Income Tax Act

If Securities and similar interests held by a Resident are transferred to a Nonresident by gift, hereditary succession, or a legacy (hereinafter referred to as a "gift or similar transfer" in this Article), for the calculation of that Resident's business income, capital gains, or miscellaneous income, unless otherwise provided, the Securities and similar interests are deemed to have been transferred at the time of the gift or similar transfer, for the amount equivalent to their value at that time.

If a contract for unsettled margin transactions or similar transactions to which a Resident is a party is transferred to a Nonresident by a gift or similar transfer, for the calculation of that Resident's business income or miscellaneous income, the amount equivalent to the amount of profit or loss calculated pursuant to Ministry of Finance Order on the assumption that the unsettled margin transactions or similar transactions were settled is deemed to have arisen at the time of the gift or similar transfer.

If a contract for unsettled derivatives transactions to which a Resident is a party is transferred to a Nonresident by a gift or similar transfer, for the calculation of that Resident's business income or miscellaneous income, the amount equivalent to the amount of profit or loss calculated pursuant to Ministry of Finance Order on the assumption that the unsettled derivatives transactions were settled is deemed to have arisen at the time of the gift or similar transfer.

If an individual (including the individual's heir) who received a transfer of Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions from a Resident to whom the provisions of the preceding three paragraphs (including as applied pursuant to paragraph (8) (including as applied mutatis mutandis pursuant to paragraph (10); the same applies in item (i)) or paragraph (11)) have applied with regard to income tax for the year that includes the date of the gift or the date of commencement of the succession (hereinafter referred to as the "date of the gift or similar transfer" in this Article) transfers (meaning a transfer as prescribed in paragraph (4) of the preceding Article; the same applies in paragraph (9)) or settles those Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions, the calculation of business income, capital gains, or miscellaneous income is governed by the following; provided, however, that this does not apply to those Securities and similar interests, unsettled margin transactions or similar transactions, and unsettled derivatives transactions in the case where neither a Tax Return has been filed nor a determination has been made with regard to income tax for the year that includes the date of the gift or similar transfer, to those Securities and similar interests, unsettled margin transactions or similar transactions, and unsettled derivatives transactions for which the amount equivalent to the value of the Securities and similar interests at the time of the gift or similar transfer, or the amount equivalent to the amount of profit or loss on the unsettled margin transactions or similar transactions or unsettled derivatives transactions, has not been included in the gross revenue used to calculate business income, capital gains, or miscellaneous income for the year that includes the date of the gift or similar transfer, or to Securities and similar interests, unsettled margin transactions or similar transactions, and unsettled derivatives transactions to which the first sentence of paragraph (6) (including as applied pursuant to paragraph (7)) has applied.

the Securities and similar interests are deemed to have been acquired for the amount equivalent to their value at the time of the gift or similar transfer referred to in paragraph (1) (or, if the provisions of paragraph (1) have applied pursuant to paragraph (8), for the transfer price for the transfer of those Securities and similar interests prescribed in paragraph (8) or the amount equivalent to the value of those Securities and similar interests at the time of the gift or inheritance with limited liability, and, if the provisions of paragraph (1) have applied pursuant to paragraph (11), for the amount equivalent to the value of those Securities and similar interests on the day on which five years have elapsed as prescribed in paragraph (11));

if the unsettled margin transactions or similar transactions or unsettled derivatives transactions are settled, the amount equivalent to the amount of profit prescribed in paragraph (2) or the preceding paragraph with regard to those unsettled margin transactions or similar transactions or unsettled derivatives transactions is to be subtracted from the amount of profit or loss arising from the settlement (hereinafter referred to as the "gain or loss on settlement" in this item), or the amount equivalent to the amount of loss prescribed in paragraph (2) or the preceding paragraph with regard to those unsettled margin transactions or similar transactions or unsettled derivatives transactions is to be added to the gain or loss on settlement.

