Act on Special Measures Concerning Taxation

If a corporation has, between April 1, 1970 and March 31, 2029 (or, for those of the assets listed in the left-hand column of item (iv) of the table in Article 65-7, paragraph (1) that are used for the construction business or any other business specified by Cabinet Order prescribed in that column, March 31, 2028), exchanged any of the assets held by it that are listed in the left-hand column of the items of that table (excluding land, etc. to whose transfer by exchange the provisions of Article 63, paragraph (1) apply; hereinafter referred to in this Article as an "asset transferred by exchange") for an asset listed in the right-hand column of the relevant item (hereinafter referred to in this Article as an "asset acquired by exchange") (excluding the exchange, replotting disposition and rights conversion prescribed in Article 65, paragraph (1), items (ii) through (vii) and any other exchange specified by Cabinet Order; hereinafter the same applies in this Article) (including the case where it has acquired or paid an exchange balancing payment (meaning money to make up for the difference between the value of the asset acquired through the exchange and the value of the asset transferred through the exchange; hereinafter the same applies in this Article) in connection with the exchange), or has exchanged an asset transferred by exchange for an asset other than an asset acquired by exchange and has acquired an exchange balancing payment (hereinafter referred to in this Article as the "case of an exchange for other assets"), then, with regard to the application of the provisions of the preceding two Articles, the following provisions apply:

the asset transferred by exchange (in the case of an exchange for other assets, limited to the portion specified by Cabinet Order as corresponding to the exchange balancing payment) is deemed to have been transferred as referred to in Article 65-7, paragraph (1) by the corporation on the day of the exchange for an amount equivalent to the value of the asset as of that day;

the asset acquired by exchange is deemed to have been acquired as referred to in Article 65-7, paragraph (1) by the corporation on the day of the exchange for an amount equivalent to the value of the asset as of that day, and the corporation is deemed to have made the notification referred to in that paragraph and paragraph (9) of that Article.

If land or a right existing on land held by a corporation (excluding inventory assets; hereinafter referred to in this paragraph as "land, etc.") has come to fall under any of the cases listed in the following items, and the corporation has, with regard to the land, etc. that it acquired through the exchange and consolidation prescribed in the relevant item (hereinafter referred to in this Article as an "asset acquired by exchange"), reduced the book value of the asset acquired by exchange through accounting as an expense or loss within the limit of the amount remaining after deducting, from the value of the asset acquired by exchange, the book value immediately before the transfer of the land, etc. that it transferred (the transfer including, in the case that falls under the case specified by Cabinet Order as a case where the value of land, etc. is significantly reduced by having another person use the land, etc., the act of having it so used; hereinafter the same applies in this paragraph and the following paragraph) through that exchange and consolidation (referred to in the following paragraph as an "asset transferred by exchange") (referred to in paragraph (4) as the "reduction entry limit"), the amount equivalent to the amount so reduced is included in deductible expenses in calculating the amount of income for that business year:

where the corporation has transferred land, etc. through an exchange and consolidation under the provisions of Article 13-2, paragraph (2) of the Act on Establishment of Agricultural Promotion Regions (excluding a transfer to which the provisions of Articles 65-3 through 65-5-2 or the preceding three Articles apply), and has acquired land, etc. through that exchange and consolidation (including the case where it has acquired, together with that land, etc., settlement money under the provisions of Article 102, paragraph (4) of the Land Improvement Act as applied mutatis mutandis pursuant to Article 13-5 of the Act on Establishment of Agricultural Promotion Regions);

where the corporation has transferred land, etc. (limited to land, etc. held by a corporation that is a member of an agricultural and residential land cooperative or any other corporation specified by Cabinet Order) through an exchange and consolidation under the provisions of Article 7, paragraph (2), item (iii) of the Farming and Residence Association Act (limited to one carried out within an area specified by Cabinet Order in accordance with the provisions of Chapter II, Section 3 of that Act) (excluding a transfer to which the provisions of Article 64, Article 64-2, Articles 65-2 through 65-5-2 or the preceding three Articles apply), and has acquired land, etc. through that exchange and consolidation (including the case where it has acquired, together with that land, etc., settlement money under the provisions of Article 102, paragraph (4) of the Land Improvement Act as applied mutatis mutandis pursuant to Article 11 of the Farming and Residence Association Act).

