Order for Enforcement of the Income Tax Act

The amount specified by Cabinet Order prescribed in Article 43, paragraph (2) (Exclusion of Conditional Government Subsidies and Their Equivalent from Gross Revenue) of the Act is the amount specified in each of the following items for the category of cases set out in that item.

In the case where the government subsidy or its equivalent prescribed in Article 43, paragraph (2) of the Act is applied to the acquisition of a Depreciable Asset: the amount calculated by multiplying the amount equivalent to the portion of the amount of that government subsidy or its equivalent for which it has been finalized that return is not required, as prescribed in that paragraph, by the ratio that the amount set out in (b) bears to the amount set out in (a):

the amount required for the acquisition of that Depreciable Asset;

the amount obtained by deducting, from the amount required for the acquisition of that Depreciable Asset, the cumulative amount of the depreciation allowance calculated on the basis of that amount, in accordance with the provisions of Article 49, paragraph (1) (Calculating Depreciation Allowances for Depreciable Assets; Depreciation Methods) of the Act, for the period from the date of its acquisition to the date on which return of that government subsidy or its equivalent ceased to be required;

In the case where the government subsidy or its equivalent prescribed in Article 43, paragraph (2) of the Act is applied to the improvement of a Depreciable Asset: the amount calculated by multiplying the amount equivalent to the portion of the amount of that government subsidy or its equivalent for which it has been finalized that return is not required, as prescribed in that paragraph, by the ratio that the amount set out in (b) bears to the amount set out in (a):

the amount required for the improvement of that Depreciable Asset;

the amount obtained by deducting, from the amount required for the improvement of that Depreciable Asset, the cumulative amount of the depreciation allowance calculated on the basis of that amount, in accordance with the provisions of Article 49, paragraph (1) of the Act, for the period from the date of its improvement to the date on which return of that government subsidy or its equivalent ceased to be required;

In the case where the government subsidy or its equivalent prescribed in Article 43, paragraph (2) of the Act is applied to the acquisition or improvement of a Fixed Asset other than a Depreciable Asset, or to the acquisition of timberland: the amount equivalent to the portion of the amount of that government subsidy or its equivalent for which it has been finalized that return is not required, as prescribed in that paragraph.

With regard to the calculation of the depreciation allowance prescribed in Article 49, paragraph (1) of the Act that is to be made for a Fixed Asset acquired or improved by means of the government subsidy or its equivalent prescribed in Article 43, paragraph (1) of the Act, and the calculation of the amount of business income, amount of timber income, amount of capital gains, or amount of miscellaneous income in the case where there has been a transfer of that Fixed Asset, that Fixed Asset is deemed to have been acquired or improved at the amount obtained by deducting, from the amount required for its acquisition or the amount equivalent to the amount of improvement expenses, the amount equivalent to the portion of the amount of that government subsidy or its equivalent for which it has been finalized that return is not required, as prescribed in Article 43, paragraph (2) of the Act, and the amount equivalent to the amount obtained by deducting the amount specified in item (i) or (ii) of the preceding paragraph from the amount equivalent to that finalized portion is deemed not to have been included in necessary expenses in calculating the amount of real property income, amount of business income, amount of timber income, or amount of miscellaneous income for each year as that depreciation allowance for the period prescribed in item (i), (b) or item (ii), (b) of that paragraph.

The act specified by Cabinet Order prescribed in Article 44 (Exclusion of Grants Meant to Cover Relocation Expenses from Gross Revenue) of the Act is an act pertaining to the expenditure prescribed in Article 181 (Capital Expenditure).

