Act on Special Measures Concerning Taxation

Where a domestic corporation that files a blue return (excluding a resource development investment corporation other than a special investment corporation), in the designated period of each business year that includes a day within the period from April 1, 1973 to March 31, 2028 (hereinafter referred to in this paragraph and paragraph (8) as the "designated period") (excluding the business year that includes the day of dissolution and each business year during liquidation), acquires specified shares, etc. of a corporation listed in any of the following items (where that domestic corporation is a group tax sharing corporation, excluding those specified by Cabinet Order as other group tax sharing corporations with which that domestic corporation has a group tax sharing full controlling interest; hereinafter referred to in this Article as a "specified corporation") and continues to hold them until the end of the business year that includes the day of that acquisition, if, in preparation for losses from a decline in the value of those specified shares, etc., the domestic corporation sets aside as a reserve for losses on overseas investment, etc., for each specified corporation, by the method of accounting as an expense or loss, an amount not exceeding the amount calculated by multiplying the acquisition cost of those specified shares, etc. (excluding those to be transferred to the merging corporation through a merger (excluding a qualified merger)) by the percentage specified in that item (where the book value of those specified shares, etc. has been reduced in that business year, the amount obtained by deducting the amount equivalent to the amount, out of the amount so reduced, that has been included in deductible expenses in calculating the amount of income for that business year) (including where it sets aside the amount as a reserve for losses on overseas investment, etc. by the method of setting it aside as a reserve fund through the appropriation of surplus by the day on which the settlement of accounts for that business year is finalized), the amount so set aside is included in deductible expenses in calculating the amount of income for that business year.

a resource development business corporation (excluding a corporation that falls under the category of corporation listed in item (iii)): 20 percent;

a resource development investment corporation (excluding a corporation that falls under the category of corporation listed in item (iv)): 20 percent;

a resource exploration business corporation: 50 percent;

a resource exploration investment corporation: 50 percent.

In the preceding paragraph, the meanings of the terms listed in the following items are as prescribed respectively in those items:

resource development business corporation: a corporation whose business currently carried out is limited to the business of exploration, development or extraction (including processing specified by Cabinet Order that is carried out on the products so extracted) of resources (meaning petroleum (including combustible natural gas) and metallic minerals; the same applies hereinafter in this paragraph) outside Japan, businesses carried out incidentally to those businesses, and those businesses in Japan that pertain to that petroleum (collectively referred to in this item and the following item as "resource development business, etc.") (excluding a state-owned corporation), and a state-owned corporation that carries out resource development business, etc.;

resource development investment corporation: a corporation specified by Cabinet Order as a corporation whose business currently carried out is limited to investment and financing, etc. (meaning the business of making capital contributions to, or long-term loans of funds to, corporations (including the taking over of products extracted by those corporations carried out in connection therewith, other businesses closely related to that business, and businesses incidental thereto); the same applies hereinafter in this paragraph) relating to the resource development business corporations referred to in the preceding item (including other corporations falling under this item and foreign governments that carry out resource development business, etc.), to that investment and financing, etc. and investment, etc. in incidental business corporations (meaning the business of making capital contributions to, or long-term loans of funds to, corporations that engage in businesses carried out incidentally to the business of exploration, development or extraction of resources carried out by those resource development business corporations; the same applies hereinafter in this item), or to that investment and financing, etc. (including investment, etc. in incidental business corporations) and resource development business, etc.;

resource exploration business corporation: among the resource development business corporations referred to in item (i), a corporation whose business currently carried out is limited to the business of exploration, etc. of resources (meaning exploration of resources and other acts specified by Cabinet Order; the same applies in the following item) (excluding a state-owned corporation), and a state-owned corporation that carries out that business;

resource exploration investment corporation: among the resource development investment corporations referred to in item (ii), a corporation specified by Cabinet Order as a corporation whose business currently carried out consists mainly of investment and financing, etc. relating to the resource exploration business corporations referred to in the preceding item (including other corporations falling under this item and foreign governments that carry out the business of exploration, etc. of resources), or of that investment and financing, etc. and the business of exploration, etc. of resources;

