Act on Special Measures Concerning Taxation

Where, with regard to a resident or nonresident who has a permanent establishment who has acquired by payment specified shares of a specified small and medium-sized company (limited to one that falls under a resident or nonresident who has a permanent establishment prescribed in Article 37-13, paragraph (1) (where those specified shares fall under specified shares issued at establishment prescribed in paragraph (1) of the preceding Article, including a resident or nonresident who has a permanent establishment prescribed in that paragraph); the same applies hereinafter in this Article), any of the following facts occurs as a case where a loss has arisen due to the specified shares acquired by that payment and held by that person having lost their value as shares within the period from the day of the establishment of the specified small and medium-sized company to the day before the listing date, etc. (meaning the day on which the shares were listed on a financial instruments exchange prescribed in Article 2, paragraph (16) of the Financial Instruments and Exchange Act or any other day specified by Cabinet Order) pertaining to shares issued by that specified small and medium-sized company (including a stock company that was that specified small and medium-sized company) (referred to as the "application period" in paragraph (8)), the occurrence of that fact is deemed to be a transfer of those specified shares, and the amount specified by Cabinet Order as the amount of that loss is deemed to be the amount of losses arising from the transfer of those specified shares, respectively, and the provisions of this Article and Article 37-10 and the provisions of other laws and regulations concerning income tax apply:

the stock company that issued the specified shares acquired by that payment has dissolved (excluding dissolution due to a merger) and its liquidation has been completed;

a fact specified by Cabinet Order as being similar to the fact listed in the preceding item.

The provisions of the preceding paragraph apply, pursuant to the provisions of Cabinet Order, only where the tax return for the year that includes the day on which the fact prescribed in that paragraph occurred 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 specified by Cabinet Order as the amount of losses prescribed in that paragraph and other documents specified by Order of the Ministry of Finance.

Even if the tax return referred to in the preceding paragraph is not filed, or a tax return is filed without the statement or document referred to in that paragraph, the district director may apply paragraph (1) if the district director finds that there were unavoidable circumstances for the failure to file the tax return or to include the statement or document, but only if a document giving that statement and the document prescribed by Order of the Ministry of Finance referred to in that paragraph are submitted.

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 Article 37-12-2, paragraph (9) as applied mutatis mutandis pursuant to paragraph (10); the same applies hereinafter in this paragraph, the following paragraph and paragraph (7)) has an amount of capital loss on specified shares, notwithstanding the provisions of the second sentence of Article 37-10, paragraph (1), the amount of capital loss on specified shares is deducted in calculating the amount of capital gains, 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 Article 37-11, paragraph (1) (where the provisions of Article 37-13, paragraph (1) or paragraph (1) of the preceding Article apply, the amount after that application) for that year.

The provisions of the preceding paragraph 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 specified shares and other documents specified by Order of the Ministry of Finance.

With regard to the application of the provisions of Article 37-11 in the case where the provisions of paragraph (4) apply, the phrase "calculated amount (" in paragraph (1) of that Article is deemed to be replaced with "calculated amount (where the provisions of Article 37-13-3, paragraph (4) 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 specified shares 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 paragraph (4) or this paragraph), notwithstanding the provisions of the second sentence of Article 37-10, paragraph (1), an amount equivalent to that amount of capital loss on specified shares is, pursuant to the provisions of Cabinet Order, deducted in calculating the amount of capital gains, etc. on general shares, etc. and the amount of capital gains, etc. on listed shares, etc. for the year covered by the tax return, up to the amount of capital gains, etc. on general shares, etc. prescribed in that paragraph (where the provisions of Article 37-13, paragraph (1) or paragraph (1) of the preceding Article apply, the amount after that application; the same applies hereinafter in this paragraph) and the amount of capital gains, etc. on listed shares, etc. prescribed in Article 37-11, paragraph (1) (where the provisions of Article 37-13, paragraph (1) or paragraph (1) of the preceding Article or the provisions of paragraph (4) apply, the amount after that application; the same applies hereinafter in this paragraph) for that year.

The amount of capital loss on specified shares prescribed in paragraph (4), paragraph (5) and 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, within the application period, a transfer of specified shares acquired by that person by payment (excluding a transfer to a relative of the resident or nonresident who has a permanent establishment or any other person having a special relationship with that person, or any other transfer specified by Cabinet Order), 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 general shares, etc. prescribed in Article 37-10, paragraph (1) for the year that includes the day on which the person made that transfer.

The provisions of Article 37-12-2, paragraphs (7), (8) and (10) apply mutatis mutandis to the case where the provisions of paragraph (7) are applied. In this case, in paragraph (7) of that Article, the phrase "The provisions of paragraph (5)" is deemed to be replaced with "The provisions of Article 37-13-3, paragraph (7)", the phrase "the preceding paragraph" is deemed to be replaced with "paragraph (8) of that Article", the phrase "amount of capital loss on listed shares, etc." is deemed to be replaced with "amount of capital loss on specified shares", the phrase "a tax return to which" is deemed to be replaced with "a tax return (meaning a tax return prescribed in paragraph (4) of that Article; the same applies hereinafter in this paragraph) to which", and the phrase "the tax return referred to in paragraph (5)" is deemed to be replaced with "the tax return referred to in paragraph (7) of that Article"; in paragraph (8) of that Article, the phrase "Article 8-4 (excluding paragraph (3))" is deemed to be replaced with "Article 37-10 (excluding paragraph (6))", the phrase "the provisions of paragraph (5) apply" is deemed to be replaced with "the provisions of Article 37-13-3, paragraph (7) apply", the phrase "Article 8-4, paragraph (1)" is deemed to be replaced with "Article 37-10, paragraph (1)", and the phrase "calculated amount (where the provisions of Article 37-12-2, paragraph (5)" is deemed to be replaced with "calculated amount (where the provisions of Article 37-13-3, paragraph (7)"; and in paragraph (10) of that Article, the phrase "paragraph (5)" is deemed to be replaced with "Article 37-13-3, paragraph (7)", and the phrase "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" is deemed to be replaced with "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 or the amount of capital loss on specified shares prescribed in Article 37-13-3, paragraph (8) (Deduction for Carryover of Capital Loss on Shares Issued by Specified Small and Medium-Sized Companies, etc.) of that Act".

