Order for Enforcement of the Income Tax Act

The large-scale construction work specified by Cabinet Order prescribed in Article 66, paragraph (1) (Periods to Which Revenue and Expenses Associated with Contracts for Construction Work Are Attributed) of the Act is construction work for which the amount of the consideration for the contract (in the case of construction work (including manufacturing and software development; the same applies hereinafter in this Subsection) for which payment is to be made in foreign currency, the yen equivalent calculated at the foreign exchange buying and selling rates at the time of the contract for that work) is 1,000,000,000 yen or more.

The requirements specified by Cabinet Order prescribed in Article 66, paragraph (1) of the Act are that the contract for that work does not provide that one-half or more of the amount of consideration for the contract is to be paid after the date on which one year has elapsed from the date of delivery of the subject matter of that work.

The method of construction progress criteria specified by Cabinet Order prescribed in Article 66, paragraphs (1) and (2) of the Act is a method of treating, as the amounts of revenue and expenses for the year, the amounts obtained by deducting, respectively, the amounts treated as revenue and the amounts treated as expenses for each of the year preceding that year and earlier years from the amounts calculated by multiplying the amount of consideration for the contract for construction work and the amount of the construction cost thereof (meaning the amount of the cost of the work estimated for that work based on the status as of December 31 of that year (in the case of death in the middle of the year, at the time of death; the same applies in the following paragraph and paragraph (6)); the same applies hereinafter in this paragraph) by the progress ratio for that work as of that date (meaning the ratio calculated on the basis of the ratio of the sum of the amounts of raw material costs, labor costs and other expenses already incurred for the work to the amount of the construction cost, or other basis recognized as reasonable for showing the degree of progress of the work).

With regard to the application of Article 66, paragraph (1) of the Act in the case where the amount of consideration for the contract for construction work undertaken by a Resident (including additional construction work pertaining to that work) has not been fixed as of December 31 of that year, the amount of the cost of the work estimated for that work based on the status as of that date is deemed to be the amount of consideration for the contract.

With regard to the application of Article 66, paragraph (1) of the Act in the case where construction work undertaken by a Resident (excluding that to which the main clause of Article 66, paragraph (2) of the Act is applied) comes to fall under long-term large-scale construction (meaning long-term large-scale construction prescribed in paragraph (1) of that Article; the same applies hereinafter in this Subsection) in a year on or after the year following the year that includes the date of commencement of the work (hereinafter referred to as the "year of commencement" in this paragraph) (excluding the year that includes the date of delivery of the subject matter of that work (hereinafter referred to as the "year of delivery" in this paragraph)) owing to an increase in the amount of consideration for the contract or other reason, notwithstanding the provisions of paragraph (3), the amounts of revenue and expenses of past years pertaining to the contract for construction work (meaning the amounts that would be treated as the amounts of revenue and expenses for each year from the year of commencement to the year preceding the year that includes the date on which it came to fall under long-term large-scale construction (hereinafter referred to as the "first year of application" in this paragraph), if the amounts of revenue and expenses for each year were calculated, with regard to the revenue and expenses pertaining to the contract for construction work, by the method of construction progress criteria prescribed in that paragraph in each year on or after the year of commencement) may be excluded from the amounts of revenue and expenses pertaining to the contract for construction work for each year from that first year of application to the year preceding the year of delivery. However, where, with regard to the revenue and expenses pertaining to the contract for construction work, a case set out in one of the following items comes to apply, this does not apply for the years on or after the year specified in that item:

Where accounting has been done by the method of construction progress criteria prescribed in paragraph (3) in any year on or after that first year of application: the year in which that accounting was done;

Where the main clause has not been applied in any year on or after that first year of application: the year in which it was not applied.

With regard to the application of Article 66, paragraph (1) of the Act to long-term large-scale construction undertaken by a Resident for which, as of December 31 of that year, six months have not elapsed from the date of commencement or for which the progress ratio prescribed in paragraph (3) is less than 20/100, notwithstanding the provisions of paragraph (3), the amounts of revenue and expenses for that year pertaining to the contract for that long-term large-scale construction may be treated as nil. However, this does not apply for the years on or after the year in which, with regard to the revenue and expenses pertaining to the contract for that long-term large-scale construction, accounting was done by the method of construction progress criteria prescribed in that paragraph.

Where Article 66, paragraph (1) of the Act is applied, whether the Resident referred to in that paragraph has commenced long-term large-scale construction is determined according to whether that Resident has started the work of an important part of the series of work carried out to complete the content of the construction work that Resident has undertaken. In this case, whether work relating to the design of the construction work falls under work of an important part of that construction work is at the option of that Resident.

The main clause of paragraph (5) applies only where a document stating the name of the construction work to which the Resident wishes to have the main clause of that paragraph applied and the particulars regarding the calculation of the amounts of revenue and expenses of past years prescribed in the main clause of that paragraph pertaining to the contract for construction work is attached to the Tax Return for the year for which the Resident wishes to have the main clause of that paragraph applied.

The provisions of paragraph (4) apply mutatis mutandis where the main clause of Article 66, paragraph (2) of the Act is applied (excluding the case where the provisions of paragraph (11) apply). In this case, the phrase "Article 66, paragraph (1) of the Act" in paragraph (4) is deemed to be replaced with "the preceding paragraph in the case where the main clause of Article 66, paragraph (2) of the Act is applied".

The provisions of paragraph (7) apply mutatis mutandis to the determination, where the main clause of Article 66, paragraph (2) of the Act is applied, of whether construction work prescribed in that paragraph has been commenced.

With regard to the application of Article 66, paragraph (2) of the Act to construction work prescribed in that paragraph undertaken by a Resident for which the amount of consideration for the contract has not been fixed on the date of commencement, the date on which the amount of consideration for the contract is fixed may be treated as the date of commencement of that construction work.

Where, for each year that includes a date within the period from the date of commencement of construction work undertaken by a Resident to the day before the date of delivery of its subject matter, the provisions of Article 66, paragraph (1) or the main clause of paragraph (2) (Periods to Which Revenue and Expenses Associated with Contracts for Construction Work Are Attributed) of the Act have been applied, the amount of business income for each of those years is calculated by treating the amount obtained by deducting the amount set out in item (ii) from the amount set out in item (i) pertaining to that construction work as the amount of accounts receivable, etc. pertaining to the contract for construction work (meaning accounts receivable, loans and other monetary claims equivalent thereto).

Of the amount of revenue pertaining to the contract for construction work, the sum of the amount treated as revenue for each of the year preceding that year and earlier years, and the amount to be treated as revenue for that year, by the method of construction progress criteria prescribed in Article 66, paragraph (1) or the main clause of paragraph (2) of the Act (excluding the amount of revenue for the years on or after the year following the year in which accounting was not done, as prescribed in the proviso to that paragraph);

The amount already paid as consideration for the contract for construction work (including, of the amount of that consideration not yet paid, the amount of which that Resident does not receive payment by reason of the transfer of the right to receive payment of that consideration).

The calculation of the amount of the accounts receivable, etc. referred to in the preceding paragraph where a loss has arisen from bad debts in respect of those accounts receivable, etc., and other matters necessary for the application of that paragraph, are specified by Ministry of Finance Order.