special investment corporation: among the resource development investment corporations referred to in item (ii), a corporation that carries out investment and financing, etc. relating to the resource development business corporations referred to in item (i) (including the other corporations prescribed in item (ii) and foreign governments) in excess of the amount of its stated capital or the amount of its contributions, and that is specified by Cabinet Order;

specified shares, etc.: among the following shares (including capital contributions; hereinafter referred to in this Article as "shares, etc."), those specified by Cabinet Order as shares, etc. the payment for or acquisition of which promotes the exploration or development of resources and contributes to the stable supply of resources in Japan:

shares, etc. of a resource development business corporation referred to in item (i) that was incorporated (excluding incorporation through a merger or a company split by split-off; hereinafter the same applies in this item) or increased the amount of its stated capital or the amount of its contributions within the relevant business year, which pertain to payment by the domestic corporation prescribed in the preceding paragraph or to acquisition by it in connection with a company split by spin-off or a capital contribution in kind;

shares, etc. of a resource development investment corporation referred to in item (ii) that was incorporated or increased the amount of its stated capital or the amount of its contributions within the relevant business year, which pertain to payment by the domestic corporation prescribed in the preceding paragraph or to acquisition by it in connection with a company split by spin-off or a capital contribution in kind.

Where, as of the end of each business year of the domestic corporation prescribed in paragraph (1), the amount of the reserve for losses on overseas investment, etc. pertaining to a specified corporation carried over from the preceding business year (where there are amounts that have been included, or are to be included, in gross profit by that day pursuant to the provisions of the following paragraph, or amounts that were included in gross profit by the end of the preceding business year pursuant to the provisions of this paragraph, the amount obtained by deducting those amounts; the same applies hereinafter in this Article) includes an amount for which five years have elapsed from the day following the end of the business year in which it was set aside (hereinafter referred to in this paragraph and the following paragraph as the "business year of accumulation") (hereinafter referred to in this paragraph as the "reserve amount past the deferral period"), then with regard to that reserve amount past the deferral period, for each amount into which it is divided by the business year of accumulation in which it was set aside, the amount equivalent to the amount calculated by multiplying the amount set aside as that reserve for losses on overseas investment, etc. that was included in deductible expenses pursuant to the provisions of paragraph (1) in calculating the amount of income for the business year of accumulation in which that divided amount was set aside by the number of months in each relevant business year and dividing the result by 60 (where the amount so calculated exceeds that divided amount, that divided amount) is, respectively, included in gross profit in calculating the amount of income for that business year.

Where a domestic corporation that has set aside the reserve for losses on overseas investment, etc. referred to in paragraph (1) comes to fall under any of the cases listed in the following items (excluding where it has transferred shares, etc. of a specified corporation through a qualified merger, a qualified company split, a qualified capital contribution in kind other than a qualified capital contribution in kind in the case listed in item (iii), or a qualified in-kind distribution), the amount equivalent to the amount specified in that item is included in gross profit in calculating the amount of income for the business year that includes the day on which it came to fall under that case (in the case listed in item (ii), the business year that includes the day before the date of the merger). In this case, in the cases referred to in items (i) through (iii), item (v) or item (vii), out of the amounts into which the amount of the reserve for losses on overseas investment, etc. prescribed in those items is divided by the business year of accumulation in which they were set aside, the amounts are to be included in gross profit in order beginning with the amount with the earliest business year of accumulation.

where the corporation has ceased to hold all or part of the shares, etc. of a specified corporation pertaining to that reserve for losses on overseas investment, etc. (excluding where it falls under any of the following item through item (iv)): the amount calculated, pursuant to the provisions of Cabinet Order, as the amount pertaining to the shares, etc. it has ceased to hold, out of the amount of the reserve for losses on overseas investment, etc. pertaining to that specified corporation as of the day on which it ceased to hold them (where it has ceased to hold all of the shares, etc. of that specified corporation, the amount of the reserve for losses on overseas investment, etc. pertaining to that specified corporation as of the day on which it ceased to hold them);

where the corporation has transferred the shares, etc. of the specified corporation prescribed in the preceding item to the merging corporation through a merger: the amount of the reserve for losses on overseas investment, etc. pertaining to that specified corporation immediately before the merger;

