Order for Enforcement of the Income Tax Act

The amount calculated as provided by Cabinet Order prescribed in Article 165-6, paragraph (1) (Foreign Tax Credit for Nonresidents) of the Act is to be the amount calculated by multiplying the amount of income tax calculated, with respect to the income of the Nonresident referred to in that paragraph for that year pertaining to the domestic source income listed in Article 164, paragraph (1), item (i), (a) (How Nonresidents Are Taxed) of the Act, pursuant to Article 165, paragraph (1) (Calculation of the Tax Base and Amount of Income Taxes Imposed on Aggregate Income) of the Act in accordance with the provisions of Part II, Chapters I to IV (Calculation of the Tax Base, Tax Amount, etc. of Income Taxes on Residents) of the Act (meaning the amount of income tax calculated without applying Article 165-6 of the Act, and excluding the amount of accessory tax) by the ratio of the adjusted amount of foreign-source income for that year to the amount of income attributable to a permanent establishment for the year.

The amount of income attributable to a permanent establishment for the year prescribed in the preceding paragraph means the amount of income pertaining to the domestic source income listed in Article 164, paragraph (1), item (i), (a) of the Act for that year, calculated without applying Article 70, paragraph (1) or (2) (Deduction for Carryover of Net Loss) or Article 71 (Deduction for Carryover of Casualty Loss) of the Act, which are applied correspondingly pursuant to Article 165, paragraph (1) of the Act (referred to as the "amount of income attributable to a permanent establishment for the year" in the following paragraph).

The adjusted amount of foreign-source income for the year prescribed in paragraph (1) means the amount of foreign-source income prescribed in Article 165-6, paragraph (1) of the Act for that year, calculated without applying Article 70, paragraph (1) or (2) or Article 71 of the Act, which are applied correspondingly pursuant to Article 165, paragraph (1) of the Act; provided, however, that where that amount of foreign-source income exceeds the amount equivalent to the amount of income attributable to a permanent establishment for the year, it is the amount equivalent to the amount of income attributable to a permanent establishment for the year.

The provisions of Article 222-2, paragraphs (1) and (2) (Amount of Foreign Income Tax Not Eligible for Foreign Tax Credit) apply mutatis mutandis to the transactions specified by Cabinet Order prescribed in Article 165-6, paragraph (1) (Foreign Tax Credit for Nonresidents) of the Act.

The amount of foreign income tax specified by Cabinet Order prescribed in Article 165-6, paragraph (1) of the Act is to be the amount of the following foreign income tax:

the amount of foreign income tax imposed in the country or region in which the Nonresident has a domicile, has a residence for more than a certain period, or has nationality or anything similar thereto (hereinafter referred to as the "country of residence" in this paragraph) by reason of having that domicile, residence, or nationality or anything similar thereto (excluding the amount of foreign income tax imposed, by a method similar to withholding, on the basis of the amount of interest, dividends, or anything similar thereto that the Nonresident is to receive as the tax base, which, under the provisions of the laws and regulations of that country of residence or the provisions of a tax treaty prescribed in Article 2, paragraph (1), item (viii)-4, proviso (Definitions) of the Act (referred to as "tax treaty" in the following item), is not to be deducted from the amount of foreign income tax, other than that foreign income tax, imposed on that Nonresident in that country of residence);

of the amount of foreign income tax imposed in a country or region other than the country of residence of the Nonresident, the amount equivalent to the portion exceeding the amount that could be imposed in that country or region, or the amount equivalent to the amount that is to be exempted, by the application of the provisions of the tax treaty on the reduction or exemption of foreign income tax on that income, if the provisions of the tax treaty between Japan and that country or region were to apply to the income forming the tax base of that foreign income tax, or, if the income forming the tax base of that foreign income tax were treated as the income of a Resident and that foreign income tax were imposed on that income, the amount equivalent to the portion that would be reduced, or the amount equivalent to the amount that would be exempted, in a foreign country (meaning a foreign country prescribed in Article 2, item (iii) (Definitions) of the Act on Exemption, etc. of Income Tax, etc. on Income of Foreign Residents, etc. Based on the Principle of Reciprocity, excluding that foreign country in a case that does not fall under any of the items of Article 5 (Principle of Reciprocity) of that Act; the same applies hereinafter in this item) under conditions equivalent to the conditions under which income tax is reduced or not imposed, pursuant to the provisions on exemption, etc. of income tax, etc. prescribed in Article 5, item (i) of that Act, on the covered domestic source income prescribed in Article 5, item (i) of that Act of a foreign Resident, etc. prescribed in Article 2, item (iii) of that Act relating to that foreign country.

