Act on Special Measures Concerning Taxation

Where assets (excluding inventory assets; hereinafter the same applies in this Article, the following Article, Article 65, paragraph (3), and Article 65-2) held by a corporation (excluding a corporation in liquidation; hereinafter the same applies in this Article, the following Article, Article 65, paragraphs (3) and (5), and Article 65-2) prescribed in the following items have come to fall under the cases listed in those items (excluding the case that falls under the provisions of Article 65, paragraph (1)), if the corporation, in the business year that includes the date of the expropriation, purchase, replotting disposition, rights conversion, acquisition or extinction prescribed in those items (hereinafter referred to as "expropriation, etc." in this Subsection), acquires (excluding acquisition through a lease transaction without transfer of ownership and including manufacture and construction; hereinafter the same applies up to Article 65), with an amount equivalent to all or part of the amount of the compensation, consideration or settlement money prescribed in those items (where there are expenses required for the transfer (including extinction and decrease in value; hereinafter the same applies in this Subsection) of the assets, the amount after deducting the amount specified by Cabinet Order as having been paid out of the amount of the compensation, consideration or settlement money; hereinafter the same applies in this Article and the following Article), assets specified by Cabinet Order as assets of the same type as the assets transferred through the expropriation, etc. or other assets that are to replace them (hereinafter referred to as "substitute assets" up to Article 65), and, for those substitute assets, reduces their book value through accounting as an expense or loss within the limit of the amount calculated by multiplying their acquisition cost (where that amount exceeds the amount of the compensation, consideration or settlement money (excluding the amount specified by Cabinet Order as the amount of the part pertaining to the acquisition of substitute assets already acquired), the amount obtained by deducting the excess; the same applies in paragraph (3) and paragraph (9) of the following Article) by the ratio of the remaining amount obtained by deducting the book value of the transferred assets immediately before the transfer from the amount of the compensation, consideration or settlement money to the amount of the compensation, consideration or settlement money (referred to as the "gain ratio" in paragraph (3) and the following Article) (hereinafter referred to as the "reduction entry limit" in this Article), or, instead of reducing their book value, accounts for an amount not exceeding the reduction entry limit by the method of setting it aside as a reserve in the finalized settlement of accounts for that business year (including the method of setting it aside as a reserve through the appropriation of surplus by the day on which the settlement of accounts for that business year is finalized), the amount equivalent to the amount so reduced or accounted for is included in deductible expenses in calculating the amount of income for that business year.

where assets are expropriated pursuant to the provisions of the Expropriation of Land Act, etc. (meaning the Expropriation of Land Act, etc. prescribed in Article 33, paragraph (1), item (i); hereinafter the same applies in this Article and Article 65), and compensation is acquired (excluding cases that fall under the cases specified by Cabinet Order);

where, in the case where assets would be expropriated pursuant to the provisions of the Expropriation of Land Act, etc. if an offer to purchase them were refused, the assets are purchased and consideration is acquired (excluding cases that fall under the cases specified by Cabinet Order);

where a land readjustment project under the Land Readjustment Act, a residential block improvement project under the Act on Special Measures concerning Promotion of Supply of Houses and Housing Lands in Urban Districts (hereinafter referred to as the "Urban Housing Supply Promotion Act" up to Article 65-4), land consolidation under the Act on Development of Infrastructures for New Cities, or a land improvement project under the Land Improvement Act has been implemented with regard to land or a right existing on land (hereinafter referred to as "land, etc." in this Subsection), and settlement money under the provisions of Article 94 of the Land Readjustment Act (including as applied mutatis mutandis pursuant to Article 82, paragraph (1) of the Urban Housing Supply Promotion Act and Article 37 of the Act on Development of Infrastructures for New Cities) (excluding settlement money paid because replotted land, or residential land or a part thereof that is to be the subject of the right, was not designated pursuant to the provisions of Article 90 of the Land Readjustment Act (including as applied mutatis mutandis pursuant to Article 82, paragraph (1) of the Urban Housing Supply Promotion Act and Article 36 of the Act on Development of Infrastructures for New Cities), and settlement money paid because a part, etc. of the facility housing prescribed in Article 74, paragraph (4) of the Urban Housing Supply Promotion Act, or rights concerning the facility housing or the site of the facility housing prescribed in Article 90, paragraph (2) of the Urban Housing Supply Promotion Act, were not designated pursuant to the provisions of Article 74, paragraph (4) or Article 90, paragraph (1) of the Urban Housing Supply Promotion Act) or settlement money prescribed in Article 54-2, paragraph (4) of the Land Improvement Act (including as applied mutatis mutandis pursuant to Article 89-2, paragraph (10), Article 96, and Article 96-4, paragraph (1) of that Act) (excluding settlement money paid because replotted land, or land or a part thereof that is to be the subject of the right, was designated with its area especially reduced, or because replotted land, or land or a part thereof that is to be the subject of the right, was not designated, pursuant to the provisions of Article 53-2-2, paragraph (1) of that Act (including as applied mutatis mutandis pursuant to Article 89-2, paragraph (3), Article 96, and Article 96-4, paragraph (1) of that Act)) is acquired through a replotting disposition pertaining to the land, etc. (excluding cases that fall under the cases specified by Cabinet Order);