where the corporation has transferred all or part of the shares, etc. of the specified corporation prescribed in item (i) to a corporation receiving a capital contribution in kind that is a foreign corporation (excluding a corporation that falls under the category of resource development investment corporation listed in paragraph (2), item (ii)) through a qualified capital contribution in kind: the amount calculated, pursuant to the provisions of Cabinet Order, as the amount pertaining to the shares, etc. so transferred, out of the amount of the reserve for losses on overseas investment, etc. pertaining to that specified corporation immediately before the qualified capital contribution in kind (where it has transferred all of the shares, etc. of that specified corporation to that corporation receiving a capital contribution in kind through that qualified capital contribution in kind, the amount of the reserve for losses on overseas investment, etc. pertaining to that specified corporation immediately before the qualified capital contribution in kind);

where the specified corporation prescribed in item (i) has dissolved (excluding dissolution through a qualified merger) or has ceased to be a specified corporation: the amount of the reserve for losses on overseas investment, etc. pertaining to that specified corporation as of the day on which it came to fall under that case;

where the corporation has reduced the book value of the shares, etc. of the specified corporation prescribed in item (i) (excluding where it has reduced that book value in connection with a qualified company split by split-off of that specified corporation and the succeeding corporation in a company split in that qualified company split by split-off falls under the category of specified corporation): the amount equivalent to the amount so reduced, out of the amount of the reserve for losses on overseas investment, etc. pertaining to that specified corporation as of the day on which it made the reduction (where it has reduced the book value of the shares, etc. of that specified corporation through a refund of capital prescribed in Article 61-2, paragraph (18) of the Corporation Tax Act, the amount specified by Cabinet Order as the amount of the portion corresponding to the amount so reduced, out of the amount of the reserve for losses on overseas investment, etc. pertaining to that specified corporation as of that day);

where that domestic corporation has dissolved (excluding dissolution through a merger): the amount of the reserve for losses on overseas investment, etc. as of the day of dissolution;

where the corporation has reversed the amount of the reserve for losses on overseas investment, etc. pertaining to a specified corporation in a case other than the cases referred to in the preceding paragraph, the preceding items and the following paragraph: the amount equivalent to the amount reversed out of the amount of the reserve for losses on overseas investment, etc. pertaining to that specified corporation as of the day of the reversal.

Where a corporation that has set aside the reserve for losses on overseas investment, etc. referred to in paragraph (1) has had the approval for filing blue returns revoked, or has submitted a written notification to the effect that it will discontinue filing returns by blue return, the amount of the reserve for losses on overseas investment, etc. as of the day on which the fact that gave rise to the revocation of the approval occurred (where it falls under any of the cases listed in the following items, the day specified in that item) or the day on which the written notification was submitted (where the day on which the written notification was submitted is after the end of the business year in which it discontinued filing returns by blue return, the end of that business year) is included in gross profit in calculating the amount of income for the business year that includes that day. In this case, the provisions of the preceding two paragraphs, paragraph (10), paragraph (13), paragraph (17) and paragraph (21) do not apply.

where a group tax sharing corporation has received the notice under Article 127, paragraph (2) of the Corporation Tax Act pertaining to the disposition of that revocation: the day before the day on which it received the notice (where that day before is the end of the business year of the group tax sharing parent corporation of that group tax sharing corporation, the day on which it received the notice);

where a corporation that was a group tax sharing corporation has received the notice under Article 127, paragraph (2) of the Corporation Tax Act pertaining to the disposition of that revocation: the day on which the fact that gave rise to the revocation of the approval occurred or the day before the day on which the approval under Article 64-9, paragraph (1) of that Act ceased to be effective (where that day before is the end of the business year of the group tax sharing parent corporation of that corporation, the day on which the approval ceased to be effective), whichever is later.

The number of months referred to in paragraph (3) is calculated in accordance with the calendar, and a fraction of less than one month is counted as one month.

