Act on Special Measures Concerning Taxation

Where a resident or nonresident who has a permanent establishment who files a tax return (including a return under the provisions of Article 123, paragraph (1) of the Income Tax Act (including as applied mutatis mutandis pursuant to Article 166 of that Act) as applied mutatis mutandis pursuant to paragraph (9) (including as applied mutatis mutandis pursuant to Article 37-13-3, paragraph (10)); hereinafter the same applies in this Article) has an amount of capital loss on listed shares, etc. for any year from 2016 onward, notwithstanding the provisions of the second sentence of Article 37-11, paragraph (1), the amount of capital loss on listed shares, etc. is deducted in calculating the amount of dividend income, etc. on listed shares, etc. prescribed in Article 8-4, paragraph (1) for the year covered by the tax return, up to the amount of dividend income, etc. on listed shares, etc. for that year.

The amount of capital loss on listed shares, etc. prescribed in the preceding paragraph means, out of the amount calculated pursuant to the provisions of Cabinet Order as the amount of losses arising from the resident or nonresident who has a permanent establishment having made any of the following transfers of listed shares, etc. among transfers of listed shares, etc. (excluding those that fall under the provisions of Article 32, paragraph (2)), the amount calculated pursuant to the provisions of Cabinet Order as the portion that cannot be fully deducted even after deduction in calculating the amount of capital gains, etc. on listed shares, etc. prescribed in Article 37-11, paragraph (1) for the year that includes the day on which the person made that transfer:

a transfer of listed shares, etc. made by entrusting the sale to a financial instruments business operator prescribed in Article 2, paragraph (9) of the Financial Instruments and Exchange Act (limited to a person that engages in Type I Financial Instruments Business prescribed in Article 28, paragraph (1) of that Act; referred to as a "financial instruments business operator" in the following item) or a registered financial institution prescribed in Article 2, paragraph (11) of that Act (referred to as a "registered financial institution" in item (iii));

a transfer of listed shares, etc. to a financial instruments business operator;

a transfer of listed shares, etc. to a registered financial institution or an investment trust management company prescribed in Article 2, paragraph (11) of the Act on Investment Trusts and Investment Corporations, which is specified by Cabinet Order;

a transfer of listed shares, etc. due to a reason prescribed in Article 37-10, paragraph (3) or the items of Article 37-11, paragraph (4);

a transfer of listed shares, etc., through a share exchange or share transfer carried out by the corporation that issued the listed shares, etc., to the wholly owning parent corporation in a share exchange prescribed in Article 2, item (xii)-6-3 of the Corporation Tax Act or the wholly owning parent corporation in a share transfer prescribed in item (xii)-6-6 of that Article pertaining to that corporation;

a transfer of shares less than one unit prescribed in Article 192, paragraph (1) of the Companies Act made to the corporation that issued the listed shares, etc. pursuant to the provisions of that paragraph, or any other transfer of listed shares, etc. similar thereto that is specified by Cabinet Order;

a transfer of fractional shares prescribed in Article 220-6, paragraph (1) of the Commercial Code (Act No. 48 of 1899) prior to the amendment by the provisions of Article 64 of the Act on Arrangement of Relevant Acts Incidental to Enforcement of the Companies Act (Act No. 87 of 2005), made to the corporation that issued the listed shares, etc. pursuant to the provisions of that paragraph;

a transfer of listed shares, etc. through an auction of listed shares, etc. pertaining to fractions of less than one share or one unit, carried out by the corporation that issued the listed shares, etc. pursuant to the provisions of Article 234, paragraph (1) or Article 235, paragraph (1) of the Companies Act (including as applied mutatis mutandis pursuant to other Acts) or other provisions specified by Cabinet Order (including a sale by a method other than auction pursuant to the provisions of Article 234, paragraph (2) of the Companies Act (including as applied mutatis mutandis pursuant to Article 235, paragraph (2) of that Act or other Acts) or other provisions specified by Cabinet Order);

