Act on Special Measures Concerning Taxation

With respect to profit receivable by an individual from redemption of discount bonds issued on or after April 1, 1988, notwithstanding the provisions of Article 22, Article 89 and Article 165 of the Income Tax Act, income tax is imposed separately from their other income, by applying a tax rate of 18 percent (or 16 percent for company bonds issued by a Trans-Tokyo Bay Highway constructor prescribed in Article 2, paragraph (1) of the Act on Special Measures Concerning the Construction of the Trans-Tokyo Bay Highway (Act No. 45 of 1986) with the approval set forth in Article 10, paragraph (1) of the Act and bonds issued by the Organization for Promoting Urban Development prescribed in Article 3, paragraph (1) of the Act on Special Measures Concerning the Promotion of Urban Development by Private Sectors (Act No. 62 of 1987) (limited to that specified by Cabinet Order) with the approval set forth in Article 8, paragraph (3) of the Act, which fall under the category of discount bonds (referred to in the following paragraph and paragraph (3) as "special discount bonds")) to such amount receivable (for profit from redemption of discount bonds issued outside Japan by a foreign corporation, the amount specified by Cabinet Order as that pertaining to the business conducted in Japan by the foreign corporation; the same applies in the following paragraph).

A domestic corporation or foreign corporation is liable to pay income tax with respect to profit receivable from redemption of discount bonds issued on or after April 1, 1988, and income tax is imposed by applying a tax rate of 18 percent (or 16 percent for profit receivable from redemption of special discount bonds).

The issuer (including a person specified by Cabinet Order as being equivalent thereto; the same applies in paragraph (5) and paragraph (6)) of discount bonds issued on or after April 1, 1988, must collect, upon issue of the discount bonds, from the person who is to acquire the bonds, income tax equivalent to the amount calculated by deducting the issue price from the face value of the discount bonds and then multiplying the result (for discount bonds issued outside Japan by a foreign corporation, the amount calculated by multiplying the amount specified by Cabinet Order as that pertaining to the business conducted in Japan by the foreign corporation) by a tax rate of 18 percent (or 16 percent for profit receivable from redemption of special discount bonds), and pay it to the State no later than the tenth day of the month following the month that includes the date of collection, pursuant to the provisions of Cabinet Order.

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 (excluding Part II, Part III, and Part V, Chapter I), the Act on General Rules for National Taxes, and the National Tax Collection Act are applied thereto; where redemption (including retirement by purchase) is made with respect to discount bonds set forth in the preceding paragraph, income tax to be collected pursuant to the provisions of the preceding paragraph , pursuant to the provisions of Cabinet Order, be deemed to be income tax that is to be collected from the acquirer set forth in the paragraph (in the case where the acquirer is not the person who is to receive the redemption: the person who is to receive the redemption) as income tax on profit from redemption when the acquirer receives the redemption. In this case, where the acquirer is a domestic corporation or foreign corporation, with regard to the application of the provisions of the Corporation Tax Act to the domestic corporation or foreign corporation: in Article 68, paragraph (1) of the Act, the phrase "or prize money" is deemed to be replaced with "or prize money... or profit from redemption prescribed in Article 41-12, paragraph (2) of the Act on Special Measures Concerning Taxation (Separate Taxation, etc. for Profit from Redemption)," and the phrase "the Act" is deemed to be replaced with "the Income Tax Act or the Act on Special Measures Concerning Taxation"; in Article 144 of the Act, "the Income Tax Act" is deemed to be replaced with "the Income Tax Act or the Act on Special Measures Concerning Taxation."

Where the issuer of discount bonds issued on or after April 1, 1988, redeems the discount bonds by bringing the redemption date forward or retires the discount bonds by purchase prior to the redemption date, the issuer refunds, pursuant to the provisions of Cabinet Order, to the person who is to receive such redemption (including retirement by purchase), part of the amount equivalent to the amount of income tax collected pursuant to the provisions of paragraph (3) and deemed to be income tax set forth in the preceding paragraph.

Where the issuer of discount bonds issued on or after April 1, 1988, makes payment of profit from redemption of the discount bonds to a domestic corporation prescribed in Article 11, paragraph (1) of the Income Tax Act or a trustee of a charitable trust or participant protection trust prescribed in paragraph (2) of the Article (for payment to a trustee of a charitable trust or participant protection trust: such payment of profit from redemption is limited to payment related to the relevant trust property), the issuer refunds, pursuant to the provisions of Cabinet Order, to the person who is to receive payment, the whole or part of the amount equivalent to the amount of income tax collected pursuant to the provisions of paragraph (3) and deemed to be income tax set forth in paragraph (4) (excluding the amount for which a refund is made pursuant to the provisions of the preceding paragraph).

Discount bonds prescribed in the preceding paragraphs means government or company bonds (limited to those specified by Cabinet Order) issued by means of a discount, except for those listed in the following, and profit from the redemption prescribed in these paragraphs means margin profit generated when the redemption price of discount bonds (or the purchase price of discount bonds for retirement by purchase) exceeds the issue price thereof:

foreign currency denominated bonds prescribed in Article 1, paragraph (1) of the Act on the Issuance of Foreign-Denominated Government Bonds that are issued pursuant to the provisions of Article 1, paragraph (1) of the Act or paragraph (3) of the Article (including the cases where it is applied mutatis mutandis pursuant to Article 4 of the Act) (including foreign-denominated bonds prescribed in Article 4 of the Act); and

bonds issued by a corporation established under special laws or regulations pursuant to the provisions of the laws or regulations, which are specified by Cabinet Order.

public and corporate bonds issued on or after January 1, 2016 (excluding long-term credit bank bonds, etc. prescribed in Article 2, paragraph (2), item (v) of the Deposit Insurance Act and other bonds specified by Cabinet Order).

Beyond what is specified in paragraphs (3) through (6), income from the transfer of discount bonds prescribed in the preceding paragraph that are issued by a foreign corporation and other necessary matters concerning the application of the provisions of paragraph (1) and paragraph (2) are specified by Cabinet Order.