Order for Enforcement of the Income Tax Act

With respect to a Depreciable Asset that a Resident has put to use for business that is to generate real property income, business income, timber income or miscellaneous income (excluding those set forth in Article 120, paragraph (1), item (vi) and Article 120-2, paragraph (1), item (vi) (Methods of Depreciation of Depreciable Assets)) whose acquisition price (meaning the price calculated in accordance with the provisions of the items of Article 126, paragraph (1) or paragraph (2) (Acquisition Price of Depreciable Assets); the same applies in paragraph (1) of the following Article) is less than 100,000 yen (excluding one put to use for leasing (excluding leasing conducted as a principal business)), or whose usable period prescribed in Article 181, item (i) (Capital Expenditure) is less than one year, notwithstanding the provisions of Subsection 4 (Depreciation of Depreciable Assets), the amount equivalent to its acquisition price is included in necessary expenses in calculating the Resident's amount of real property income, amount of business income, amount of timber income or amount of miscellaneous income for the year in which the Resident put it to use for that business.

The determination of whether leasing falls under leasing conducted as a principal business prescribed in the preceding paragraph and other matters necessary for the application of the provisions of that paragraph are specified by Ministry of Finance Order.

With respect to a Depreciable Asset that a Resident has put to use for business that is to generate real property income, business income, timber income or miscellaneous income and whose acquisition price is less than 200,000 yen (excluding those set forth in Article 120, paragraph (1), item (vi) and Article 120-2, paragraph (1), item (vi) (Methods of Depreciation of Depreciable Assets) and those to which the provisions of paragraph (1) of the preceding Article apply; hereinafter in this paragraph referred to as "covered assets"), where the Resident has chosen the method of treating the sum of the acquisition prices of the whole, or of a specified part, of those covered assets (excluding those put to use for leasing (excluding leasing conducted as a principal business)) bundled together (hereinafter in this paragraph and the following paragraph referred to as "lump-sum Depreciable Assets") as the amount of expenses for each year of the three years beginning with the year in which they were put to use for that business, the amount to be included in necessary expenses for those lump-sum Depreciable Assets in calculating the amount of real property income, amount of business income, amount of timber income or amount of miscellaneous income for each of those years is, notwithstanding the provisions of Subsection 4 (Depreciation of Depreciable Assets), the amount calculated by dividing the sum of the acquisition prices of those lump-sum Depreciable Assets (referred to in the following two paragraphs as the "amount subject to lump-sum depreciation") by three.

The provisions of the preceding paragraph apply only where a document stating the amount subject to lump-sum depreciation is attached to the Tax Return for the year that includes the day on which the lump-sum depreciable assets were put to use for business, and the documents pertaining to its calculation are retained.

A Resident who has, in that year, an amount included in necessary expenses with respect to the amount subject to lump-sum depreciation must attach to the Tax Return for that year a detailed statement concerning the calculation of the amount to be included in necessary expenses under the provisions of paragraph (1).

In addition to what is provided for in the preceding two paragraphs, the determination of whether leasing falls under leasing conducted as a principal business prescribed in paragraph (1) and other matters necessary for the application of the provisions of that paragraph are specified by Ministry of Finance Order.

With respect to the expenses set forth in Article 7, paragraph (1), item (iii) (Scope of Deferred Assets) that a Resident pays, where the amount paid is less than 200,000 yen, notwithstanding the provisions of the preceding Subsection (Depreciation of Deferred Assets), the amount equivalent to the amount paid is included in necessary expenses in calculating the Resident's amount of real property income, amount of business income, amount of timber income or amount of miscellaneous income for the year that includes the day of payment.

The assets specified by Cabinet Order prescribed in Article 51, paragraph (1) (Inclusion of Losses on Assets in Necessary Expenses) of the Act are the portion not yet included in necessary expenses of Deferred Assets pertaining to business that is to generate real property income, business income or timber income.

The grounds specified by Cabinet Order prescribed in Article 51, paragraph (2) (Inclusion of Losses on Assets in Necessary Expenses) of the Act are the following grounds that have arisen in the course of conducting a business that gives rise to real property income, business income, or timber income.

Revenue has been reduced due to the return of, or a discount on, products sold (including acts similar to these);

It has become impossible to exercise all or part of a right of reimbursement accompanying the performance of a guarantee obligation;

An economic result arising from a void act included among the events that formed the basis for calculating the amount of real property income, amount of business income, or amount of timber income has been lost on the basis of the voidness of that act, or an act that may be rescinded and that was included among those events has been rescinded.

The value of an asset set out in each of the following items, which serves as the basis for calculating the amount of losses prescribed in Article 51, paragraph (1), (3), or (4) (Inclusion of Losses on Assets in Necessary Expenses) of the Act that have arisen with respect to that asset, is the amount set out in that item.

Fixed Assets: the amount equivalent to the amount that would be treated as the acquisition cost of the asset if the asset were deemed to have been the subject of a transfer of assets on the date on which the loss arose and the provisions of Article 38, paragraph (1) or (2) (Acquisition Costs Deducted to Calculate Capital Gains) of the Act were applied;

Timberland: the amount of planting costs, expenses required for acquisition, management costs, and other expenses required for the cultivation of that timberland that were paid by the date on which the loss arose;

Deferred Assets: the amount obtained by deducting, from the amount of the Deferred Asset, the cumulative amount of the amounts that are included in necessary expenses, as the depreciation allowance for it pursuant to Article 50 (Calculating Depreciation Allowances for Deferred Assets; Depreciation Methods) of the Act, in calculating the amount of real property income, amount of business income, amount of timber income, or amount of miscellaneous income for each year on or before the year that includes the date on which the loss arose.

