Act on Special Measures Concerning Taxation

Where a resident or nonresident who has a permanent establishment (limited to one that satisfies the requirements specified by Cabinet Order, such as being a promoter of the stock company) who has, on or after April 1, 2023, acquired by payment shares issued upon its establishment (hereinafter referred to in this paragraph as "specified shares issued at establishment") by a stock company that falls under a specified new small and medium sized enterprise prescribed in Article 6 of the Act on Strengthening the Management of Small and Medium-Sized Enterprises, etc. as of December 31 of the year that includes the day of its establishment and that satisfies the requirements specified by Order of the Ministry of Finance, such as being a stock company for which the period from the day of its establishment is less than one year, has acquired those specified shares issued at establishment by payment, with regard to the application of the provisions of Article 37-10, paragraph (1) and Article 37-11, paragraph (1), pursuant to the provisions of Cabinet Order, in calculating the amount of capital gains, etc. on general shares, etc. prescribed in Article 37-10, paragraph (1) or the amount of capital gains, etc. on listed shares, etc. prescribed in Article 37-11, paragraph (1) for that year, the total of the amounts specified by Cabinet Order as the amounts required for the acquisition of the specified shares issued at establishment acquired by that payment during that year (limited to those specified by Cabinet Order as being held on December 31 of that year; hereinafter referred to in this Article as "deductible specified shares acquired at incorporation") (hereinafter referred to in this paragraph, paragraph (3) and paragraph (4) as the "deductible acquisition cost of specified shares acquired at incorporation") (where the total of the amount of capital gains, etc. on general shares, etc. before application (meaning the amount of capital gains, etc. on general shares, etc. prescribed in Article 37-10, paragraph (1) as calculated without applying the provisions of this paragraph; the same applies in paragraph (3)) and the amount of capital gains, etc. on listed shares, etc. before application (meaning the amount of capital gains, etc. on listed shares, etc. prescribed in Article 37-11, paragraph (1) as calculated without applying the provisions of this paragraph; the same applies in paragraph (3)) (hereinafter referred to in this paragraph and paragraph (4) as the "total amount of income from transfer, etc. of shares, etc. before application") is less than the total of the deductible acquisition cost of specified shares acquired at incorporation, an amount equivalent to that total amount of income from transfer, etc. of shares, etc. before application) is deducted.

With regard to deductible specified shares acquired at incorporation to which the provisions of the preceding paragraph or the provisions of paragraph (3) or paragraph (6) of the preceding Article as applied mutatis mutandis pursuant to paragraph (4) (including as applied mutatis mutandis pursuant to paragraph (9), item (ii) of that Article) have been applied, and shares of the same class as those deductible specified shares acquired at incorporation that were acquired by payment during the year in which those provisions were applied, the provisions of paragraph (1) of the preceding Article or the provisions of paragraph (3) or paragraph (6) of that Article (including as applied mutatis mutandis pursuant to paragraph (9), item (ii) of that Article) do not apply.

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 deductible acquisition cost of specified shares acquired at incorporation, the amount of capital gains, etc. on general shares, etc. before application, the amount of capital gains, etc. on listed shares, etc. before application and the deduction under that paragraph, and other documents specified by Order of the Ministry of Finance.