The provisions of paragraph (1) apply only where the final return, etc. for the business year for which the corporation seeks the application of those provisions contains a statement of the inclusion in deductible expenses of the amount set aside as a reserve for losses on overseas investment, etc., and a written statement concerning the calculation of the amount so set aside and other documents specified by Order of the Ministry of Finance are attached to that final return, etc.

Where a domestic corporation prescribed in paragraph (1), in the designated period of each business year that includes a day within the designated period (excluding each business year during liquidation), acquires the specified shares, etc. referred to in paragraph (2), item (vi) of a specified corporation and transfers those specified shares, etc. to a succeeding corporation in a company split, a corporation receiving a capital contribution in kind (excluding the corporation receiving a capital contribution in kind prescribed in paragraph (4), item (iii)) or a corporation receiving a distribution in kind through a qualified company split, a qualified capital contribution in kind or a qualified in-kind distribution (hereinafter referred to in this paragraph and the following paragraph as a "qualified company split, etc."), if, in preparation for losses from a decline in the value of those specified shares, etc., treating the time immediately before the qualified company split, etc. as the end of that business year, it sets aside as a reserve for losses on overseas investment, etc., for each specified corporation, an amount not exceeding the amount equivalent to 20 percent (where the specified corporation pertaining to those specified shares, etc. is a resource exploration business corporation referred to in paragraph (2), item (iii) or a resource exploration investment corporation referred to in item (iv) of that paragraph, 50 percent) of the acquisition cost of those specified shares, etc. (where the book value of those specified shares, etc. has been reduced during the period from the beginning of that business year to that time immediately before, the amount obtained by deducting the amount equivalent to the amount, out of the amount so reduced, that is to be included in deductible expenses in calculating the amount of income for that business year), the amount so set aside is included in deductible expenses in calculating the amount of income for that business year.

The provisions of the preceding paragraph apply only where the domestic corporation prescribed in that paragraph has submitted, within two months after the date of the qualified company split, etc., a document stating the amount of the reserve for losses on overseas investment, etc. referred to in that paragraph and other matters specified by Order of the Ministry of Finance to the district director having jurisdiction over the place for tax payment.

Where a corporation that has set aside the reserve for losses on overseas investment, etc. referred to in paragraph (1) has transferred shares, etc. of a specified corporation to the merging corporation through a qualified merger, the amount of the reserve for losses on overseas investment, etc. immediately before the qualified merger is to be succeeded to by that merging corporation. In this case, the amount of the reserve for losses on overseas investment, etc. succeeded to by the merging corporation is deemed to be the amount of the reserve for losses on overseas investment, etc. referred to in that paragraph held by that merging corporation as of the date of the qualified merger.

In the case referred to in the preceding paragraph, where the merging corporation referred to in that paragraph is not a person who may file the final return, etc. for the business year that includes the date of the qualified merger as a blue return, the amount of the reserve for losses on overseas investment, etc. as of the end of that business year is included in gross profit in calculating the amount of income for that business year.

With regard to the application of the provisions of paragraph (3) for the business year of the merging corporation referred to in paragraph (10) that includes the date of the qualified merger, the amount of the reserve for losses on overseas investment, etc. carried over from the preceding business year is to include the amount of the reserve for losses on overseas investment, etc. deemed to be held by that merging corporation pursuant to the provisions of paragraph (10). In this case, where that merging corporation is a corporation that survives the merger, with regard to the amount of the reserve for losses on overseas investment, etc. deemed to be held by it, the phrase "the number of months in each relevant business year" in paragraph (3) is deemed to be replaced with "the number of months in the period from the date of the qualified merger to the end of the business year that includes that date".

Where a corporation that has set aside the reserve for losses on overseas investment, etc. referred to in paragraph (1) or paragraph (8) has transferred all or part of the shares, etc. of a specified corporation pertaining to that reserve for losses on overseas investment, etc. to a succeeding corporation in a company split through a qualified company split, the amount calculated, pursuant to the provisions of Cabinet Order, as the amount pertaining to the shares, etc. so transferred, out of the amount of the reserve for losses on overseas investment, etc. immediately before the qualified company split (where it has transferred all of the shares, etc. of that specified corporation through that qualified company split, the amount of the reserve for losses on overseas investment, etc. pertaining to that specified corporation immediately before the qualified company split), is to be succeeded to by that succeeding corporation in a company split. In this case, the amount of the reserve for losses on overseas investment, etc. succeeded to by the succeeding corporation in a company split is deemed to be the amount of the reserve for losses on overseas investment, etc. referred to in paragraph (1) held by that succeeding corporation in a company split as of the date of the qualified company split.

