Income Tax Act

If, in any year, due to a share exchange implemented by a corporation issuing shares that a Resident holds (hereinafter referred to as "old shares" in this paragraph) (such a share exchange is limited to one in which the shareholders of the corporation are not issued assets other than the shares (including capital contributions; hereinafter the same applies in this paragraph) of any one corporation from among a wholly owning parent corporation resulting from a share exchange which is as prescribed in Article 2, item (xii)-6-3 (Definitions) of the Corporation Tax Act (hereinafter referred to as a "wholly owning parent corporation resulting from a share exchange" in this paragraph) and the corporations that are related to the wholly owning parent corporation resulting from the share exchange in a way that Cabinet Order prescribes as constituting a relationship whereby they directly or indirectly hold all the issued shares or capital contributions in the wholly owning parent corporation resulting from the share exchange (other than the treasury shares or capital contributions that the wholly owning parent corporation resulting from the share exchange holds itself) (monies and other assets issued to the shareholders as dividends of surplus and monies and other assets issued to any shareholder dissenting from the share exchange as a consideration based on an exercise of appraisal rights are not considered to be assets other than such shares)), the Resident transfers old shares to the wholly owning parent corporation resulting from the share exchange and is issued those shares, or if the Resident ceases to hold the old shares due to a specified share exchange without consideration implemented by the corporation that issued the old shares (meaning a share exchange in which the shareholders of the corporation are not issued the shares of the wholly owning parent corporation resulting from a share exchange or other assets, and which Cabinet Order prescribes as a share exchange in which the issuance of the shares of the wholly owning parent corporation resulting from a share exchange to the shareholders of the corporation is found to have been omitted), for the purpose of applying Article 27 (Business Income), Article 33 (Capital Gains), Article 35 (Miscellaneous Income), or Article 59 (Special Provisions on Capital Gains and Gifts), the transfer or gift of the old shares is deemed not to have taken place.

If, in any year, due to a share transfer implemented by a corporation issuing shares that a Resident holds (hereinafter referred to as "old shares" in this paragraph) (such a share transfer is limited to one in which the shareholders of the corporation are not issued assets other than shares in a wholly owning parent corporation resulting from a share transfer as prescribed in Article 2, item (xii)-6-6 of the Corporation Tax Act (hereinafter referred to as a "wholly owning parent corporation resulting from a share transfer" in this paragraph) (monies and other assets issued to any shareholder dissenting from the share transfer as a consideration based on an exercise of appraisal rights are not considered to be assets other than such shares)), the Resident transfers old shares to the wholly owning parent corporation resulting from the share transfer and is issued shares therein, for the purpose of applying Article 27, Article 33, and Article 35, the transfer of the old shares is deemed not to have taken place.

If, in any year, a Resident transfers Securities as set forth in one of the following items due to the cause prescribed in the item, and is issued shares (including capital contributions; hereinafter the same applies in this paragraph) or share options in the corporation making the acquisition provided for in that item due to that cause (unless the value of the shares or share options issued thereto is found not to be close to the value of the transferred Securities), for the purpose of applying Article 27, Article 33, and Article 35, the transfer of the Securities is deemed not to have taken place:

shares with a put option (meaning shares with a feature that a corporation provides for with respect to all or some of the shares it issues, entitling a Shareholder, Member, or Other Investor to demand that the corporation acquire those shares):the exercise of the put option associated with those shares, if only shares in the acquiring corporation are issued as the consideration for the acquisition;

shares subject to call (meaning shares with a feature that a corporation provides for with respect to all or some of the shares it issues, entitling the corporation to acquire those shares conditional upon the occurrence of certain causes (hereinafter referred to as the "grounds to acquire" in this item)):the occurrence of the grounds to acquire shares subject to call, if only shares in the acquiring corporation are issued to the Shareholders, Members, and Other Investors whose shares it acquires, as the consideration for the acquisition (if all classes of shares subject to the acquisition are acquired, this includes if only shares and share options in the acquiring corporation are issued to the Shareholders, Members, and Other Investors whose shares it acquires, as the consideration for the acquisition);

shares subject to class-wide call (meaning shares in a class which the issuing corporation indicates it will acquire all of through a resolution at a shareholders meeting or any equivalent mechanism (hereinafter referred to as the "resolution to acquire" in this item)):a resolution to acquire the shares subject to class-wide call, if no assets other than shares in the acquiring corporation (including share options in the acquiring corporation which are issued along with such shares) are issued to the Shareholders, Members, and Other Investors whose shares it acquires, as the consideration for the acquisition (monies and other assets issued based on a petition for the court to determine an acquisition price are not considered to be assets other than such shares);

bonds with embedded share options:the exercise of the share options embedded into those bonds, if shares in the acquiring corporation are issued as the consideration for the acquisition;