a transfer of listed shares, etc. entrusted to a business office (meaning a business office or other office located in Japan; the same applies hereinafter in this paragraph) of a trust company (including a financial institution prescribed in Article 1, paragraph (1) of the Act on Engagement in Trust Business by Financial Institutions that engages in trust business prescribed in that paragraph pursuant to that Act; the same applies in the following item), which is made, through that business office, by entrusting the sale to a foreign securities firm prescribed in Article 58 of the Financial Instruments and Exchange Act (simply referred to as a "foreign securities firm" in the following item);

a transfer of listed shares, etc. entrusted to a business office of a trust company, which is made to a foreign securities firm through that business office;

a transfer of listed shares, etc. deemed to have been made pursuant to the provisions of Article 60-2, paragraph (1) or Article 60-3, paragraph (1) of the Income Tax Act.

The provisions of paragraph (1) apply only where the tax return for the year for which the application of the provisions of that paragraph is sought states that the application of the provisions of that paragraph is sought, and has attached to it a written statement concerning the calculation of the amount of capital loss on listed shares, etc. and other documents specified by Order of the Ministry of Finance.

With regard to the application of the provisions of Article 8-4 in the case where the provisions of paragraph (1) apply, the phrase "calculated amount (" in paragraph (1) of that Article is deemed to be replaced with "calculated amount (where the provisions of Article 37-12-2, paragraph (1) apply, the amount after that application;".

Where a resident or nonresident who has a permanent establishment who files a tax return has an amount of capital loss on listed shares, etc. that arose in any year within the three years before that year (excluding any amount deducted in or before the previous year by applying the provisions of this paragraph), notwithstanding the provisions of the second sentence of Article 37-11, paragraph (1), an amount equivalent to that amount of capital loss on listed shares, etc. is, pursuant to the provisions of Cabinet Order, deducted in calculating the amount of capital gains, etc. on listed shares, etc. and the amount of dividend income, etc. on listed shares, etc. for the year covered by the tax return, up to the amount of capital gains, etc. on listed shares, etc. prescribed in that paragraph and the amount of dividend income, etc. on listed shares, etc. prescribed in Article 8-4, paragraph (1) (where the provisions of paragraph (1) apply, the amount after that application; the same applies hereinafter in this paragraph) for that year.

The amount of capital loss on listed shares, etc. prescribed in the preceding paragraph means, out of the amount calculated pursuant to the provisions of Cabinet Order as the amount of losses arising from the resident or nonresident who has a permanent establishment having made, on or after January 1, 2003, any of the transfers of listed shares, etc. listed in the items of paragraph (2) among transfers of listed shares, etc. (excluding those that fall under the provisions of Article 32, paragraph (2)), the amount calculated pursuant to the provisions of Cabinet Order as the portion that cannot be fully deducted even after deduction in calculating the amount of capital gains, etc. on listed shares, etc. prescribed in Article 37-11, paragraph (1) for the year that includes the day on which the person made that transfer (excluding any amount deducted by applying the provisions of paragraph (1)).

The provisions of paragraph (5) apply only where the resident or nonresident who has a permanent establishment prescribed in that paragraph has filed, for income tax for the year in which the amount of capital loss on listed shares, etc. prescribed in the preceding paragraph arose, a tax return to which a written statement concerning the calculation of that amount of capital loss on listed shares, etc. and other documents specified by Order of the Ministry of Finance are attached, and has continuously filed tax returns thereafter, and where the tax return referred to in paragraph (5) has attached to it a written statement concerning the calculation of the amount to be deducted under the provisions of that paragraph and other documents specified by Order of the Ministry of Finance.