The provisions of the preceding paragraphs do not apply to a Resident for whom the total of the amount equivalent to the value of the Securities and similar interests, the amount equivalent to the amount of profit or loss prescribed in paragraph (2) on the unsettled margin transactions or similar transactions, and the amount equivalent to the amount of profit or loss prescribed in paragraph (3) on the unsettled derivatives transactions, as of the time of the gift or similar transfer, for the Securities and similar interests held, and the unsettled margin transactions or similar transactions and unsettled derivatives transactions to whose contracts the Resident is a party, at the time of the gift or similar transfer is less than 100,000,000 yen, or to a Resident for whom the total of the periods prescribed by Cabinet Order as periods during which the Resident had a domicile or residence in Japan within the 10 years before the date of the gift or similar transfer is five years or less.

With regard to those of the Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions transferred, through the gift or similar transfer, from a Resident to whom the provisions of paragraphs (1) through (3) are to apply with regard to income tax for the year that includes the date of the gift or similar transfer, to a donee, heir, or legatee who is a Nonresident, that are prescribed in each of the following items for the category of case set forth in that item, all of the transfers of Securities and similar interests, the settlements of unsettled margin transactions or similar transactions, and the settlements of unsettled derivatives transactions that were deemed to have been made pursuant to the provisions of paragraphs (1) through (3) in the calculation of the business income, capital gains, or miscellaneous income for that year of the Resident referred to in those paragraphs may be treated as not having occurred. In such a case, the provisions of the proviso to paragraph (6) of the preceding Article apply mutatis mutandis.

if the donee who is a Nonresident, or all of the Nonresidents who acquired property from the same decedent through hereditary succession or a legacy (hereinafter referred to as "donees or similar persons" in this item), have made a return to Japan by the day on which five years have elapsed from the date of the gift or similar transfer: the Securities and similar interests that the donees or similar persons have continued to hold until the time of that return to Japan, or the unsettled margin transactions or similar transactions or unsettled derivatives transactions that they have not settled;

if, by the day on which five years have elapsed from the date of the gift or similar transfer, the donee, heir, or legatee who is a Nonresident in connection with the gift or similar transfer has transferred to a Resident, by gift (other than a gift to the trustee of a public interest trust; hereinafter the same applies in this item), the Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions transferred to that person through the gift or similar transfer: the Securities and similar interests, unsettled margin transactions or similar transactions, or unsettled derivatives transactions that were transferred by that gift;

if, due to the death, by the day on which five years have elapsed from the date of the gift or similar transfer, of the donee, heir, or legatee who is a Nonresident in connection with the gift or similar transfer, the Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions transferred to that person through the gift or similar transfer have been transferred by hereditary succession (other than hereditary succession subject to qualified acceptance; hereinafter the same applies in this item) or a legacy (other than a legacy left to the trustee of a public interest trust and a universal legacy which is associated with a qualified acceptance; hereinafter the same applies in this item), and the case comes to fall under either of the following: the Securities and similar interests, unsettled margin transactions or similar transactions, or unsettled derivatives transactions that were transferred by that hereditary succession or legacy.

if, by the day on which five years have elapsed from the date of the gift or similar transfer, all of the individuals who are heirs and legatees that received a transfer of Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions through that hereditary succession or legacy (including an individual that received a transfer of those Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions from such an individual through hereditary succession or a legacy; the same applies in (b)) have become Residents;

if, due to a division of the estate or similar event prescribed in Article 151-6, paragraph (1) (Special Provisions on Amended Returns in the Event of Division of an Estate or Similar Event) that has arisen with regard to the Nonresident, the individuals who are heirs and legatees that received a transfer of Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions through that hereditary succession or legacy have come to include no Nonresident (excluding a person who has made a return to Japan by the day on which five years have elapsed from the date of the gift or similar transfer).

