Order for Enforcement of the Income Tax Act

The amount calculated as provided by Cabinet Order prescribed in Article 52, paragraph (2) (Bad Debt Reserves) of the Act is the amount calculated by multiplying the sum of the book values of the collectively assessed loans (meaning the collectively assessed loans prescribed in that paragraph; the same applies hereinafter in this Article) held by a Resident referred to in that paragraph as of December 31 of that year (or, if the Resident dies in the middle of the year, at the time of death) (for a collectively assessed loan of which all or part is not substantially regarded as a claim because of an amount the Resident has received from the debtor pertaining to that collectively assessed loan, the remainder after deducting the amount equivalent to the portion not regarded as a claim; the same applies in the following paragraph) by the ratio specified in each of the following items according to which of the businesses set forth in those items the principal one of the businesses the Resident carries on that are to generate business income falls under.

a business other than the financial business: 55/1,000;

the financial business: 33/1,000.

For the calculation of the book value of the collectively assessed loans under the preceding paragraph, a Resident referred to in that paragraph who has continuously carried on business that is to generate business income since January 1, 2015 may, notwithstanding the provisions of that paragraph, treat the amount calculated by multiplying the amount of the collectively assessed loans as of December 31 of that year (or, if the Resident dies in the middle of the year, at the time of death) by the proportion that the sum of the amounts of the portion not regarded as a claim prescribed in that paragraph as of December 31 of each of the years 2015 and 2016 bears to the sum of the amounts of the collectively assessed loans as of December 31 of each of those years (where that proportion has a fraction below the third decimal place, it is rounded down) as the amount equivalent to the amount of the portion not regarded as a claim prescribed in that paragraph.

The case specified by Cabinet Order prescribed in Article 52, paragraph (2) (Bad Debt Reserves) of the Act is the case where, upon the death of a Resident referred to in that paragraph, none of the Resident's heirs is a person who has succeeded to the Resident's business prescribed in that paragraph and has obtained the district director's approval to submit a Blue Return for the income tax for the year that includes the day of death (including a person who has submitted the written application under Article 144 (Application for Approval to File a Blue Return) of the Act for that income tax).

Where a Resident referred to in Article 52, paragraph (1) or (2) (Bad Debt Reserves) of the Act dies and there is an amount of the reserve account for bad debts that has been included in necessary expenses under those provisions in calculating the amount of business income for the year that includes the day of the Resident's death, that amount of the reserve account for bad debts is to be included in gross revenue in calculating the amount of business income for that year of the heir specified in each of the following items according to the categories of the amount of the reserve account for bad debts set forth in those items.

the amount of the reserve account for bad debts that has been included in necessary expenses for that year under the provisions of Article 52, paragraph (1) of the Act: the heir, among the Resident's heirs, who has succeeded to the Resident's business prescribed in that paragraph;

the amount of the reserve account for bad debts that has been included in necessary expenses for that year under the provisions of Article 52, paragraph (2) of the Act: the heir, among the Resident's heirs, who has succeeded to the business prescribed in that paragraph and has obtained the district director's approval to submit a Blue Return for the income tax for the year that includes the day of death (including a person who has submitted the written application under Article 144 (Application for Approval to File a Blue Return) of the Act for that income tax).

The retirement allowance rules specified by Cabinet Order prescribed in Article 54, paragraph (1) (Reserves for Severance Packages) of the Act are the following rules:

rules on the payment of severance packages established by a collective agreement;

rules on the payment of severance packages established by rules of employment that have been notified to the relevant government agency pursuant to Article 89 (Duty to Prepare and Submit Rules of Employment) of the Labor Standards Act or Article 97, paragraph (2) (Preparation and Notification of Rules of Employment) of the Mariners Act;

rules on the payment of severance packages prepared by a Resident who is not subject to the application of Article 89 of the Labor Standards Act or Article 97 of the Mariners Act, where the Resident has notified those rules in advance to the competent district director with jurisdiction over the place for tax payment.

The amount calculated as provided by Cabinet Order prescribed in Article 54, paragraph (1) (Reserves for Severance Packages) of the Act is the lesser of the following amounts:

the amount obtained by deducting the amount set forth in (b) from the amount set forth in (a):

the sum of the amounts of severance packages calculated, on the assumption that all of the employees in service as of December 31 of that year (or, if a Resident referred to in Article 54, paragraph (1) of the Act dies in the middle of the year, at the time of death; the same applies hereinafter in this Article) retire on that day for personal reasons, under the retirement allowance rules prescribed in Article 54, paragraph (1) of the Act that are in effect for each employee as of that day (where, for the same employee, both the rules set forth in item (i) of the preceding Article and the rules set forth in item (ii) or (iii) of that Article apply, the rules set forth in item (i) of that Article; hereinafter in this Article through Article 158 referred to as "retirement allowance rules") (hereinafter in this Article referred to as the "year-end required retirement allowance payments");

