Income Tax Act

If a Resident makes a transfer as prescribed in Article 60-2, paragraph (4) (Special Provisions on Capital Gains upon Departure from Japan) of Securities and similar interests to which foreign exit tax provisions have applied, for the calculation of business income, capital gains, or miscellaneous income, the amount that was included in revenue in calculating the amount of income from the transfer, on the assumption that the Securities and similar interests had been transferred, in calculating the amount of foreign income tax (meaning foreign income tax prescribed in Article 95, paragraph (1) (Foreign Tax Credit); the same applies in the following paragraph and paragraph (3)) imposed under those foreign exit tax provisions is the amount required for the acquisition of the Securities and similar interests.

If a Resident settles unsettled margin transactions or similar transactions or unsettled derivatives transactions to which foreign exit tax provisions have applied, for the calculation of business income or miscellaneous income, the amount equivalent to the amount of profit calculated, on the assumption that the unsettled margin transactions or similar transactions or unsettled derivatives transactions had been settled, in calculating the amount of foreign income tax imposed under those foreign exit tax provisions is subtracted from the amount of profit or loss arising from the settlement (hereinafter referred to as the "gain or loss on settlement" in this paragraph), or the amount equivalent to the amount of loss calculated, on the assumption that the settlement had been made, in calculating the amount of that foreign income tax is added to the gain or loss on settlement.

The foreign exit tax provisions referred to in the preceding two paragraphs means the provisions of the laws and regulations of a foreign country, in the case where, if an event in that foreign country equivalent to a departure from Japan prescribed in Article 60-2, paragraph (1) or any other event prescribed by Cabinet Order occurs, foreign income tax is to be imposed pursuant to the provisions of the laws and regulations of that foreign country that are equivalent to the provisions of paragraph (1) through paragraph (3) of that Article, on the assumption that the Securities and similar interests held, or the unsettled margin transactions or similar transactions or unsettled derivatives transactions to whose contracts the person is a party, have been transferred or settled.

Cabinet Order provides for the necessary particulars concerning the application of the provisions of paragraphs (1) and (2).

If forested land generating timber income has been under continuous ownership since at least December 31, 1952, the necessary expenses deducted to calculate the timber income from that forested land comprise the sum total of the amount calculated pursuant to Cabinet Order as the value of the forested land as of January 1, 1953, and the monies spent on maintenance expenses, felling expenses, and any other expenses required to cultivate and transfer the forested land on and after January 1, 1953.

If an asset generating capital gains (other than assets as prescribed in the following paragraph and paragraph (4)) has been under continuous ownership since at least December 31, 1952, the acquisition costs deducted to calculate the amount of capital gains from that asset comprise the sum total of the amount calculated pursuant to Cabinet Order as the value of the asset as of January 1, 1953 (or the sum total of the amount needed to acquire the asset and the amount of monies expended on equipment expenses and improvement expenses prior to January 1, 1953, if there is proof that the value of the asset as of that day is less than this), plus the amount of monies expended on equipment expenses and improvement expenses for the asset on and after January 1, 1953.

If an asset generating capital gains has been under continuous ownership since at least December 31, 1952, and falls under the provisions of Article 38, paragraph (2) (Acquisition Costs of Assets That Depreciate Due to Use or with the Passage of Time), the acquisition costs deducted to calculate the capital gains from that asset comprise the amount arrived at when the sum total of the amounts set forth in the items of Article 38, paragraph (2), as calculated when the asset is deemed to have been acquired for the amount calculated pursuant to Cabinet Order as the value of the asset as of January 1, 1953, is deducted from the sum total of the amount calculated pursuant to Cabinet Order as the value of the asset as of January 1, 1953 (or the value of the asset as of that day, calculated pursuant to Cabinet Order based on the sum total of the amount needed to acquire the asset and the amount of monies expended on equipment expenses and improvement expenses prior to January 1, 1953, if there is proof that the value of the asset as of that day is less than this) plus the amount of monies expended on equipment expenses and improvement expenses for the asset on and after January 1, 1953.

If, in the calculation of capital gains from Securities, the amount needed to acquire a Security that was acquired on or before December 31, 1952, is a part of the amount used as the basis for calculating Security acquisition costs which are deducted to calculate capital gains, the amount calculated pursuant to Cabinet Order as the value of a Security so acquired as of January 1, 1953 (or the amount needed to acquire the Security, if there is proof that the value of the Security as of that day is less than this) is used as the amount needed to acquire the Security.

The amount of a loss that a Resident incurs in respect of anything prescribed by Cabinet Order as an asset that is not ordinarily necessary in everyday life, due to Disaster, robbery, or misappropriation (other than any part of the loss covered by insurance benefits, compensation for damage, or anything similar to these) is deemed to be the amount that, pursuant to Cabinet Order, is to be deducted to calculate capital gains in the year in which the day that the person incurs the loss falls or in the following year.