For the purpose of applying the provisions of the preceding paragraph to an individual to whom the provisions of paragraphs (1) through (3) have applied with regard to income tax for the year that includes the date of the gift (referred to as a "donor whose gift is taxed as a sale" in the following paragraph) and who, pursuant to Article 137-3, paragraph (3) (Tax Payment Grace Period Where the Special Provisions on Capital Gains upon Transfer of Assets to a Nonresident by Gift or Similar Transfer Apply), has been granted a tax payment grace period under paragraph (1) of that Article, or to an individual to whom the provisions of paragraphs (1) through (3) have applied with regard to income tax for the year that includes the date of commencement of the succession (referred to as a "decedent whose estate is taxed as a sale" in the following paragraph and paragraph (11)) and whose heir, pursuant to paragraph (3) of that Article, has been granted a tax payment grace period under paragraph (2) of that Article, the term "five years" in that paragraph is deemed to be replaced with "10 years".

If a donee of a donor whose gift is taxed as a sale and who has been granted a tax payment grace period under Article 137-3, paragraph (1) (including as applied pursuant to paragraph (3) of that Article; the same applies in the following paragraph) (referred to as a "donor with deferred tax" in the following paragraph and paragraph (11)), or an heir of a decedent whose estate is taxed as a sale who has been granted a tax payment grace period under paragraph (2) of that Article (including as applied pursuant to paragraph (3) of that Article; the same applies in the following paragraph) (referred to as an "heir with deferred tax" in paragraphs (11) and (12)), has, by the base date for that tax payment grace period (meaning the gift reference expiry date prescribed in paragraph (1) of that Article or the inheritance reference expiry date prescribed in paragraph (2) of that Article; the same applies in the following paragraph), transferred (meaning a transfer as prescribed in paragraph (8) of the preceding Article; hereinafter the same applies in this paragraph and paragraph (10)) or settled the Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions that were transferred to a Nonresident through the gift or similar transfer, or has transferred them by a gift or inheritance with limited liability prescribed in paragraph (8) of the preceding Article (hereinafter referred to as a "gift or inheritance with limited liability" in this paragraph through paragraph (10)), and the transfer price for the transfer or the amount equivalent to the value of the Securities and similar interests at the time of the gift or inheritance with limited liability, or the amount of profit or loss arising from the settlement or the deemed margin transaction profit or loss at a gift or inheritance with limited liability or deemed derivatives profit or loss at a gift or inheritance with limited liability for that gift or inheritance with limited liability, falls under any of the following cases, then, for the purpose of applying the provisions of paragraphs (1) through (3) with regard to the income tax of the donor whose gift is taxed as a sale or the decedent whose estate is taxed as a sale for the year that includes the date of the gift or similar transfer, the phrase "the amount equivalent to their value at that time" in paragraph (1) may be deemed to be replaced with "the transfer price for the transfer of those Securities and similar interests prescribed in paragraph (8) or the amount equivalent to the value of those Securities and similar interests at the time of the gift or inheritance with limited liability", the phrase "the amount equivalent to the amount of profit or loss calculated pursuant to Ministry of Finance Order on the assumption that the unsettled margin transactions or similar transactions were settled" in paragraph (2) may be deemed to be replaced with "the amount of profit or loss arising from the settlement prescribed in paragraph (8) or the deemed margin transaction profit or loss at a gift or inheritance with limited liability", and the phrase "the amount equivalent to the amount of profit or loss calculated pursuant to Ministry of Finance Order on the assumption that the unsettled derivatives transactions were settled" in paragraph (3) may be deemed to be replaced with "the amount of profit or loss arising from the settlement prescribed in paragraph (8) or the deemed derivatives profit or loss at a gift or inheritance with limited liability":

the transfer price for the transfer of the Securities and similar interests or the amount equivalent to the value of the Securities and similar interests at the time of the gift or inheritance with limited liability is lower than the amount equivalent to the value of the Securities and similar interests at the time of the gift or similar transfer (or, if an event prescribed in paragraph (8), item (i) of the preceding Article occurs after the time of the gift or similar transfer, the amount calculated pursuant to Cabinet Order based on that amount; the same applies in paragraph (11), item (i));

the amount equivalent to the amount of profit arising from the settlement of the unsettled margin transactions or similar transactions, or the deemed margin-transaction gain at the time of a gift or inheritance with limited liability, is lower than the deemed margin-transaction gain at the time of the gift or similar transfer (meaning the amount equivalent to the amount of profit prescribed in paragraph (2) as of the time of the gift or similar transfer; the same applies in item (iv) and paragraph (11), items (ii) and (iv));

