Act on Special Measures Concerning Taxation

A domestic corporation is liable to pay income tax with respect to interest (excluding interest subject to the provisions of Article 3-3, paragraph (2) or paragraph (6) or Article 41-12-2, paragraph (1)) receivable on private foreign bonds (meaning bonds issued outside Japan by a corporation (for bonds issued by a foreign corporation, limited to bonds specified by Cabinet Order as those pertaining to the business conducted by the foreign corporation through its permanent establishment), interest on which is to be paid outside Japan; the same applies hereinafter in this Article) which have been issued on or after April 1, 1998, and income tax is imposed by applying a tax rate of 15 percent to the amount of interest receivable (for interest on private foreign bonds issued by a foreign corporation, to the amount specified by Cabinet Order as that pertaining to the business conducted by the foreign corporation through its permanent establishment).

A person who pays interest (excluding interest subject to the provisions of Article 3-3, paragraph (3) or paragraph (6) or Article 41-12-2, paragraph (4)) on private foreign bonds that the person has issued on or after April 1, 1998, to a resident or domestic corporation, upon payment, must collect income tax equivalent to the amount calculated by multiplying the amount of interest payable (for interest on private foreign bonds issued by a foreign corporation, the amount specified by Cabinet Order as that pertaining to the business conducted by the foreign corporation through its permanent establishment) by a tax rate of 15 percent, and pay it to the State no later than the last day of the month following the month that includes the date of collection.

Income tax to be collected and paid pursuant to the provisions of the preceding paragraph is deemed to be withholding at the source as prescribed in Article 2, paragraph (1), item (xlv) of the Income Tax Act, and the provisions of the Act, the Act on General Rules for National Taxes, and the National Tax Collection Act are applied thereto. In this case, where the person who is to receive interest receivable on private foreign bonds prescribed in paragraph (1) is a domestic corporation, with regard to the application of the provisions of the Corporation Tax Act to the domestic corporation, the phrase "or prize money" in Article 68, paragraph (1) of the Act is deemed to be replaced with "or prize money, or interest receivable on private foreign bonds prescribed in Article 6, paragraph (1) (Special Provisions on Taxation on Interest from Foreign Private Bonds) of the Act on Special Measures Concerning Taxation", and the phrase "the Act" is deemed to be replaced with "the Income Tax Act or the Act on Special Measures Concerning Taxation".

Where a nonresident or foreign corporation receives a payment of interest on private foreign bonds (excluding those whose amount of interest is calculated on the basis of an indicator specified by Cabinet Order concerning the person who issues the private foreign bonds or a specially-related person of the issuer (meaning a person who has a special relationship specified by Cabinet Order with the person who issues the private foreign bonds; the same applies hereinafter in this Article); the same applies in the following paragraph, paragraph (6), paragraph (12), and paragraph (14)) issued on or after April 1, 1998, and the nonresident or foreign corporation has submitted, upon receiving payment of interest, a written application stating that that person or it seeks the application of the provisions of this paragraph with respect to the interest receivable, as well as their or its name and their domicile or residence or the location of its head office or principal office, each of which is located outside Japan, and any other matters specified by Order of the Ministry of Finance (hereinafter referred to in this Article as a "written application for a tax exemption"), via the person who pays the interest (in the case where the interest is paid via a person in charge of handling payment specified by Cabinet Order (hereinafter referred to in this paragraph, paragraph (8), and paragraph (10) as a "person in charge of handling payment"), submission is made via the person in charge of handling payment and the person who pays the interest), to the competent district director with jurisdiction over the place for tax payment pursuant to the provisions of Article 17 of the Income Tax Act which pertains to the person who makes payment in terms of the interest (in the case where another place has been designated pursuant to the provisions of Article 18, paragraph (2) of the Act: the designated place for tax payment), income tax is not imposed on the interest to be received.

The provisions of the preceding paragraph do not apply to interest on private foreign bonds received by a specially-related person of the person who issues the private foreign bonds.

The provisions of paragraph (4) do not apply to interest on private foreign bonds received by a nonresident who has a permanent establishment, which falls under the domestic source income listed in Article 164, paragraph (1), item (i), (a) of the Income Tax Act. In this case, where the nonresident has submitted a written application for a tax exemption under paragraph (4) and is not a specially-related person of the person who issues the private foreign bonds, the provisions of Article 212 of that Act do not apply to the interest so received, and the provisions of Article 8-5, paragraph (1) apply by deeming the phrase "the following" in that paragraph to be replaced with "the following (excluding those for which income tax has not been collected under the provisions of Article 212 of that Act pursuant to the second sentence of Article 6, paragraph (6))".

In the case referred to in paragraph (4), where a written application for a tax exemption has been submitted to the district director of the tax office prescribed in the paragraph, it is deemed that the submission to the district director of the tax office has been made when the written application has been received by the person who pays the interest prescribed in the paragraph.