where a type 1 urban redevelopment project under the Urban Renewal Act has been implemented with regard to assets, and compensation under the provisions of Article 91 of that Act (limited to compensation paid because it was determined, pursuant to the provisions of Article 79, paragraph (3) of that Act, that a part, etc. of a facility building or a building lease right for a part of a facility building would not be granted, or because it was determined, pursuant to the provisions of that paragraph as applied with the deemed replacement of terms pursuant to Article 111 of that Act, that a portion of a building facility or a building lease right for a part of a facility building would not be granted, and compensation paid based on an offer under Article 71, paragraph (1) or paragraph (3) of that Act in a case specified by Cabinet Order as a case where the offer is found to have been made due to unavoidable circumstances) is acquired through a rights conversion pertaining to the assets (excluding cases that fall under the cases specified by Cabinet Order);

where a disaster prevention block improvement project under the Act on Promotion of Improvement of Disaster Control Districts in Populated Urban Districts has been implemented with regard to assets, and compensation under the provisions of Article 226 of that Act (limited to compensation paid because it was determined, pursuant to the provisions of Article 212, paragraph (3) of that Act, that a part, etc. of a disaster prevention facility building or a building lease right for a part of a disaster prevention facility building would not be granted, or because it was determined, pursuant to provisions specified by Cabinet Order, that a portion of a disaster prevention building facility or a building lease right for a part of a disaster prevention facility building would not be granted, and compensation paid based on an offer under Article 203, paragraph (1) or paragraph (3) of that Act in a case specified by Cabinet Order as a case where the offer is found to have been made due to unavoidable circumstances) is acquired through a rights conversion pertaining to the assets (excluding cases that fall under the cases specified by Cabinet Order);

where land, etc. is purchased pursuant to the provisions of Article 52-4, paragraph (1) of the City Planning Act (including as applied mutatis mutandis pursuant to Article 57-5 of that Act and Article 285 of the Act on Promotion of Improvement of Disaster Control Districts in Populated Urban Districts) or Article 56, paragraph (1) of the City Planning Act, and consideration is acquired (excluding cases that fall under the cases listed in Article 65-3, paragraph (1), item (ii) and item (ii)-2);

where a land readjustment project under the Land Readjustment Act for which compensation for decrease in value prescribed in Article 109, paragraph (1) of that Act (referred to as "compensation for decrease in value" in the following item) is to be granted is implemented, and land, etc. within the project area of that project (meaning the project area prescribed in Article 2, paragraph (8) of that Act; the same applies in that item) is purchased as land to be appropriated for the site of public facilities, and consideration is acquired;

where land, etc. located within the project area of a land readjustment project for reconstruction of a disaster-damaged urban district under the Act on Special Measures concerning Reconstruction of Urban Districts Damaged by Disaster (hereinafter referred to as a "land readjustment project for reconstruction of a disaster-damaged urban district" in this item) that is implemented by a local government or the Urban Renaissance Agency in a promotion area for reconstruction of a disaster-damaged urban district specified in a city plan pursuant to the provisions of Article 5, paragraph (1) of that Act and for which compensation for decrease in value is to be granted is purchased by such a person (including a Land Development Public Corporation) to be used for a project concerning the development and improvement of public facilities carried out by such a person as the land readjustment project for reconstruction of a disaster-damaged urban district, and consideration is acquired (excluding cases that fall under the cases listed in the preceding two items);

where land, etc. located within the project area (meaning the project area specified in a city plan for a type 2 urban redevelopment project pursuant to the provisions of Article 12, paragraph (2) of the City Planning Act) of a type 2 urban redevelopment project under the Urban Renewal Act that is implemented by a local government or the Urban Renaissance Agency in the area of a housing-damaged municipality prescribed in Article 21 of the Act on Special Measures concerning Reconstruction of Urban Districts Damaged by Disaster is purchased by such a person (including a Land Development Public Corporation) to be used for that type 2 urban redevelopment project, and consideration is acquired (excluding cases that fall under the cases listed in item (ii) or in Article 65, paragraph (1), item (i));