The value of an asset set out in each of the following items, which serves as the basis for calculating the amount of losses prescribed in Article 51, paragraph (1), (3), or (4) (Inclusion of Losses on Assets in Necessary Expenses) of the Act that have arisen with respect to that asset, is, notwithstanding the provisions of items (i) and (ii) of the preceding Article, the amount set out in that item.

Fixed Assets that have been owned continuously since on or before December 31, 1952: the amount equivalent to the amount that would be treated as the acquisition cost of the asset if the asset were deemed to have been the subject of a transfer of assets on the date on which the loss arose and the provisions of Article 61, paragraph (2) or (3) (Acquisition Cost of Assets Acquired on or Before December 31, 1952) of the Act were applied;

Timberland that has been owned continuously since on or before December 31, 1952: the sum of the amount equivalent to the value of that timberland on January 1, 1953, calculated pursuant to Article 171 (Acquisition Cost of Timberland Acquired on or Before December 31, 1952), and the amount of management costs and other expenses required for the cultivation of that timberland that were paid between that date and the date on which the loss arose.

The events specified by Cabinet Order prescribed in Article 52, paragraph (1) (Bad Debt Reserves) of the Act are the events set out in the following items, and the amount calculated as provided by Cabinet Order prescribed in that paragraph is the amount specified in each of the following items for the category of events set out in that item.

The event that, for lendings and other claims (meaning lendings and other claims prescribed in Article 52, paragraph (1) of the Act; the same applies hereinafter in this Article) that a Resident prescribed in that paragraph holds on December 31 of that year (where the Resident dies in the course of the year, at the time of death; the same applies hereinafter in this paragraph), repayment has been deferred, or is to be made in installments, on the basis of any of the following grounds that have arisen with respect to the debtor pertaining to those lendings and other claims: the amount of those lendings and other claims other than the amount that is to be repaid by the day on which five years elapse from January 1 of the year following the year that includes the date on which those grounds arose (excluding the amount of a portion for which collection or repayment (hereinafter in this paragraph referred to as "collection, etc.") is found to be expected through the exercise of a security interest or otherwise):

a decision to authorize a reorganization plan;

a decision to authorize a rehabilitation plan;

a decision to authorize an arrangement in special liquidation;

the occurrence of an event prescribed in Article 24-2, paragraph (1) (Events Equivalent to a Decision to Authorize a Rehabilitation Plan, etc.) of the Order for the Enforcement of the Corporation Tax Act;

grounds specified by Ministry of Finance Order as equivalent to the grounds set out in (a) through (c);

The event that, with regard to the debtor pertaining to lendings and other claims that a Resident prescribed in Article 52, paragraph (1) of the Act holds on December 31 of that year, collection, etc. of part of the amount of those lendings and other claims is found not to be expected due to a state of insolvency having continued for a considerable period and there being no prospect of improvement in the business the debtor conducts, great damage having arisen from a Disaster, a sudden change in economic conditions, or the like, or other grounds (excluding the case where the event set out in the preceding item has arisen with respect to those lendings and other claims): the amount equivalent to that part of the amount;

The event that the following grounds have arisen with respect to the debtor pertaining to lendings and other claims that a Resident prescribed in Article 52, paragraph (1) of the Act holds on December 31 of that year (excluding the case where the event set out in item (i) has arisen with respect to those lendings and other claims, and the case where the provisions of that paragraph have been applied because the event set out in the preceding item has arisen): the amount equivalent to 50 percent of the amount of those lendings and other claims (excluding, from that amount, the amount of the portion that is not substantially regarded as a claim because there is an amount received from that debtor, and the amount of the portion for which collection, etc. is found to be expected through the exercise of a security interest, the performance of a guarantee obligation by a financial institution or guarantee agency, or otherwise):

a petition for commencement of reorganization proceedings;

a petition for commencement of rehabilitation proceedings;

a petition to commence bankruptcy proceedings;

a petition for commencement of special liquidation;

grounds specified by Ministry of Finance Order as equivalent to the grounds set out in (a) through (d);

the event that, owing to long-term default in the performance of obligations by a foreign government, central bank or local government that is the debtor with respect to the lendings and other claims held, as of December 31 of that year, by a Resident referred to in Article 52, paragraph (1) of the Act, the economic value of those lendings and other claims has significantly decreased and it is found to be extremely difficult to receive repayment: the amount equivalent to 50 percent of the amount of those lendings and other claims (excluding, out of the amount of those lendings and other claims, the amount of the portion that is not substantially regarded as a claim because of amounts received from those persons and the amount of the portion for which collection, etc. is found to be expected through performance of a guarantee obligation or otherwise).

Even where the events set forth in the items of the preceding paragraph have occurred with respect to lendings and other claims held by a Resident, if documents certifying that those events have occurred and other documents specified by Ministry of Finance Order have not been retained, those events are deemed not to have occurred for the purpose of the application of the provisions of that paragraph to those lendings and other claims.

Even where the documents prescribed in the preceding paragraph have not been retained, if the district director finds that there were unavoidable circumstances for the failure to retain those documents, the district director may refrain from applying the provisions of that paragraph to the amount pertaining to the lendings and other claims for which the documents were not retained.