The provisions of paragraphs (3) through (13) of the preceding Article apply mutatis mutandis to the case where there is an undeducted amount for specified shares issued at establishment (meaning, where the total amount of income from transfer, etc. of shares, etc. before application for that year is less than the total of the deductible acquisition cost of specified shares acquired at incorporation, the amount of the shortfall; the same applies in the following paragraph) arising in that year of a resident or nonresident who has a permanent establishment prescribed in paragraph (1) who has acquired deductible specified shares acquired at incorporation by payment on or after January 1, 2026. In this case, in paragraph (3) of that Article, the phrase "undeducted amount for specified shares arising in that year (meaning, where the total amount of income from transfer, etc. of shares, etc. before application for that year is less than the total of the deductible acquisition cost of specified shares, the amount calculated pursuant to the provisions of Cabinet Order as the portion of the shortfall pertaining to specified shares specified in item (i) or item (ii) of that paragraph" is deemed to be replaced with "undeducted amount for specified shares issued at establishment arising in that year (meaning the undeducted amount for specified shares issued at establishment prescribed in paragraph (4) of the following Article"; in item (i) of that paragraph, the phrase "for the year preceding that year (where the provisions of this paragraph as applied mutatis mutandis pursuant to paragraph (4) of the following Article apply, the amount obtained by deducting the undeducted amount for specified shares issued at establishment prescribed in paragraph (4) of that Article from that amount of taxable capital gains, etc. on general shares, etc. and amount of taxable capital gains, etc. on listed shares, etc.; the same applies in the following item)" is deemed to be replaced with "for the year preceding that year", and the phrase "calculated in accordance with" is deemed to be replaced with "calculated by applying"; in item (ii) of that paragraph, the phrase "undeducted amount for specified shares" is deemed to be replaced with "undeducted amount for specified shares issued at establishment"; in paragraph (4) of that Article, the phrase "for the year preceding that year (where the provisions of the preceding paragraph as applied mutatis mutandis pursuant to paragraph (4) of the following Article apply, the amount obtained by deducting the amount of income tax equivalent to the deducted amount prescribed in that paragraph)" is deemed to be replaced with "for the year preceding that year", and the phrase "a claim for a refund under the preceding paragraph" is deemed to be replaced with "a claim for a refund under that paragraph"; in paragraph (5) of that Article, the phrase "specified shares specified in paragraph (1), item (i) or item (ii)" is deemed to be replaced with "specified shares issued at establishment prescribed in paragraph (1) of the following Article"; in paragraph (6) of that Article, the phrase "undeducted amount for specified shares arising" is deemed to be replaced with "undeducted amount for specified shares issued at establishment arising"; in item (i) of that paragraph, the phrase "for the year preceding that year (where the provisions of this paragraph as applied mutatis mutandis pursuant to paragraph (4) of the following Article apply, the amount obtained by deducting the undeducted amount for specified shares issued at establishment prescribed in paragraph (4) of that Article from that amount of taxable capital gains, etc. on general shares, etc. and amount of taxable capital gains, etc. on listed shares, etc.; the same applies in the following item)" is deemed to be replaced with "for the year preceding that year", and the phrase "calculated in accordance with" is deemed to be replaced with "calculated by applying"; in item (ii) of that paragraph, the phrase "undeducted amount for specified shares" is deemed to be replaced with "undeducted amount for specified shares issued at establishment"; in paragraph (9), item (ii) of that Article, the phrase "in item (i) of that paragraph, the phrase 'this paragraph' is deemed to be replaced with 'this paragraph as applied mutatis mutandis pursuant to paragraph (9), item (ii)'; in paragraph (4), the phrase 'the provisions of the preceding paragraph' is deemed to be replaced with 'the provisions of the preceding paragraph as applied mutatis mutandis pursuant to paragraph (9), item (ii)'; in paragraph (5)" is deemed to be replaced with "in paragraph (5)", and the phrase "in item (i) of that paragraph, the phrase 'this paragraph' is deemed to be replaced with 'this paragraph as applied mutatis mutandis pursuant to paragraph (9), item (ii)'; and in the preceding paragraph" is deemed to be replaced with "and in the preceding paragraph"; in paragraphs (10) and (11) of that Article, the phrase "undeducted amount for specified shares" is deemed to be replaced with "undeducted amount for specified shares issued at establishment"; and in paragraph (13) of that Article, the phrase "of the Act on Special Measures Concerning Taxation" is deemed to be replaced with "of the Act on Special Measures Concerning Taxation as applied mutatis mutandis pursuant to Article 37-13-2, paragraph (4) (Deduction of Amounts Required for Acquisition of Shares Issued by Specified New Small and Medium Sized Enterprises upon Their Establishment, etc.) of that Act", and the phrase "undeducted amount for specified shares" is deemed to be replaced with "undeducted amount for specified shares issued at establishment".

Special provisions for calculating the acquisition cost of shares of the same class as deductible specified shares acquired at incorporation in the case where the total of the amount to which the provisions of paragraph (1) were applied in that year and, where a refund of income tax under the provisions of paragraph (11) of the preceding Article as applied mutatis mutandis pursuant to the preceding paragraph has been received, the undeducted amount for specified shares issued at establishment pertaining to that income tax exceeds 2 billion yen, special provisions for calculating the acquisition cost of shares of the same class as deductible specified shares acquired at incorporation in the case where, where the provisions of paragraph (1) have been applied or a refund of income tax under the provisions of paragraph (11) of that Article has been received, the deductible specified shares acquired at incorporation are transferred during the year following the year that includes the day of their acquisition, and other necessary matters concerning the application of the provisions of the preceding paragraphs are specified by Cabinet Order.