In the case referred to in the preceding paragraph, with regard to the business year of a corporation that has set aside the reserve for losses on overseas investment, etc. referred to in paragraph (1) that includes the date of the qualified company split (excluding that business year where that date is the first day of the business year of that corporation), the provisions of paragraph (3) apply by deeming the day before the date of the qualified company split to be the end of that business year. In this case, the phrase "the number of months in each relevant business year" in that paragraph is deemed to be replaced with "the number of months in the period from the first day of the business year that includes the date of the qualified company split to the day before the date of the qualified company split".

In the case referred to in paragraph (13), where the succeeding corporation in a company split referred to in that paragraph is not a person who may file the final return, etc. for the business year that includes the date of the qualified company split as a blue return, the amount of the reserve for losses on overseas investment, etc. as of the end of that business year is included in gross profit in calculating the amount of income for that business year.

With regard to the application of the provisions of paragraph (3) for the business year of the succeeding corporation in a company split referred to in paragraph (13) that includes the date of the qualified company split, the amount of the reserve for losses on overseas investment, etc. carried over from the preceding business year is to include the amount of the reserve for losses on overseas investment, etc. deemed to be held by that succeeding corporation in a company split pursuant to the provisions of paragraph (13). In this case, where that succeeding corporation in a company split is not a corporation incorporated through that qualified company split, with regard to the amount of the reserve for losses on overseas investment, etc. deemed to be held by it, the phrase "the number of months in each relevant business year" in paragraph (3) is deemed to be replaced with "the number of months in the period from the date of the qualified company split to the end of the business year that includes that date".

Where a corporation that has set aside the reserve for losses on overseas investment, etc. referred to in paragraph (1) or paragraph (8) has transferred all or part of the shares, etc. of a specified corporation pertaining to that reserve for losses on overseas investment, etc. to a corporation receiving a capital contribution in kind (excluding a corporation receiving a capital contribution in kind that is a foreign corporation) through a qualified capital contribution in kind, the amount calculated, pursuant to the provisions of Cabinet Order, as the amount pertaining to the shares, etc. so transferred, out of the amount of the reserve for losses on overseas investment, etc. immediately before the qualified capital contribution in kind (where it has transferred all of the shares, etc. of that specified corporation through that qualified capital contribution in kind, the amount of the reserve for losses on overseas investment, etc. pertaining to that specified corporation immediately before the qualified capital contribution in kind), is to be succeeded to by that corporation receiving a capital contribution in kind. In this case, the amount of the reserve for losses on overseas investment, etc. succeeded to by the corporation receiving a capital contribution in kind is deemed to be the amount of the reserve for losses on overseas investment, etc. referred to in paragraph (1) held by that corporation receiving a capital contribution in kind as of the date of the qualified capital contribution in kind.

In the case referred to in the preceding paragraph, with regard to the business year of a corporation that has set aside the reserve for losses on overseas investment, etc. referred to in paragraph (1) that includes the date of the qualified capital contribution in kind (excluding that business year where that date is the first day of the business year of that corporation), the provisions of paragraph (3) apply by deeming the day before the date of the qualified capital contribution in kind to be the end of that business year. In this case, the phrase "the number of months in each relevant business year" in that paragraph is deemed to be replaced with "the number of months in the period from the first day of the business year that includes the date of the qualified capital contribution in kind to the day before the date of the qualified capital contribution in kind".

In the case referred to in paragraph (17), where the corporation receiving a capital contribution in kind referred to in that paragraph is not a person who may file the final return, etc. for the business year that includes the date of the qualified capital contribution in kind as a blue return, the amount of the reserve for losses on overseas investment, etc. as of the end of that business year is included in gross profit in calculating the amount of income for that business year.