The provisions of Article 37-12-2, paragraph (9) apply mutatis mutandis to a resident or nonresident who has a permanent establishment who seeks the application of the provisions of paragraph (7) in or after the year following the relevant year. In this case, in paragraph (9) of that Article, the phrase "of paragraph (5)" is deemed to be replaced with "of Article 37-13-3, paragraph (7)"; the phrase "(Deduction for Carryover of Capital Loss on Listed Shares, etc.) of" is deemed to be replaced with "(Deduction for Carryover of Capital Loss on Listed Shares, etc.) or Article 37-13-3, paragraph (7) (Deduction for Carryover of Capital Loss on Shares Issued by Specified Small and Medium-Sized Companies, etc.) of"; the phrase "paragraph (6) of that Article" is deemed to be replaced with "Article 37-12-2, paragraph (6) of that Act"; the phrase ", and other matters" is deemed to be replaced with ", the amount of capital loss on specified shares prescribed in Article 37-13-3, paragraph (8) of that Act that arose in that year (excluding any amount deducted by applying the provisions of paragraph (4) of that Article; hereinafter referred to in this paragraph as the 'amount of capital loss on specified shares'), the amount of capital loss on specified shares that arose in each year within the three years before that year, and other matters"; the phrase "is deemed to be replaced with 'amount of capital loss on listed shares, etc.'" is deemed to be replaced with "is deemed to be replaced with 'amount of capital loss on listed shares, etc. or amount of capital loss on specified shares'"; the phrase " (Article 37-12-2, paragraph (5) of the Act on Special Measures Concerning Taxation" is deemed to be replaced with " and amount of capital loss on specified shares (Article 37-12-2, paragraph (5) or Article 37-13-3, paragraph (7) of the Act on Special Measures Concerning Taxation"; the phrase "'excluding', the phrase 'those amounts' is deemed to be replaced with 'that amount of capital loss on listed shares, etc.'" is deemed to be replaced with "'excluding'"; and the phrase "amount of capital gains, etc. on listed shares, etc. prescribed in Article 37-11, paragraph (1)" is deemed to be replaced with "amount of capital gains, etc. on general shares, etc. prescribed in Article 37-10, paragraph (1) (Special Provisions on Taxation of Capital Gains, etc. on General Shares, etc.), amount of capital gains, etc. on listed shares, etc. prescribed in Article 37-11, paragraph (1)".

Special provisions on the provisions of paragraph (1) in the case where the fact prescribed in that paragraph occurs with regard to a person who holds specified shares acquired by payment and other shares of the same class as those specified shares, special provisions for calculating the amount of capital loss on specified shares prescribed in paragraph (8) in the case where an amount of losses has arisen from the transfer of those shares with regard to a person who holds those specified shares and other shares of the same class as those specified shares, and other necessary matters concerning the application of the provisions of paragraph (1), paragraph (4) and paragraph (7) through the preceding paragraph are specified by Cabinet Order.

Where an individual has transferred shares held by the individual (hereinafter referred to in this paragraph as "shares held") through a partial share exchange in which the corporation that issued the shares held is the subsidiary resulting from a partial share exchange prescribed in Article 774-3, paragraph (1), item (i) of the Companies Act, and has received delivery of shares of the parent company resulting from a partial share exchange (meaning the parent company resulting from a partial share exchange prescribed in that item; the same applies hereinafter in this Article) pertaining to that partial share exchange (excluding the case where the ratio of the value of the shares of the parent company resulting from a partial share exchange received through that partial share exchange to the total of the amount of money and the value of assets other than money received through that partial share exchange is less than 80 percent, and the case where the parent company resulting from a partial share exchange immediately after that partial share exchange falls under a family company prescribed in Article 2, item (x) of the Corporation Tax Act (where the shareholders that formed the basis for the determination of being a family company prescribed in that item include a corporation that is not a family company prescribed in that item or an association or foundation without juridical personality prescribed in Article 2, paragraph (1), item (viii) of the Income Tax Act, limited to one that would be a family company prescribed in Article 2, item (x) of the Corporation Tax Act even if the determination were made by excluding that corporation or association or foundation without juridical personality from the shareholders forming the basis for the determination)), with regard to the application of the provisions of Article 37-10 through the preceding Article or Article 27, Article 33 or Article 35 of the Income Tax Act, the transfer of the shares held that were transferred (where money or assets other than money (excluding shares of the parent company resulting from a partial share exchange) were received through that partial share exchange, the portion of those shares held specified by Cabinet Order as the portion other than that corresponding to the total of the amount of money and the value of assets other than money (excluding the value of the shares of the parent company resulting from a partial share exchange) received through that partial share exchange) is deemed not to have taken place.

Matters concerning the application of the provisions of the preceding paragraph in the case where the individual referred to in that paragraph is a nonresident, the acquisition cost of the shares of the parent company resulting from a partial share exchange received as referred to in that paragraph, and other necessary matters concerning the application of the provisions of laws and regulations concerning income tax in the case where the provisions of that paragraph apply are specified by Cabinet Order.