the margin-transaction loss (meaning the amount equivalent to the amount of loss arising from the settlement of the unsettled margin transactions or similar transactions, or the deemed margin-transaction loss at the time of a gift or inheritance with limited liability; the same applies in the following item) exceeds the deemed margin-transaction loss at the time of the gift or similar transfer (meaning the amount equivalent to the amount of loss prescribed in paragraph (2) as of the time of the gift or similar transfer; the same applies in paragraph (11), item (iii));

a deemed margin-transaction gain at the time of the gift or similar transfer had arisen with regard to unsettled margin transactions or similar transactions on which a margin-transaction loss has arisen;

the amount equivalent to the amount of profit arising from the settlement of the unsettled derivatives transactions, or the deemed derivatives gain at the time of a gift or inheritance with limited liability, is lower than the deemed derivatives gain at the time of the gift or similar transfer (meaning the amount equivalent to the amount of profit prescribed in paragraph (3) as of the time of the gift or similar transfer; the same applies in item (vii) and paragraph (11), items (v) and (vii));

the derivatives loss (meaning the amount equivalent to the amount of loss arising from the settlement of the unsettled derivatives transactions, or the deemed derivatives loss at the time of a gift or inheritance with limited liability; the same applies in the following item) exceeds the deemed derivatives loss at the time of the gift or similar transfer (meaning the amount equivalent to the amount of loss prescribed in paragraph (3) as of the time of the gift or similar transfer; the same applies in paragraph (11), item (vi));

a deemed derivatives gain at the time of the gift or similar transfer had arisen with regard to unsettled derivatives transactions on which a derivatives loss has arisen.

If, with regard to Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions transferred by gift from a donor with deferred tax, a Nonresident receiving that transfer who has received from that donor with deferred tax (including the donor's heir; hereinafter the same applies in this paragraph) notice that the donor has been granted a tax payment grace period under Article 137-3, paragraph (1) or (2) with regard to income tax for the year that includes the date of the gift and notice of the base date for that tax payment grace period (including that Nonresident's heir) has, during the period from the date of the gift until the base date for that tax payment grace period, transferred or settled those Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions, or transferred them by a gift or inheritance with limited liability, that person must notify that donor with deferred tax, within two months from the date of the transfer, settlement, or gift or inheritance with limited liability (or, for an heir in the gift or inheritance with limited liability, the date on which the heir learned of the commencement of the succession), that the person has transferred, settled, or transferred by a gift or inheritance with limited liability those Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions, and of the type, the name of the issue, and the number of the Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions so transferred, settled, or transferred by a gift or inheritance with limited liability, and other particulars that serve as a reference.

The provisions of the preceding two paragraphs apply mutatis mutandis if a person set forth in one of the following items has, by the deadline prescribed in that item, transferred or settled the Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions that were transferred to a Nonresident through the gift or similar transfer, or has transferred them by a gift or inheritance with limited liability. In such a case, the phrase "from an applicable donor under a grace period" in the preceding paragraph is deemed to be replaced with "from the individual prescribed in item (i) of the following paragraph"; the phrase "a Nonresident receiving that transfer who has received from that applicable donor under a grace period (including the donor's heir; hereinafter the same applies in this paragraph) notice that the donor has been granted a tax payment grace period under Article 137-3, paragraph (1) or (2) with regard to income tax for the year that includes the date of the gift and notice of the base date for that tax payment grace period" is deemed to be replaced with "a Nonresident receiving that transfer"; the phrase "until the base date for that tax payment grace period" is deemed to be replaced with "until the deadline prescribed in that item"; and the phrase "notify that applicable donor under a grace period" is deemed to be replaced with "notify that individual".

the donee of an individual to whom the provisions of paragraphs (1) through (3) are to apply with regard to income tax for the year that includes the date of the gift: the Filing Deadline for that individual's income tax for the year that includes that date;

the heir of an individual to whom the provisions of paragraphs (1) through (3) are to apply with regard to income tax for the year that includes the date of commencement of the succession (limited to an individual for whom, at the time of the transfer, settlement, or transfer by a gift or inheritance with limited liability, all of the Nonresidents that received a transfer of Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions from that individual through hereditary succession or a legacy have given notification of a tax agent pursuant to Article 117, paragraph (2) (Tax Agent) of the Act on General Rules for National Taxes as prescribed by Cabinet Order): the Filing Deadline for that individual's income tax for the year that includes that date.