where land, etc. is purchased to be used for a project concerning the management of housing on a single housing estate of 50 or more dwelling units that the State, a local government, the Urban Renaissance Agency or a Local Housing Corporation carries out for the purpose of leasing or transferring housing to persons who need housing to live in themselves, and consideration is acquired;

where assets have been expropriated pursuant to the provisions of the Expropriation of Land Act, etc. (including where there has been a purchase that falls under the provisions of item (ii)), and rights other than ownership held with respect to the assets are extinguished and compensation or consideration is acquired (excluding cases that fall under the cases specified by Cabinet Order);

where rights held with respect to assets that are not to be converted into new rights through a rights conversion prescribed in the Urban Renewal Act are extinguished pursuant to the provisions of Article 87 of that Act, and compensation under the provisions of Article 91 of that Act is acquired (excluding cases that fall under the cases specified by Cabinet Order);

where rights held with respect to assets that are not to be converted into new rights through a rights conversion prescribed in the Act on Promotion of Improvement of Disaster Control Districts in Populated Urban Districts are extinguished pursuant to the provisions of Article 221 of that Act, and compensation under the provisions of Article 226 of that Act is acquired (excluding cases that fall under the cases specified by Cabinet Order);

where compensation or consideration is acquired due to the reclamation of publicly-owned water surface under the provisions of the Act on Reclamation of Publicly-owned Water Surface carried out by the State or a local government (including an organization established by it that is specified by Cabinet Order), or carried out by the project implementer of a project prescribed in Article 3 of the Expropriation of Land Act for use in that project, or due to the extinction (including a decrease in value of those rights) of a fishery right, a fishing entry right, a right to operate fishing port water surface facilities or any other right concerning the use of water, or of a mining right (including a mining lease right, a quarrying right and any other right to mine or extract earth and stone), in connection with the implementation of that project by the project implementer;

beyond the cases listed in the preceding items, where compensation or consideration is acquired through the purchase or extinction (including a decrease in value) of assets in connection with a disposition made by the State or a local government pursuant to the provisions of Article 11, paragraph (1) of the Building Standards Act, Article 93, paragraph (1) of the Fishery Act, or other laws and regulations specified by Cabinet Order, or through a disposition of acquisition made pursuant to those provisions.

Where assets held by a corporation have come to fall under a case listed in any of the following items, with regard to the application of the provisions of the preceding paragraph, a transfer through expropriation, etc. is deemed to have been made with regard to: in the case of item (i), the land, etc. prescribed in that item; and in the case of item (ii), the assets on the land prescribed in that item (where the compensation prescribed in that item compensates for part of the value of those assets, the part of those assets specified by Cabinet Order as corresponding to the compensation). In this case, the amount of the compensation or consideration prescribed in item (i) or item (ii) is deemed to be the amount of the compensation, consideration or settlement money prescribed in that paragraph.

where land, etc. is used pursuant to the provisions of the Expropriation of Land Act, etc. and compensation is acquired (including where, in the case where land, etc. would be used pursuant to the provisions of the Expropriation of Land Act, etc. if an offer for its use were refused, the land, etc. is used under a contract and consideration is acquired), if this falls under a case specified by Cabinet Order as a case where the value of the land, etc. decreases significantly as a result of that use (excluding cases that fall under the cases specified by Cabinet Order);

where, as a result of land, etc. coming to fall under the provisions of items (i) through (iii)-3 of the preceding paragraph, the provisions of the preceding item, or the provisions of Article 65, paragraph (1), item (ii) or item (iii), it has become necessary to expropriate, demolish or remove assets on that land pursuant to the provisions of the Expropriation of Land Act, etc., or where it has become necessary to demolish or remove assets on that land in connection with a disposition by the State or a local government made pursuant to the provisions of the laws and regulations prescribed in item (viii) of the preceding paragraph or Article 11 of the Act on Special Measures concerning Public Use of Deep Underground, if consideration for those assets or compensation specified by Cabinet Order for the loss of those assets is acquired (excluding cases that fall under the cases specified by Cabinet Order).

In the case referred to in paragraph (1), where the corporation has acquired assets that are to become substitute assets during the period from the day one year (or, where there are unavoidable circumstances specified by Cabinet Order, such as that the period required for the construction of a factory, etc. normally exceeds one year, the period specified by Cabinet Order) before the first day of the business year that includes the date of the expropriation, etc. (or, where that day is before the day on which it became clear that the corporation would transfer assets it holds through the expropriation, etc., the latter day) until the day before that first day, the corporation may receive the application of the provisions of that paragraph by deeming those assets to be substitute assets that fall under the provisions of that paragraph. In this case, the reduction entry limit pertaining to those assets, where those assets are depreciable assets, is the amount calculated pursuant to the provisions of Cabinet Order on the basis of the amount calculated by multiplying the acquisition price of those assets by the gain ratio.

