the current tax system.

The LDP is urging large businesses to manage themselves under a holding company system in order to become become more competitive, and a consolidated corporate tax system is viewed as indispensable for that purpose.

The ban on holding companies was lifted in 1997.

The panel originally wanted the new system to begin in fiscal 2001, on April 1 that year, but postponed it to place priority on tax breaks aimed at encouraging companies to spin off operations.

The Tax Commission, an advisory panel to the prime minister, and the Finance Ministry are already working on plans for a system that would tax parent companies and their wholly owned or domestic subsidiaries on a consolidated basis.

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