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The Japanese government is considering extending beyond fiscal 2021 tax breaks for companies acquiring equity stakes in startups with cutting-edge technologies and innovative ideas that can be used in the digital and other growth fields.

The move is aimed at supporting companies that are accelerating cross-industry cooperation as part of efforts to cope with changes in society brought by the coronavirus crisis and to contribute to decarbonization.

The planned extension is expected to be a focal point of discussions on the fiscal 2022 tax system reform package, to be held by the Liberal Democratic Party-led ruling bloc late this year.

The tax-relief program allows companies to deduct from their taxable incomes 25% of the amounts of their share purchases in startup companies for business tie-up and other purposes.

Those eligible for the tax deduction are large companies that buy ¥100 million or more in startup shares and smaller businesses investing ¥10 million or more.

The program, introduced in fiscal 2020 as a two-year temporary measure, is set to expire at the March 2022 end of the current fiscal year.

It was described as a rare measure in the fiscal 2020 tax reform package, due to many people being cautious about giving tax breaks for companies’ share purchases.

According to the industry ministry, tax breaks have been given to over 100 cases under the program, including one in which an auto parts maker looking for new business partners made an investment in an aerospace startup for business cooperation.

Meanwhile, startups are sometimes cautious about receiving large-scale capital injections due to concern over losing control of their operations.

Some startups have been calling for lowering the minimum amount of share purchases needed for large companies to be eligible for the tax breaks from the current ¥100 million so that they can get smaller amounts of investment from large businesses.

The industry ministry plans to include the extension of the tax breaks in its fiscal 2022 tax system reform requests to be compiled at the end of August. It is also considering expanding the scope of companies eligible for the preferential tax treatment.

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