Disclosure Requirements - Japan

05.05.2015

Disclosure Category: 1

Background and legal basis

There are several types of requested disclosure to be borne by different categories of persons under the following Japanese legal basis:

  • The Business Regulations Concerning Book-Entry Transfer of Stocks etc., enacted on 15 August 2008 (BRCBETS);
  • The Business Regulations Relating to Corporate Bonds etc., enacted on
    5 January 2009 (BRRCB);
  • Bank of Japan Regulations Concerning the JGB Book-Entry System, enacted on 27 January 2003 (BOJ JGB);
  • The Foreign Exchange and Foreign Trade Law, enacted on
    1 December 1949 (FEFTL);
  • The Financial Instruments and Exchange Law, enacted on 13 April 1948 (FIEL);
  • Act on Special Measures concerning Taxation, enacted on 31 March 1957 (ASMCT);
  • The Ministerial Ordinance for the Implementation of the Law concerning the Special Measures of Income Tax Law, the Corporation Tax Law and the Local Tax Law for the Enforcement of Income Tax and Special Income Tax Reconstruction under the provisions of the Income Tax Convention, enacted on 17 June 1969 (the Ministerial Ordinance);
  • The Income Tax Law, enacted on 31 March 1965 (Tax law).

Consent

To comply with the legislation, customers entering into transactions in the Japanese domestic market must consent and are hereby deemed to consent to the required amendments entered into force after legal disclosure. Such consent includes the appointment of the requestor (for example, the Japanese Securities Depository Centre, the issuer or its agent) as attorney-in-fact of such customers, under power of attorney to collect the required information to be disclosed from CBL.

Customers not willing to give this consent cannot hold such securities and/or financial instruments in their account with CBL.

Disclosure Requirements

Quarterly Report

The Bank of Japan requires a quarterly reporting of information about settlement activities for Japanese Government Bonds (JGBs) at the CBL account level.

The following information must be provided by CBL to the Bank of Japan:

  • The total number of institutions holding JGBs with CBL (Designated Financial Institution (DFI), Foreign Indirect Participant (FIP) and non- Foreign Indirect Participant (non-FIP));
  • The number of each type of institution (DFI, FIP and non-FIP);
  • The total outstanding value of JGBs held with CBL;
  • The outstanding value of JGBs held by each type of institution (DFI, FIP and non-FIP);
  • The total volume and value of JGB settlements;
  • The volume and value of each type of JGB settlement (external, internal and Bridge settlements; against payment and free of payment settlements related to securities lending and borrowing and settlements by Japanese participants).

Based on BRCBETS, Article 25, para 11, the Japan Securities Depository Centre (JASDEC) as central securities depository has the right to request disclosure of shareholder information from CBL’s local depository.

The disclosure obligation falls on the account holder (in this case, CBL) and therefore disclosure will not be made at CBL customer level.

Tax Disclosure Requirement

CBL is required to disclose information about the beneficial owners  who have received tax benefits on income payments from Japanese  Government Bonds (JGBs), Japanese Corporate Bonds (JCBs), Japanese Municipal Bonds (JMBs), Japanese Convertible Bonds (JVBs) and listed equities to the local tax authorities (Nihonbashi Tax Office - NTO).

a) Special Notification Report (Tokurei hokoku)

According to  Article 2 paragraph 17 of the Ministerial Ordinance, CBL must disclose to the NTO, on a monthly basis, the following information in relation to beneficial owners who achieved Double Taxation Treaty benefits on dividend payments arising from listed equities: 

  1. Name of end-investor (including classification of individual or corporate);
  2. Address of end-investor;
  3. Payment date;
  4. Security name or ISIN (including the issuer's address);
  5. Gross amount;
  6. Tax amount;
  7. Tax ID (if any);
  8. Country name of the DTT, Article and Paragraph for tax reduction or tax exemption;
  9. Tax Rate.

b) Income Payment report (Shiharai chosyo)

According to  Article 225 paragraph 1-1 and 1-8 of the Tax law, CBL must disclose to the NTO, on a monthly basis for listed equities and on an annual basis for JGBs, JMBs, JCBs and JVBs, the following information in relation to beneficial owners who have received income payments (regardless of their tax status) on income payments from the above mentioned Japanese securities:

  1. Name of end-investor (including classification of individual or corporate);
  2. Address of end-investor;
  3. Payment date;
  4. Security name or ISIN;
  5. Gross amount;
  6. Tax amount;
  7. Tax Status (whether DTT rates should apply or not - only required for interest payments). However, for payments for which no reduced tax rate is applied for, CBL's information is reported to the agent.

Threshold Crossing

Direct Investment Reporting

Under Articles 27 and 55-5 of the FEFTL, a foreign investor who has acquired 10% or more shares of a listed or unlisted company must file a report.

Even if the shareholding per beneficial owner does not exceed the threshold, foreign discretionary investment managers must file the report when an aggregate shareholding exceeds 10% of the issued shares of a listed company.

In principle, this report can be filed after the event, by the 15th of the following calendar month of the actual investment. However, if the company is in a certain industry (defence, nuclear etc.) or has investments from some countries (Iraq, North Korea etc.), prior approval from the competent authorities is required one month prior to the actual investment (the report can be accepted by the Bank of Japan six months before the actual investment).

Reports must be submitted to the Minister of Finance and other competent ministers via the Bank of Japan, normally through the local representative of the underlying investor.

Substantial Shareholding Disclosure

Under Article 27-23 of the FIEL, investors who beneficially and solely or jointly acquire more than 5% of the issued and outstanding shares (including any potential shares such as convertible bonds or bonds with warrants to subscribe for shares) of a domestic company listed on any of the Japanese stock exchanges (Tokyo, Nagoya, Fukuoka and Sapporo) must file a substantial shareholding report to the Financial Services Agency (FSA), via a local financial bureau, using the Electronic Disclosure for Investors' NETwork (EDINET) within five business days of the subject acquisition (that is,  trade date). A copy of the report should also be delivered to the issuing company.

The report should include  the following:

  • The percentage of shares owned;
  • The purpose of ownership;
  • The source and amount of the fund used for acquisition.

The substantial owner must also file an amendment report to the FSA, via a local financial bureau, using EDINET when its share ownership increases or decreases by 1% or any material changes in the disclosures made in the substantial shareholding report. Such amendment reports must be submitted within five days of the occurrence (that is, from the trade date).

The responsibility for reporting lies with the underlying investor.

Sanctions

a) Direct investment report

According to the FEFTL, non-compliance with this requirement can result in up to three years imprisonment and/or a fine of up to JPY 3 million.

b) Substantial shareholding disclosure requirements

  • Criminal penalty under the FIEL
    The criminal penalty for non-compliance is a fine of up to JPY 5 million and/or five years imprisonment for a non-corporate substantial shareholder and up to JPY 0.5 billion for a corporate substantial shareholder.
  • Administrative penalty under the FIEL
    In addition, the following administrative penalty is applicable for breach of the substantial shareholder's reporting: Market capitalisation of the subject issuer in JPY/JPY 100,000.
    The market capitalisation is determined by the closing price on the business day immediately after the deadline for submission of the substantial shareholder's report (that is, the closing price six business days after the trade date). The above administrative penalty is applied to both non-corporate substantial shareholder and corporate substantial shareholder.

If the person self-declares the non-compliance to the authorities, the above administrative penalty may be reduced by half. On the other hand, if the person repeats the non-compliance, the administrative penalty will be increased up to 150% of the standard penalty.