The unavoidable grounds specified by Cabinet Order prescribed in Article 44 (Exclusion of Grants Meant to Cover Relocation Expenses from Gross Revenue) of the Act are expropriation, purchase, replotting disposition, conversion of rights, acquisition, or extinguishment of rights prescribed in the items of Article 33, paragraph (1) (Special Provisions on Taxation in the Case of Acquisition of Substitute Assets Due to Expropriation, etc.) of the Act on Special Measures Concerning Taxation, use based on the provisions of the Expropriation of Land Act, etc. prescribed in paragraph (4), item (i) of that Article, demolition or removal of assets prescribed in item (ii) of that paragraph based on the grounds prescribed in that item, or disposal of assets prescribed in item (iii) of that paragraph based on the grounds prescribed in that item, or termination of a lease or extinguishment of a spouse's right of residence under the provisions of Article 15-2, paragraph (2) (Request for Termination of Lease) of the Act on Facilitation of the Regeneration, etc. of Condominiums (Act No. 78 of 2002) (including the case where applied mutatis mutandis in Article 15-4, paragraph (1) (Request for Extinguishment of Spouse's Right of Residence) of that Act), Article 122, paragraph (2) (Request for Termination of Lease) of that Act (including the case where applied mutatis mutandis in Article 124, paragraph (1) (Request for Extinguishment of Spouse's Right of Residence) of that Act), or Article 163-15, paragraph (2) (Request for Termination of Lease) of that Act (including the case where applied mutatis mutandis in Article 163-17, paragraph (1) (Request for Extinguishment of Spouse's Right of Residence) of that Act).

The amount specified by Cabinet Order prescribed in Article 44-3 (Exclusion of Reduced Foreign Income Taxes from Gross Revenue) of the Act is the amount equivalent to the portion of the amount by which the amount of foreign income tax prescribed in that Article is reduced that is to be applied, in the year that includes the date on which it is reduced, to the deduction from the credit-eligible foreign income tax to be paid prescribed in Article 226, paragraph (1) (Special Provisions Where Foreign Income Tax Is Reduced) under the provisions of that paragraph, or to the deduction from the amount exceeding the credit limit prescribed in paragraph (3) of that Article under the provisions of that paragraph.

The following amounts received by a Resident who carries on operations that give rise to real property income, business income, timber income, or miscellaneous income, which are in the nature of a substitute for the revenue pertaining to such income that would arise from the performance of those operations, are to be treated as revenue pertaining to such income.

Insurance proceeds, monetary damages, condolence payments, or other similar payments acquired by reason of having sustained a loss in respect of inventory assets pertaining to those operations (including assets set out in the items of Article 81 (Assets Equivalent to Inventory Assets That Are Not a Source of Capital Gains)), timberland, industrial property rights or other rights relating to technology, production methods using special technology or things equivalent thereto, or copyrights (including publication rights, neighboring rights, and other things equivalent thereto) (for those acquired by reason of having sustained a loss in timberland that falls under Article 51, paragraph (3) (Inclusion of Timber Losses in Necessary Expenses) of the Act, limited to the portion equivalent to the amount by which it exceeds the amount of losses, where it does exceed it);

Compensation or other similar payments acquired as compensation for the profits of those operations by reason of suspension, conversion, or discontinuance of all or part of those operations, or for other reasons.

Consideration for an act prescribed in Article 79, paragraph (1) (Acts Deemed Transfers of Assets) that falls under the provisions of that paragraph, which is not included in revenue from capital gains pursuant to Article 33, paragraph (2), item (i) (Capital Gains) of the Act, is to be treated as revenue pertaining to business income or miscellaneous income, and the amount calculated for that consideration in accordance with the provisions of Articles 174 through 177 (Acquisition Cost, etc. in Capital Gains Where a Land Leasehold Right Is Established) is to be included in necessary expenses pertaining to that business income or miscellaneous income.

The amount of compensation or any similar payment received in a lump sum for the extinction of an asset that is to give rise to capital gains, accompanying the extinction of that asset (excluding a decline in value resulting from the creation of a land leasehold right or other real right over that asset or the coming into existence of a claim) based on a contract (including an administrative disposition or other act that is recognized by laws and regulations as having an effect in place of a contract where no contract is formed) or through the carrying out of a business accompanied by the extinction of assets (including a decrease in value; the same applies hereinafter in this Article) that is carried out on the promise of compensation for that extinction, is to be revenue pertaining to capital gains.