The Tokyo Metropolitan Government and major banks are close to sealing an out-of-court settlement that would end a three-year feud over a controversial tax, the banks and metro officials said Friday.

The fifteen banks said they would be willing to settle if the metro government would reduce its flat 3 percent tax on banks’ gross operating profits to 0.9 percent.

Under the deal being mapped out, banks would receive a much-needed refund of 220 billion yen out of the 320 billion yen they have paid since the tax was imposed in fiscal 2000.

The cash-strapped metro government meanwhile retains 100 billion yen and can “save face” as Gov. Shintaro Ishihara’s most radical move remains valid.

A final decision could come Wednesday.

Despite his strong rhetoric, the metro governor had little hope the Supreme Court would rule entirely in its favor, an official close to Ishihara said.

The group of 15 banks had won an outright victory from the Tokyo District Court and had won a ruling declaring the tax rate “unfairly high” at the High Court. Losing a third and final time at the Supreme Court would have delivered a heavy blow to the city’s coffers.

The metro government estimates a shortfall of 350 billion yen to 370 billion yen every year from 2004 and 2006. Settling at 0.9 percent would mean additional taxes of roughly 300 billion yen during those years.

Meanwhile, the banks’ suit was costing banks legal fees estimated in the high tens of billions of yen.

With pressure from financial regulators to clean up their books, the extra cash would help the banks in a fiscal year that could determine whether some of them sink or fail.

There are other reasons for both sides to compromise.

“The bank tax made banks realize how much the public hated them,” said a Tokyo metro official. “Banks are afraid of Ishihara stirring up that resentment again.”

The passage of the bank tax in 2000 had come with cheers from the Japanese public. Many still resent the injection of public money into banks without top bankers taking responsibility and the supposed high salaries received by bank employees.

After losing the two court cases, the metro government in July offered a settlement that would have reduced the tax rate to 1 percent from 3 percent.

The levy was originally proposed by Ishihara to raise revenue for the nation’s capital during the prolonged recession.

The Tokyo government has argued that major banks with 5 trillion yen in total assets should pay for the administrative services they enjoy instead of claiming losses from problem loan disposal.

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