A nonresident or foreign corporation referred to in paragraph (4) or a nonresident referred to in the second sentence of paragraph (6) (hereinafter referred to in this paragraph as a "nonresident, etc.") may, in lieu of submitting a written application for a tax exemption under paragraph (4), provide the person who pays the interest referred to in that paragraph (in the case where the interest is paid via a person in charge of handling payment, the person who pays the interest, via the person in charge of handling payment) with the matters to be stated in the written application for a tax exemption by electronic or magnetic means (meaning a means using an electronic data processing system or any other means using information and communications technology, which is specified by Order of the Ministry of Finance). In this case, the nonresident, etc. is deemed to have submitted the written application for a tax exemption to the person who pays the interest.

With regard to the application of the provisions of paragraph (7) in the case where the provisions of the preceding paragraph apply, in that paragraph, the phrase "a written application for a tax exemption" is deemed to be replaced with "the matters to be stated in a written application for a tax exemption", and the phrase "when the written application has been received by" is deemed to be replaced with "when the matters have been provided to".

Where a nonresident or foreign corporation receives payment of interest on specified private foreign bonds issued on or after April 1, 1998, for which the nonresident or foreign corporation has, pursuant to the provisions of Cabinet Order, entrusted custody with a person in charge of handling payment (excluding the case where a specially-related person of the person who issues the specified private foreign bonds receives the payment), if [1] the person in charge of handling payment thus entrusted with custody (hereinafter referred to in this paragraph as the "person in charge of handling custody and payment") who provides intermediary, brokerage or agent services (hereinafter referred to in this paragraph as the "intermediary services, etc.") for the receipt of interest on the specified private foreign bonds has, before receiving the delivery of such interest in the course of the intermediary services, etc., given notice of the matters specified in each of the following items for the category listed in the relevant item and any other matters specified by Order of the Ministry of Finance with respect to the person who is to receive the interest (excluding interest subject to the provisions of Article 3-3, paragraph (3) or paragraph (6); hereinafter the same applies in this paragraph) (these matters hereinafter referred to in this paragraph and paragraph (15) as "interest recipient information"), to the person who pays the interest (in the case where the interest is delivered via another person in charge of handling payment with whom the person in charge of handling custody and payment has further entrusted custody, notice is given to the person who pays the interest via such other person in charge of handling payment), and [2] the person who pays the interest has, upon payment of the interest, prepared a document stating the matters concerning the person who is to receive the interest and any other matters specified by Order of the Ministry of Finance (limited to a document prepared based on the interest recipient information provided by the person in charge of handling custody and payment; referred to in that paragraph as the "document identifying the interest recipient"), and submitted it to the competent district director with jurisdiction over the place for tax payment prescribed in Article 17 of the Income Tax Act which pertains to the person who makes payment in terms of the interest (in the case where another place has been designated pursuant to the provisions of Article 18, paragraph (2) of the Act: the designated place for tax payment), the nonresident or foreign corporation is deemed to have submitted a written application for a tax exemption pursuant to the provisions of paragraph (4) with respect to the interest receivable thereby:

where all persons who are to receive payment of the interest are nonresidents or foreign corporations that are not specially-related persons of the person who issues the specified private foreign bonds: This fact; or

where there is a resident(s), domestic corporation(s), or nonresident(s) or foreign corporation(s) that are specially-related persons of the person who issues the specified private foreign bonds among the persons who are to receive payment of the interest: The total amount receivable by the nonresidents and foreign corporations that are not specially-related persons of the person who issues the specified private foreign bonds, among the persons who are to receive the interest.

The provisions of paragraph (4) and paragraph (7) through the preceding paragraph apply mutatis mutandis where a financial institution or financial instruments business operator specified by Cabinet Order (limited to a domestic corporation; referred to in the following paragraph as a "domestic financial institution, etc.") receives payment of interest (excluding interest subject to Article 3-3, paragraph (2) or paragraph (6)) on private foreign bonds issued on or after April 1, 1998. In this case: in paragraph (4), the phrase "private foreign bonds (excluding those whose amount of interest is calculated on the basis of an indicator specified by Cabinet Order concerning the person who issues the private foreign bonds or a specially-related person of the issuer (meaning a person who has a special relationship specified by Cabinet Order with the person who issues the private foreign bonds; the same applies hereinafter in this Article); the same applies in the following paragraph, paragraph (6), paragraph (12), and paragraph (14))" is deemed to be replaced with "private foreign bonds", and the phrase "their or its name and their domicile or residence or the location of its head office or principal office, each of which is located outside Japan" is deemed to be replaced with "its name, the location of its head office or principal office, and its corporate number prescribed in Article 2, paragraph (16) of the Act on the Use of Numbers to Identify a Specific Individual in Administrative Procedures"; in the preceding paragraph, the phrase "custody with a person in charge of handling payment (excluding the case where a specially-related person of the person who issues the specified private foreign bonds receives the payment)" is deemed to be replaced with "custody with a person in charge of handling payment"; in item (i) of that paragraph, the phrase "nonresidents or foreign corporations" is deemed to be replaced with "nonresidents or foreign corporations or domestic financial institutions, etc. prescribed in the following paragraph"; and in item (ii) of that paragraph, the phrase "domestic corporation(s)" is deemed to be replaced with "domestic corporation(s) (excluding domestic financial institution(s), etc. prescribed in the following paragraph)", and the phrase "and foreign corporations" is deemed to be replaced with "and foreign corporations and domestic financial institutions, etc. prescribed in that paragraph".