share options subject to call (meaning any share options that the corporation issuing them has indicated it is entitled to acquire conditional upon the occurrence of certain causes (hereinafter referred to as the "grounds to acquire" in this item); this excludes share options issued to the issuee under particularly favorable conditions or at a particularly favorable price, and any other share options as provided by Cabinet Order):the occurrence of grounds to acquire, if only shares in the acquiring corporation are issued to the share option holders whose the share options it acquires, as the consideration for the acquisition;

bonds with embedded share options subject to call (meaning any share options that the corporation issuing them has indicated it is entitled to acquire conditional upon the occurrence of certain causes (hereinafter referred to as "grounds to acquire" in this item)):the occurrence of grounds to acquire, if only shares in the acquiring corporation are issued to the share option holders whose share options it acquires, as the consideration for the acquisition.

Cabinet Order prescribes the calculation of the acquisition costs for Securities that a Resident acquires subject to the application of the preceding three paragraphs and provides for other necessary particulars concerning the application of the preceding three paragraphs.

If, in any year, a Resident exchanges a Fixed Asset that the Resident has held for at least one year and which is as set forth in one of the following items, for a Fixed Asset held by another person for at least one year which is as set forth in the item (other than one that the other person is found to have acquired solely for the purpose of the exchange) and uses the asset as set forth in the item which the Resident acquires in the exchange (hereinafter referred to as the "acquired asset" in this Article) for the same purpose as that for which the asset as set forth in the item which the Resident has transferred in the exchange (hereinafter referred to as the "transferred asset" in this Article) was used immediately prior to the transfer, for the purpose of applying Article 33 (Capital Gains), the transferred asset (other than a part thereof that is equivalent to the value of any monies or other assets acquired along with the acquired assets) is deemed not to have been transferred:

land (including superficies and leasehold rights for the purpose of owning buildings or structures, and rights relating to cultivation (including the cultivation of crops deemed to constitute cultivation pursuant to the provisions of Article 43, paragraph (1) of the Cropland Act) on cropland as prescribed in Article 2, paragraph (1) (Definitions) of the Cropland Act (Act No. 229 of 1952) (including cropland as prescribed in Article 2, paragraph (1) of that Act to which that Act applies by deeming the cultivation of crops to constitute cultivation pursuant to the provisions of Article 43, paragraph (1) (Special Provisions on Facilities for Advanced Crop Cultivation) of that Act));

a building (including any attached facilities and structures);

machinery and equipment;

a vessel;

a mining right (this includes a mining lease right, a right of quarrying, or any other right to dig or quarry soil and stone).

The provisions of the preceding paragraph do not apply if the difference between the value of the acquired asset and that of the transferred asset at the time of the exchange referred to in that paragraph exceeds 20% of whichever asset is of greater value.

The provisions of paragraph (1) apply only if a Tax Return indicates recourse to the application of the provisions of that paragraph, indicates the values of the acquired asset and transferred asset, and gives any other information prescribed by Ministry of Finance Order.

Even if no Tax Return is filed or if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district tax office director may apply the provisions of paragraph (1) on finding there to be unavoidable circumstances for the Resident's failure to file the Tax Return or fill it out in that manner.

A Cabinet Order provides for the necessary particulars concerning the calculation of the depreciation allowance prescribed in Article 49, paragraph (1) (Calculating Depreciation Allowances for Depreciable Assets; Depreciation Methods) which is required to be made for an acquired asset by a Resident subject to the application of paragraph (1), as well as for the necessary particulars concerning the calculation of the amount of capital gains in the event that such a Resident transfers the acquired asset.

If forested land that a Resident owns (excluding forested land generating business income) or assets generating capital gains have devolved due to any of the following circumstances, such assets are deemed to have been transferred to the Resident, with an amount equivalent to their value as of the time the circumstances arose being used in the calculation of the Resident's timber income, capital gains, or miscellaneous income:

an inter vivos gift (but only a gift to a corporation and a gift to an individual who is the trustee of a public interest trust (but only one made in order for the property to become trust property of that trust)), hereditary succession (but only hereditary succession subject to qualified acceptance), or a legacy (but only a legacy left to a corporation, a legacy left to an individual who is the trustee of a public interest trust (but only one made in order for the property to become trust property of that trust), or a universal legacy left to an individual which is associated with a qualified acceptance);

a transfer at a price that Cabinet Order prescribes as a consideration at a conspicuously low value (but only a transfer to a corporation).

If a Resident transfers an asset as prescribed in the preceding paragraph to an individual at a price as prescribed in item (ii) of that paragraph and the amount of the consideration is less than the sum total of the necessary expenses or acquisition costs and transfer costs which are deducted to calculate timber income, capital gains, or miscellaneous income from the transfer of that asset, there is deemed to be no such negative balance when timber income, capital gains, or miscellaneous income is calculated.