With regard to the application of the provisions of Article 8-4 (excluding paragraph (3)) and Article 37-11 (excluding paragraph (6)) in the case where the provisions of paragraph (5) apply, the phrase "calculated amount (" in Article 8-4, paragraph (1) and Article 37-11, paragraph (1) is deemed to be replaced with "calculated amount (where the provisions of Article 37-12-2, paragraph (5) apply, the amount after that application;".

The provisions of Article 123, paragraph (1) (excluding item (ii)) of the Income Tax Act (including as applied mutatis mutandis pursuant to Article 166 of that Act) apply mutatis mutandis to the case where a resident or nonresident who has a permanent establishment seeks the application of the provisions of paragraph (5) in or after the year following the relevant year, and the case falls under neither the case where the person must file a return under the provisions of Article 120, paragraph (1) of that Act (including as applied mutatis mutandis pursuant to Article 166 of that Act) for income tax for the relevant year nor the case where the person may file a return under the provisions of Article 122, paragraph (1) or Article 123, paragraph (1) of that Act (including as applied mutatis mutandis pursuant to Article 166 of that Act). In this case, in Article 123, paragraph (1) of the Income Tax Act, the phrase "seeks the application of the provisions of Article 70, paragraph (1) or paragraph (2) (Deduction for Carryover of Net Loss) or Article 71, paragraph (1) (Deduction for Carryover of Casualty Loss), or seeks a refund under the provisions of Article 142, paragraph (2) (Procedures for Issuing Refunds Based on Carryback of Net Loss), during the third period" is deemed to be replaced with "seeks the application of the provisions of Article 37-12-2, paragraph (5) (Deduction for Carryover of Capital Loss on Listed Shares, etc.) of the Act on Special Measures Concerning Taxation", and the phrase "listed in the items of the following paragraph" is deemed to be replaced with "the amount of capital loss on listed shares, etc. prescribed in paragraph (6) of that Article that arose in that year (hereinafter referred to in this paragraph as the 'amount of capital loss on listed shares, etc.'), the amount of capital loss on listed shares, etc. that arose in each year within the three years before that year, and other matters specified by Cabinet Order"; in item (i) of that paragraph, the phrase "amount of net loss" is deemed to be replaced with "amount of capital loss on listed shares, etc."; and in item (iii) of that paragraph, the phrase "amount of net loss and casualty loss (Article 70, paragraph (1) or paragraph (2) or Article 71, paragraph (1)" is deemed to be replaced with "amount of capital loss on listed shares, etc. (Article 37-12-2, paragraph (5) of the Act on Special Measures Concerning Taxation", the phrase "and excluding those that formed the basis for calculating the amount to be refunded pursuant to the provisions of Article 142, paragraph (2); the same applies in that item" is deemed to be replaced with "excluding", the phrase "those amounts" is deemed to be replaced with "that amount of capital loss on listed shares, etc.", and the phrase "amount of gross income, amount of retirement income and amount of timber income" is deemed to be replaced with "amount of capital gains, etc. on listed shares, etc. prescribed in Article 37-11, paragraph (1) (Special Provisions on Taxation on Capital Gains, etc. on Listed Shares, etc.) of that Act and amount of dividend income, etc. on listed shares, etc. prescribed in Article 37-12-2, paragraph (5) of that Act".

With regard to the application of the provisions of the Act on General Rules for National Taxes in the case where the provisions of paragraph (5) apply, in Article 2, item (vi), (c), 1. of that Act, the phrase "or casualty loss" is deemed to be replaced with "or casualty loss, or the amount of capital loss on listed shares, etc. prescribed in Article 37-12-2, paragraph (6) (Deduction for Carryover of Capital Loss on Listed Shares, etc.) of the Act on Special Measures Concerning Taxation", and the phrase "that Act" is deemed to be replaced with "those Acts".

Special provisions on the matters to be stated in the tax return to be filed in the case where the application of the provisions of paragraph (5) is sought in or after the year following the relevant year or in that year, and other necessary matters concerning the application of the provisions of the preceding paragraphs are specified by Cabinet Order.