Specified private foreign bonds prescribed in paragraph (10) mean private foreign bonds that satisfy the following requirements:

in the underwriting contract, etc. (meaning a contract for underwriting, dealings in a public offering or secondary distribution, or any other operations equivalent thereto pertaining to the issue of bonds (hereinafter referred to in this item as "underwriting, etc."); the same applies hereinafter in this item) concluded by the person who issues the private foreign bonds, it is provided that the person who performs the underwriting, etc. of the private foreign bonds must not pressure any resident, domestic corporation (excluding a domestic financial institution, etc.), or nonresident or foreign corporation that is a specially-related person of the person who issues the private foreign bonds (excluding a person concluding the underwriting contract, etc. that is a nonresident or foreign corporation that is a specially-related person of the person who issues the private foreign bonds, in the case where it acquires or buys, from another person concluding the underwriting contract, etc., the remainder of the private foreign bonds pertaining to the underwriting contract, etc. that the other person was unable to have acquired or to sell in full in a public offering or secondary distribution or any other operations equivalent thereto under the underwriting contract, etc.) into acquiring or buying the private foreign bonds by way of public offering or secondary distribution, dealings in a public offering or secondary distribution, or any other operations equivalent thereto under the underwriting contract, etc.; and

it is stated on the certificates of the private foreign bonds and in the prospectus pertaining to their issue (where no certificates of the private foreign bonds have been issued, in the prospectus pertaining to the issue of the private foreign bonds) that income tax is imposed on interest on the private foreign bonds where a resident, domestic corporation, or nonresident or foreign corporation that is a specially-related person of the person who issues the private foreign bonds receives payment of interest on the private foreign bonds (excluding the case where a domestic financial institution, etc. has submitted a written application for a tax exemption pursuant to the provisions of paragraph (4) and paragraph (7) as applied mutatis mutandis pursuant to the preceding paragraph (including the case where it is deemed to have submitted a written application for a tax exemption pursuant to the provisions of paragraph (10) as applied mutatis mutandis pursuant to the preceding paragraph), and the case where a domestic corporation, financial institution, or financial instruments business operator, etc. prescribed in Article 3-3, paragraph (6) (hereinafter referred to in this item as a "public corporation, etc.") receives the payment through a person in charge of handling payment in Japan prescribed in paragraph (1) of that Article (limited to the case where the public corporation, etc. has submitted the return prescribed in paragraph (6) of that Article)).

The provisions of the preceding paragraphs apply mutatis mutandis to interest on foreign-denominated bonds (limited to foreign-denominated bonds as prescribed in Article 2, paragraph (1) and Article 4 of the Act on Issue of Government Bonds in Foreign Currency (Act No. 63 of 1963), which are issued outside Japan and interest on which is paid outside Japan) issued on or after April 1, 1998. In this case, the phrase "Article 6, paragraph (1) (Special Provisions on Taxation on Interest from Foreign Private Bonds)" in paragraph (3) is deemed to be replaced with "Article 6, paragraph (1) as applied mutatis mutandis pursuant to Article 6, paragraph (13) (Special Provisions on Taxation on Interest from Foreign Private Bonds)", and the phrase "the second sentence of Article 6, paragraph (6)" in paragraph (6) is deemed to be replaced with "the second sentence of Article 6, paragraph (6) as applied mutatis mutandis pursuant to Article 6, paragraph (13)".

A person who has issued private foreign bonds and has not collected income tax pursuant to the provisions of Article 212 of the Income Tax Act with regard to interest on the private foreign bonds on the grounds that the provisions of paragraph (4) or the second sentence of paragraph (6) apply must, pursuant to the provisions of Cabinet Order, submit to the district director a document stating the name or title of any nonresident or foreign corporation that is a specially-related person of the issuer, their or its domicile or residence or the location of its head office or principal office outside Japan, and other matters specified by Order of the Ministry of Finance.

Beyond what is specified in paragraph (3), the procedure for confirmation of the matters stated in a written application for a tax exemption and any other matters concerning the submission of a written application for a tax exemption, matters concerning a notice of the interest recipient information as well as preservation and management of such information provided in the notice, special provisions for omitting a notice in the case where there is no change in the interest recipient information provided in the previous notice, matters concerning the submission of a document identifying the interest recipient, matters concerning documents to be attached to a tax return which is filed by a person who has been subject to the collection of income tax pursuant to the provisions of paragraph (2) with respect to interest on private foreign bonds, and other necessary matters concerning the application of the provisions of paragraph (1), paragraph (2), and paragraph (4) to the preceding paragraph are specified by Cabinet Order.