the sum of the amounts of severance packages calculated, on the assumption that all of those among the employees prescribed in (a) who have been continuously in service since December 31 of the year preceding that year retire on that day for personal reasons, under the retirement allowance rules in effect for each employee as of that day (where no retirement allowance rules are in effect on that day, the retirement allowance rules first established thereafter);

the amount obtained by deducting, from the accumulated limit (meaning the amount equivalent to 20 percent of the year-end required retirement allowance payments; the same applies in paragraph (1) of the following Article), the amount of the severance package reserves account prescribed in Article 54, paragraph (2) of the Act that was carried over from the year preceding that year as of December 31 of that year (where, by inheritance (including universal legacy) in that year, there is an amount of the severance package reserves account that is deemed under Article 157, paragraph (2) (Treatment of Amount of the Severance Package Reserves Account Upon Death) to be held by that Resident, including that amount of the severance package reserves account).

In the case referred to in the preceding paragraph, with respect to a Resident who has not established the rules set forth in item (i) of the preceding Article as of December 31 of that year (excluding a Resident who has submitted to the district director, attached to the documents submitted under Article 158, paragraph (1) or (2) (Submission of Documents Pertaining to Retirement Allowance Rules) (where documents have been submitted two or more times under the provisions of paragraph (2) of that Article, the most recently submitted documents), a document stating the opinion prescribed in Article 90, paragraph (1) (Procedures for Preparing Rules of Employment) of the Labor Standards Act or Article 98 (Procedures for Preparing Rules of Employment) of the Mariners Act and a document stating the details of the fact of having made the rules known to workers under Article 106, paragraph (1) (Duty to Make Laws and Regulations Known) of the Labor Standards Act or having posted or kept available under Article 113, paragraph (1) (Posting, etc. of Rules of Employment, etc.) of the Mariners Act, pertaining to the rules set forth in item (ii) of the preceding Article, or a document specified by Ministry of Finance Order as equivalent to those documents, pertaining to the rules set forth in item (iii) of that Article), where the amount set forth in item (i) of the preceding paragraph exceeds the amount equivalent to 6 percent of the total amount of salaries, wages, bonuses and payments of the nature of those that are included in necessary expenses in calculating the amount of business income for that year with respect to the employees in service on that day (excluding persons employed on a daily basis, persons employed temporarily for a fixed period and other persons not covered by the payment of severance packages), the amount set forth in that item is the amount equivalent to 6 percent of the total amount of those payments.

A Resident who has an amount of the severance package reserves account prescribed in Article 54, paragraph (2) (Reserves for Severance Packages) of the Act (hereinafter in this Article referred to as the "amount of the retirement allowance reserve account") must, when falling under a case set forth in one of the following items, reverse the amount of the retirement allowance reserve account specified in the relevant item, except where the case falls under the provisions of the following paragraph:

where an employee retires and the employee is to receive payment of a severance package under the retirement allowance rules in effect as of December 31 of the year preceding that year, on the assumption that the employee would retire on that day for personal reasons: the amount, out of the amount of the retirement allowance reserve account at the time of the employee's retirement, up to the amount equivalent to that severance package;

where the amount of the retirement allowance reserve account as of December 31 of that year (or, if a Resident referred to in Article 54, paragraph (1) of the Act dies in the middle of the year, at the time of death) has come to exceed the accumulated limit: the amount equivalent to the excess portion of the amount of the retirement allowance reserve account on that day;

where there has been an event of not paying a severance package under the retirement allowance rules without justifiable grounds: the amount of the retirement allowance reserve account on the day of that event;

where all of the rules set forth in the items of Article 153 (Scope of Retirement Allowance Rules) have ceased to exist: the amount of the retirement allowance reserve account on the day on which they ceased to exist;

where there has been an event that is found to be an amendment of the retirement allowance rules made clearly for the purpose of evading income tax: the amount of the retirement allowance reserve account on the day of that event;

where the whole of the business that is to generate business income has been transferred or discontinued: the amount of the retirement allowance reserve account on the day of that transfer or discontinuance;

where the amount of the retirement allowance reserve account has been reversed in a case other than the cases set forth in item (i) and item (ii): the amount of the retirement allowance reserve account immediately after it was reversed.

Where the approval to submit a Blue Return has been rescinded for a Resident who has an amount of the retirement allowance reserve account, or the Resident has submitted a written notice to the effect that the Resident will cease filing under a Blue Return, the Resident must reverse, in each of the year that includes the day of the event that was the cause of the rescission or the day on which the written notice was submitted (where the day on which the written notice was submitted is in the year following the year in which the Resident ceased, December 31 of the year in which the Resident ceased), the following year and the year after that, the amount equivalent to one-third of the amount of the retirement allowance reserve account on those days; provided, however, that where the Resident has transferred or discontinued the whole of the business that is to generate business income, or has died, during the year that includes the day of the event that was the cause of the rescission or the day on which the written notice was submitted, or during the following year, the Resident must reverse the full amount of that amount of the retirement allowance reserve account in the year that includes the day of that transfer or discontinuance or the day of death.