The amount specified by Cabinet Order as the maximum credit for local taxes prescribed in Article 165-6, paragraph (2) (Foreign Tax Credit for Nonresidents) of the Act is to be the sum of the maximum amount under Article 7-19, paragraph (3) (Credit of Foreign Income Tax Amount against Prefectural Inhabitant Tax) of the Order for Enforcement of the Local Tax Act and the maximum amount under Article 48-9-2, paragraph (4) (Credit of Foreign Income Tax Amount against Municipal Inhabitant Tax) of that Order.

The amount specified by Cabinet Order as the portion to be carried over to that year prescribed in Article 165-6, paragraph (2) (Foreign Tax Credit for Nonresidents) of the Act is to be the amount equivalent to the total of the unused portions within the maximum creditable amount for national tax that would be applied to the amount exceeding the credit limit for that year, in the case where the unused portion within the maximum creditable amount for national tax or the unused portion within the maximum creditable amount for local taxes of each year within the three years on or before the year preceding that year (referred to as "each year within the previous three years" in the following paragraph and paragraph (1) of the following Article) is applied to the amount exceeding the credit limit for that year in order from that of the oldest year and, for the same year, in the order of the unused portion within the maximum creditable amount for national tax and the unused portion within the maximum creditable amount for local taxes.

In the case where the amount of credit-eligible foreign income tax prescribed in Article 165-6, paragraph (1) of the Act that became payable in any year among each year within the previous three years (hereinafter referred to as the "amount of credit-eligible foreign income tax" in this Article and Article 292-14 (Special Provisions in the Case Where Foreign Income Tax Is Reduced)) is included in necessary expenses in the calculation of the amount of real property income, the amount of business income, the amount of timber income, or the amount of miscellaneous income calculated, for the domestic source income, listed in Article 164, paragraph (1), item (i), (a) (How Nonresidents Are Taxed) of the Act, of the year in which it became payable, pursuant to Article 165, paragraph (1) (Calculation of the Tax Base and Amount of Income Taxes Imposed on Aggregate Income) of the Act in accordance with the provisions of Part II, Chapters I and II (Calculation of the Tax Base of Income Taxes on Residents, etc.) of the Act, or is included in the amount expended in the calculation of the amount of occasional income, the provisions of the preceding paragraph apply on the basis that the unused portion within the maximum creditable amount for national tax and the unused portion within the maximum creditable amount for local taxes of each year on or before that year are not included in the unused portion within the maximum creditable amount for national tax and the unused portion within the maximum creditable amount for local taxes prescribed in the preceding paragraph.

With regard to the application of the provisions of paragraph (1) and paragraph (1) of the following Article for each year after the year in which the provisions of Article 165-6, paragraph (2) of the Act can be applied, the unused portion within the maximum creditable amount for national tax and the unused portion within the maximum creditable amount for local taxes that are to be applied, pursuant to the provisions of paragraph (1), to the amount exceeding the credit limit of the year in which that application can be received, and that amount exceeding the credit limit in the amount equivalent to the sum of those amounts, are deemed not to exist.

The unused portion within the maximum creditable amount for national tax prescribed in the preceding three paragraphs means the amount equivalent to the amount obtained by deducting the amount of credit-eligible foreign income tax from the maximum credit for national tax for that year (meaning the maximum credit prescribed in Article 165-6, paragraph (1) of the Act; the same applies hereinafter in this Article), in the case where the amount of credit-eligible foreign income tax that becomes payable in that year is less than the maximum credit for national tax for that year.

The unused portion within the maximum creditable amount for local taxes prescribed in paragraphs (1) to (3) means the amount specified in each of the following items according to the category of cases listed in those items:

if the amount of credit-eligible foreign income tax that becomes payable in that year does not exceed the maximum credit for national tax for that year: the amount equivalent to the maximum credit for local taxes for that year (meaning the sum prescribed in the preceding Article; the same applies hereinafter in this Article);

if the amount of credit-eligible foreign income tax that becomes payable in that year exceeds the maximum credit for national tax for that year and the amount of the excess is less than the maximum credit for local taxes for that year: the amount equivalent to the amount obtained by deducting the amount of that excess from that maximum credit for local taxes.

The amount exceeding the credit limit prescribed in paragraphs (1) and (3) means the amount equivalent to the amount of the excess where the amount of credit-eligible foreign income tax that becomes payable in that year exceeds the sum of the maximum credit for national tax and the maximum credit for local taxes for that year.