The amount of compensation prescribed in paragraph (1), item (i), item (v), item (vii) or item (viii) means, regardless of its nominal designation, the amount that constitutes consideration for the expropriation, etc. of the assets, and does not include relocation expenses received upon the expropriation, etc. or any other amount other than the amount that constitutes consideration for the expropriation, etc. of the assets.

The provisions of paragraph (1) apply only where the final return, etc. contains a statement concerning the inclusion in deductible expenses of the amount to be included in deductible expenses pursuant to the provisions of that paragraph and has attached to it a written statement concerning the calculation of the amount to be included in deductible expenses, and the documents specified by Order of the Ministry of Finance as documents proving that the assets for which the application of the provisions of that paragraph is sought have come to fall under a case listed in any of the items of that paragraph or any of the items of paragraph (2) are preserved.

Even where a final return, etc. without the statement or attachment referred to in the preceding paragraph has been filed, or the documents specified by Order of the Ministry of Finance referred to in that paragraph have not been preserved, the district director may, if the district director finds that there were unavoidable circumstances for the failure to include the statement or attachment or to preserve the documents, apply the provisions of paragraph (1), but only where a document containing the statement, the written statement referred to in that paragraph and the documents specified by Order of the Ministry of Finance are submitted.

The provisions listed in the items of Article 53, paragraph (1) do not apply to assets to which the provisions of paragraph (1) have been applied.

Where the provisions of laws and regulations concerning corporation tax are applied to substitute assets to which the provisions of paragraph (1) have been applied, the amount included in deductible expenses in calculating the amount of income for each business year pursuant to the provisions of that paragraph is not included in the acquisition price of those substitute assets.

Where a corporation (limited to a corporation whose assets prescribed in the items of paragraph (1) have come to fall under the cases listed in those items (including where a transfer through expropriation, etc. is deemed to have been made, pursuant to the provisions of paragraph (2), with regard to the land, etc. prescribed in item (i) of that paragraph or the assets on the land prescribed in item (ii) of that paragraph, and excluding where the provisions of Article 65, paragraph (1) apply)) carries out a qualified company split, a qualified capital contribution in kind or a qualified in-kind distribution (limited to one carried out on or after that date; hereinafter referred to as a "qualified company split, etc." in this paragraph and paragraph (11)) in the business year that includes the date of the expropriation, etc., if the corporation has acquired substitute assets, with an amount equivalent to all or part of the amount of the compensation, consideration or settlement money, during the period from the start of that business year until immediately before the qualified company split, etc., and transfers those substitute assets to the succeeding corporation in a company split, the corporation receiving a capital contribution in kind or the corporation receiving a distribution in kind through the qualified company split, etc., then, only where the corporation has reduced the book value of those substitute assets within the limit of an amount equivalent to the reduction entry limit pertaining to those substitute assets, an amount equivalent to the amount of that reduction is included in deductible expenses in calculating the amount of income for that business year.

The provisions of paragraph (3) apply mutatis mutandis to the case prescribed in the preceding paragraph, and the provisions of paragraphs (7) and (8) apply mutatis mutandis to substitute assets to which the provisions of the preceding paragraph have been applied.

The provisions of paragraph (9) apply only where the corporation seeking the application of the provisions of that paragraph submits, within two months after the date of the qualified company split, etc., a document stating the amount of the reduction prescribed in that paragraph and other matters specified by Order of the Ministry of Finance to the district director having jurisdiction over its place for tax payment.

Where a merging corporation, a succeeding corporation in a company split, a corporation receiving a capital contribution in kind or a corporation receiving a distribution in kind that has received a transfer of substitute assets to which the provisions of paragraph (1) or paragraph (9) have been applied through a qualified merger, a qualified company split, a qualified capital contribution in kind or a qualified in-kind distribution (hereinafter referred to as a "qualified merger, etc." in this paragraph) applies the provisions of laws and regulations concerning corporation tax to those substitute assets, the amount that was not included in the acquisition price of those substitute assets by the merged corporation, splitting corporation, corporation making a capital contribution in kind or corporation making a distribution in kind pertaining to the qualified merger, etc. is not included in the acquisition price of those substitute assets.

Beyond what is provided for in paragraphs (5) through (8) and the preceding three paragraphs, matters necessary for the application of the provisions of paragraph (1) and paragraph (9) are specified by Cabinet Order.