Act on Special Measures Concerning Taxation

Income tax is not imposed on profit from redemption (meaning the margin where the amount received through the redemption (including retirement by purchase; the same applies hereinafter in this Article) of the book-entry government bonds or book-entry municipal bonds exceeds the acquisition price of the book-entry government bonds or book-entry municipal bonds) received by a nonresident with respect to book-entry government bonds prescribed in Article 5-2, paragraph (1) (excluding those that fall under discount bonds (meaning, of the public and corporate bonds listed in Article 37-10, paragraph (2), item (vii), those listed in paragraph (6), item (i), (a) through (d) of the preceding Article; hereinafter the same applies in this paragraph and the following paragraph); hereinafter referred to in this paragraph and paragraph (4) as "book-entry government bonds") or book-entry municipal bonds prescribed in Article 5-2, paragraph (1) (excluding those that fall under discount bonds; hereinafter referred to in this paragraph and paragraph (4) as "book-entry municipal bonds").

Income tax is not imposed on profit from redemption (meaning the margin where the amount received through the redemption of the specified book-entry corporate bonds, etc. exceeds the acquisition price of the specified book-entry corporate bonds, etc.) received by a nonresident with respect to specified book-entry corporate bonds, etc. prescribed in Article 5-3, paragraph (4), item (vii) (excluding those that fall under discount bonds; hereinafter referred to in this Article as "specified book-entry corporate bonds, etc."), which is received by a person who is not a specially-related person, prescribed in Article 5-3, paragraph (2), of the issuer of the specified book-entry corporate bonds, etc.

Income tax is not imposed on profit from redemption (meaning the margin where the amount received through the redemption of the private foreign bonds exceeds the acquisition price of the private foreign bonds) received by a nonresident with respect to private foreign bonds prescribed in Article 6, paragraph (4) that were issued on or after April 1, 1998 (hereinafter referred to in this paragraph and the following paragraph as "private foreign bonds"), which is received by a person who is not a specially-related person, prescribed in paragraph (4) of that Article, of the issuer of the private foreign bonds.

The amount of loss arising from the redemption of book-entry government bonds, book-entry municipal bonds, specified book-entry corporate bonds, etc. (excluding those held by a specially-related person, prescribed in Article 5-3, paragraph (2), of the issuer of the specified book-entry corporate bonds, etc.) or private foreign bonds (excluding those held by a specially-related person, prescribed in Article 6, paragraph (4), of the issuer of the private foreign bonds) held by a nonresident is deemed not to exist with regard to the application of the provisions of laws and regulations concerning income tax.

The provisions of the preceding paragraphs do not apply to the profit from redemption prescribed in paragraph (1), the profit from redemption prescribed in paragraph (2) or the profit from redemption prescribed in paragraph (3), or the amount of loss prescribed in the preceding paragraph, that is received by a nonresident who has a permanent establishment or that arises for a nonresident who has a permanent establishment, and that falls under the domestic source income listed in Article 164, paragraph (1), item (i), (a) of the Income Tax Act.

The determination of whether a person receiving the profit from redemption prescribed in paragraph (2) of specified book-entry corporate bonds, etc. is a specially-related person prescribed in that paragraph, and other necessary matters concerning the application of the provisions of the preceding paragraphs are specified by Cabinet Order.

With regard to profit from redemption (meaning the margin where the amount received through the redemption prescribed in Article 41-12-2, paragraph (1) of the discount bonds exceeds the acquisition price of the discount bonds) of discount bonds (meaning, of the public and corporate bonds listed in Article 37-10, paragraph (2), item (vii), those listed in Article 41-12-2, paragraph (6), item (i), (a) through (d) (limited to those issued by a foreign corporation); hereinafter the same applies in this paragraph) to be received by a nonresident on or after January 1, 2016, the portion specified by Cabinet Order as pertaining to the business conducted through the permanent establishment of the foreign corporation is deemed to be domestic source income listed in Article 161, paragraph (1), item (ii) of the Income Tax Act, and the provisions of that Act and other laws and regulations concerning income tax apply.

The provisions of Article 180 of the Income Tax Act apply mutatis mutandis to the amount of gain prescribed in Article 41-12-2, paragraph (6), item (iii) pertaining to the redemption money listed in paragraph (1), item (i) of that Article of discount bonds prescribed in paragraph (6), item (i) of that Article that a foreign corporation that has a permanent establishment is to receive on or after January 1, 2016 (excluding that to which the provisions of paragraph (1) of the following Article apply). In this case, in Article 180, paragraph (1) of that Act, the phrase "Article 7, paragraph (1), item (v) (Scope of Taxable Income of Foreign Corporations) and the preceding two Articles" is deemed to be replaced with "Article 41-12-2, paragraphs (1) through (3) of the Act on Special Measures Concerning Taxation (Special Provisions on Withholding at the Source, etc. for the Amount of Gain from Discount Bonds)", the phrase "limited to that pertaining to" is deemed to be replaced with "limited to that pertaining to, and including the amount of gain (meaning the amount of gain prescribed in paragraph (6), item (iii) of that Article; the same applies hereinafter in this paragraph) pertaining to the redemption money (meaning the redemption money listed in paragraph (1), item (i) of that Article; the same applies hereinafter in this paragraph) of discount bonds prescribed in Article 41-12-2, paragraph (6), item (i) of that Act", and the phrase "person paying" is deemed to be replaced with "person paying (or, where the domestic source income falls under the amount of gain pertaining to the redemption money of specified discount bonds prescribed in Article 41-12-2, paragraph (3) of that Act, the handler of specified discount bonds prescribed in that paragraph in Japan for the redemption money of those specified discount bonds)".