If Securities and similar interests that a donee of a donor with deferred tax or an heir with deferred tax has continued to hold since the date of the gift or similar transfer, or unsettled margin transactions or similar transactions or unsettled derivatives transactions that the donee or heir has not settled, fall under any of the following cases on the day on which five years have elapsed from the date of the gift or similar transfer (or, if the donor with deferred tax or heir with deferred tax has been granted a tax payment grace period under paragraph (1) or (2) of Article 137-3 pursuant to paragraph (3) of that Article, the day on which 10 years have elapsed; hereinafter the same applies in this paragraph), then, for the purpose of applying the provisions of paragraphs (1) through (3) with regard to the income tax of the donor with deferred tax, or of the decedent whose estate is taxed as a sale of the heir with deferred tax, for the year that includes the date of the gift or similar transfer, the phrase "the time of the gift or similar transfer" in those provisions may be deemed to be replaced with "the day on which five years have elapsed from the date of the gift or similar transfer (or, if the donor with deferred tax or heir with deferred tax prescribed in paragraph (11) with regard to the gift or similar transfer has been granted a tax payment grace period under paragraph (1) or (2) of Article 137-3 pursuant to paragraph (3) of that Article (Tax Payment Grace Period Where the Special Provisions on Capital Gains upon Transfer of Assets to a Nonresident by Gift or Similar Transfer Apply), the day on which 10 years have elapsed)":

the amount equivalent to the value of the Securities and similar interests on the day on which those five years have elapsed is lower than the amount equivalent to the value of the Securities and similar interests at the time of the gift or similar transfer;

the amount equivalent to the amount of profit calculated pursuant to Ministry of Finance Order on the assumption that the unsettled margin transactions or similar transactions were settled on the day on which those five years have elapsed is lower than the deemed margin-transaction gain at the time of the gift or similar transfer;

the amount equivalent to the amount of loss calculated pursuant to Ministry of Finance Order on the assumption that the unsettled margin transactions or similar transactions were settled on the day on which those five years have elapsed (referred to as the "deemed margin transaction loss at the five-year mark" in the following item) exceeds the deemed margin-transaction loss at the time of the gift or similar transfer;

a deemed margin-transaction gain at the time of the gift or similar transfer had arisen with regard to unsettled margin transactions or similar transactions on which that deemed margin transaction loss at the five-year mark has arisen;

the amount equivalent to the amount of profit calculated pursuant to Ministry of Finance Order on the assumption that the unsettled derivatives transactions were settled on the day on which those five years have elapsed is lower than the deemed derivatives gain at the time of the gift or similar transfer;

the amount equivalent to the amount of loss calculated pursuant to Ministry of Finance Order on the assumption that the unsettled derivatives transactions were settled on the day on which those five years have elapsed (referred to as the "deemed derivatives loss at the five-year mark" in the following item) exceeds the deemed derivatives loss at the time of the gift or similar transfer;

a deemed derivatives gain at the time of the gift or similar transfer had arisen with regard to unsettled derivatives transactions on which that deemed derivatives loss at the five-year mark has arisen.

For the purpose of applying the provisions of paragraph (6) through the preceding paragraph, Securities and similar interests that a donee, heir, legatee, or heir with deferred tax prescribed in those provisions has acquired after the date of the gift or similar transfer prescribed in those provisions due to an event set forth in any of the items of paragraph (11) of the preceding Article are deemed to have been continuously held by that donee, heir, legatee, or heir with deferred tax.

Beyond what is provided for in paragraph (6) through the preceding paragraph, Cabinet Order provides for the necessary particulars concerning the application of the provisions of paragraphs (1) through (5).