Cabinet Order provides for the necessary particulars concerning the calculation of the amount of a loss as prescribed in the preceding paragraph.

If a Resident closes a business that is meant to generate real property income, business income, or timber income and there proves to be an amount of expenses or losses in connection with the business which it would have been necessary to include in the necessary expenses that would have been used to calculate the Resident's real property income, business income, or timber income in or after the current year if the Resident had not closed the business, that amount is included in the necessary expenses that are used to calculate the Resident's real property income, business income, or timber income for the year in which the day that the person closes the business falls (or for the most recent year in which there were gross revenues constituting one of these types of income, if there was none for the year in which that day falls) or for the prior year.

If all or some of the revenue or gross revenue (other than revenue arising from business that is meant to generate real property income or timber income; hereinafter the same applies in this paragraph) used as the basis for calculating the Income in Each Class (other than business income; hereinafter the same applies in this paragraph) for the year proves to be uncollectible or if all or some of such revenue or gross revenue must be returned due to circumstances as provided by Cabinet Order, the part of the Income in Each Class corresponding to the amount that proves to be uncollectible or corresponding to the amount that must be returned is deemed not to have been included in the calculation of the Income in Each Class, pursuant to Cabinet Order.

If an asset (other than one falling under the provisions of Article 33, paragraph (2), item (i) (Income Not Included as Capital Gains)) is transferred (or if an action provided for by Cabinet Order which is referred to in paragraph (1) of that Article is undertaken) in performance of an obligation guaranteed by the transferor and it comes to pass that the whole or a part of the right to reimbursement for performance of that obligation cannot be exercised, the amount in respect of which the right to reimbursement cannot be exercised (excluding an amount included in the necessary expenses that are used to calculate real property income, business income, or timber income) is deemed to be the amount that proves to be uncollectible as prescribed in the preceding paragraph, and the provisions of that paragraph apply.

The provisions of the preceding paragraph apply only if the Tax Return, Amended Return, or written request for Reassessment contains a statement to the effect that the provisions of that paragraph are to be applied, and a document stating the type of the asset transferred as referred to in that paragraph and other particulars specified by Ministry of Finance Order is attached to it.

If a Resident is contracted for long-term, large-scale construction work (meaning construction work (this includes manufacturing and software development; hereinafter the same applies in this Article) with a period of at least one year between the start date of construction and the due date for delivering the object stipulated in the contract for the construction work, which falls under the category of large-scale construction work that Cabinet Order prescribes and which meets any other requirements that Cabinet Order prescribes; hereinafter the same applies in this Article), the parts of the revenue and expenses associated with the contract for the long-term, large-scale construction work which are calculated based on the construction progress criteria that Cabinet Order prescribes as the amounts of revenue and expenses for the year in question are included in the gross revenue and necessary expenses that are used to calculate business income in each year from the year in which the start date falls until the year in which the due date falls.

If a Resident is contracted for construction work (but only if the object will not be delivered during the year in which the construction start date falls (hereinafter referred to as the "year construction starts" in this paragraph); this excludes construction work falling under the category of long-term, large-scale construction work; hereinafter the same applies in this Article) and accounts for the amounts of revenue and expenses from the contract for construction work based on the construction progress criteria that Cabinet Order prescribes, in each year from the year construction starts up to the year before the one in which the due date for delivering the object falls, the amounts of revenue and expenses so accounted for are included in the gross revenue and necessary expenses that are used to calculate business income for the relevant years; provided, however, that this does not apply as regards the calculation of business income beginning in any year after one in which the Resident fails to account for the amounts of revenue and expenses from the contract for construction work based on the construction progress criteria in any year after the year construction starts.

Cabinet Order establishes special provisions on the handling of the amounts of revenue and expenses from a contracts for long-term, large-scale construction work and contracts for construction work in the event that a Resident subject to the provisions of paragraph (1) or the preceding paragraph dies, and provides for other necessary particulars concerning the application of the provisions of the preceding two paragraphs in such a case.

An amount that is to be included in the gross revenue and necessary expenses that are used to calculate real property income or business income (other than from the felling of trees in forested land or the transfer of forested land) in the relevant year for a Resident who has been approved by the district director to file a Blue Return, who conducts business that is meant to generate real property income or business income, and who meets the requirements prescribed by Cabinet Order as a small enterprise may be treated as an amount earned from or spent in connection with business in the year, pursuant to Cabinet Order.

An amount that is to be included in the gross revenue and necessary expenses that are used to calculate miscellaneous income from business that is meant to generate miscellaneous income (other than from the felling of trees in forested land or the transfer of forested land) in the relevant year for a Resident who conducts business that is meant to generate miscellaneous income and who meets the requirements prescribed by Cabinet Order as a person conducting small-scale business may be treated as an amount earned from or spent in connection with business in the year, pursuant to Cabinet Order.

Cabinet Order provides for the procedures for receiving the application of the provisions of the preceding two paragraphs and other necessary particulars concerning the application of the provisions of the preceding two paragraphs.