Japan: FSA publishes an outline of the 2012 Tax Reform Plan
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The Japanese Financial Services Agency (FSA) has published proposals for the 2012 Tax Reform Plan.
The final plan is expected later this year.
Tax Reform Plans submitted by ministries/government agencies are usually finalised by the end of the year and submitted to the Diet in January of the following year. If approved, the annual tax reform plan will generally become effective from early the following April.
Subject to approval by the national Diet early in 2012, the proposal would have the following impact:
Tax exemption on interest arising from profit-linked bonds (known as Japanese revenue bonds) issued by public corporations
Since the extended tax exemption scheme (locally known as J-BIEM) was introduced in 2010, interest income paid on profit-linked bonds has been excluded from J-BIEM and interest income on such bonds is therefore subject to relevant withholding tax. To attract investment from foreign investors and to facilitate fund raising by issuance of profit-linked bonds, the FSA has proposed to extend tax exemption to interest income on profit-linked bonds issued by public corporations.
Public corporations are generally defined as the entities owned by municipalities. Interest from profit-linked bonds is typically linked to issuers’ profits.
Expansion of financial instruments eligible for offsetting capital loss etc.
Currently, interest income from fixed-income instruments is not allowed to offset capital loss. The FSA has proposed to include such instruments to remain consistent with other markets.
This item also includes review of the current tax exemption scheme whereby eligibility of tax exemption would be determined by the tax status of the bond holder as of record date. Target implementation is currently set for 2014.
At present, interest is paid on a tax exempt basis only for clean (tax exempt) bonds, or tax exemption is only applicable to interest payments for dirty (taxable) bonds during the period in which tax exempt eligible foreign investors hold such bonds.