With regard to the application of the provisions of paragraph (3) for the business year of the corporation receiving a capital contribution in kind referred to in paragraph (17) that includes the date of the qualified capital contribution in kind, the amount of the reserve for losses on overseas investment, etc. carried over from the preceding business year is to include the amount of the reserve for losses on overseas investment, etc. deemed to be held by that corporation receiving a capital contribution in kind pursuant to the provisions of paragraph (17). In this case, where that corporation receiving a capital contribution in kind is not a corporation incorporated through that qualified capital contribution in kind, with regard to the amount of the reserve for losses on overseas investment, etc. deemed to be held by it, the phrase "the number of months in each relevant business year" in paragraph (3) is deemed to be replaced with "the number of months in the period from the date of the qualified capital contribution in kind to the end of the business year that includes that date".

Where a corporation that has set aside the reserve for losses on overseas investment, etc. referred to in paragraph (1) or paragraph (8) has transferred all or part of the shares, etc. of a specified corporation pertaining to that reserve for losses on overseas investment, etc. to a corporation receiving a distribution in kind through a qualified in-kind distribution, the amount calculated, pursuant to the provisions of Cabinet Order, as the amount pertaining to the shares, etc. so transferred, out of the amount of the reserve for losses on overseas investment, etc. immediately before the qualified in-kind distribution (where it has transferred all of the shares, etc. of that specified corporation through that qualified in-kind distribution, the amount of the reserve for losses on overseas investment, etc. pertaining to that specified corporation immediately before the qualified in-kind distribution), is to be succeeded to by that corporation receiving a distribution in kind. In this case, the amount of the reserve for losses on overseas investment, etc. succeeded to by the corporation receiving a distribution in kind is deemed to be the amount of the reserve for losses on overseas investment, etc. referred to in paragraph (1) held by that corporation receiving a distribution in kind as of the date of the qualified in-kind distribution.

In the case referred to in the preceding paragraph, with regard to the business year of a corporation that has set aside the reserve for losses on overseas investment, etc. referred to in paragraph (1) that includes the date of the qualified in-kind distribution (excluding that business year where that date is the first day of the business year of that corporation), the provisions of paragraph (3) apply by deeming the day before the date of the qualified in-kind distribution to be the end of that business year. In this case, the phrase "the number of months in each relevant business year" in that paragraph is deemed to be replaced with "the number of months in the period from the first day of the business year that includes the date of the qualified in-kind distribution to the day before the date of the qualified in-kind distribution".

In the case referred to in paragraph (21), where the corporation receiving a distribution in kind referred to in that paragraph is not a person who may file the final return, etc. for the business year that includes the date of the qualified in-kind distribution as a blue return, the amount of the reserve for losses on overseas investment, etc. as of the end of that business year is included in gross profit in calculating the amount of income for that business year.

With regard to the application of the provisions of paragraph (3) for the business year of the corporation receiving a distribution in kind referred to in paragraph (21) that includes the date of the qualified in-kind distribution, the amount of the reserve for losses on overseas investment, etc. carried over from the preceding business year is to include the amount of the reserve for losses on overseas investment, etc. deemed to be held by that corporation receiving a distribution in kind pursuant to the provisions of paragraph (21). In this case, with regard to the amount of the reserve for losses on overseas investment, etc. deemed to be held by that corporation receiving a distribution in kind, the phrase "the number of months in each relevant business year" in paragraph (3) is deemed to be replaced with "the number of months in the period from the date of the qualified in-kind distribution to the end of the business year that includes that date".

Beyond what is provided for in paragraph (7), the treatment of the amount of the reserve for losses on overseas investment, etc. in the case where shares, etc. of the merging corporation or the succeeding corporation in a company split have been delivered through a merger or company split of a specified corporation pertaining to the reserve for losses on overseas investment, etc. referred to in paragraph (1), the calculation of the acquisition cost of the specified shares, etc. referred to in paragraph (2), item (vi) in the case where the domestic corporation prescribed in paragraph (1) is the special investment corporation prescribed in that paragraph, and other necessary matters concerning the application of the provisions of paragraphs (1) through (6) and paragraph (8) through the preceding paragraph are specified by Cabinet Order.