The book value immediately before the transfer prescribed in the preceding paragraph is, in the cases listed in the following items, to be the amount specified in the relevant item:

where the corporation has acquired the settlement money prescribed in the items of the preceding paragraph together with the asset acquired by exchange: the amount remaining after deducting, from the book value, the amount calculated pursuant to the provisions of Cabinet Order as the portion of the book value corresponding to the amount of that settlement money;

where the corporation has paid the settlement money prescribed in the items of the preceding paragraph together with the transfer of the asset transferred by exchange: the amount obtained by adding the amount of that settlement money to the book value;

where there is an amount calculated pursuant to the provisions of Cabinet Order as expenses required for the transfer of the asset transferred by exchange that pertain to the asset acquired by exchange: the amount obtained by adding that calculated amount to the book value.

The provisions of Article 65-7, paragraphs (5) and (6) apply mutatis mutandis where the provisions of paragraph (1) are applied, and the provisions of paragraph (8) of that Article apply mutatis mutandis to an asset acquired by exchange to which the provisions of paragraph (1) have been applied.

If a corporation carries out, in the business year that includes the day on which the exchange and consolidation prescribed in paragraph (1) was carried 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 day; hereinafter referred to in this paragraph and paragraph (6) as a "qualified company split, etc."), and transfers an asset acquired by exchange that it acquired through that exchange and consolidation during the period from the beginning of that business year until immediately before the qualified company split, etc. to a succeeding corporation in a company split, a corporation receiving a capital contribution in kind or a corporation receiving a distribution in kind through the qualified company split, etc., then, only if, with regard to that asset acquired by exchange, the corporation has reduced its book value within the limit of the amount equivalent to the reduction entry limit pertaining to that asset acquired by exchange, the amount equivalent to the amount so reduced is included in deductible expenses in calculating the amount of income for that business year.

The provisions of Article 65-7, paragraph (8) apply mutatis mutandis to an asset acquired by exchange to which the provisions of the preceding paragraph have been applied.

The provisions of paragraph (4) apply only if the corporation seeking the application of the provisions of that paragraph has submitted to the district director with jurisdiction over the place for tax payment, within two months after the day of the qualified company split, etc., a document stating the reduced amount prescribed in that paragraph and other matters specified by Order of the Ministry of Finance.

The provisions of Article 65-7, paragraph (13) apply mutatis mutandis to an asset acquired by exchange to which the provisions of paragraph (1) or (4) have been applied.

Beyond what is specified in the preceding three paragraphs, necessary matters concerning the application of the provisions of paragraphs (1) and (4) are specified by Cabinet Order.

If a corporation has, with regard to land held by it that is adjacent to ordinary property under Article 9, paragraph (2) of the Act on Special Measures concerning National Property that has been certified, pursuant to the provisions of Order of the Ministry of Finance, as land, etc. prescribed in that paragraph (hereinafter referred to in this paragraph as "specified ordinary property") (including a right existing on the specified ordinary property, and excluding inventory assets; hereinafter referred to in this paragraph as "owned adjacent land, etc."), exchanged the owned adjacent land, etc. for the specified ordinary property pursuant to the provisions of paragraph (2) of that Article (excluding an exchange specified by Cabinet Order; hereinafter the same applies in this paragraph and the following paragraph) (including the case where it has acquired or paid an exchange balancing payment prescribed in Article 65-9 (referred to in the following paragraph as an "exchange balancing payment")), then, only if, with regard to the specified ordinary property acquired through the exchange (hereinafter referred to in this Article as an "asset acquired by exchange"), the corporation has reduced the book value of the asset acquired by exchange through accounting as an expense or loss within the limit of the amount remaining after deducting, from the acquisition price of the asset acquired by exchange, the book value immediately before the transfer of the owned adjacent land, etc. transferred through the exchange (referred to in the following paragraph as an "asset transferred by exchange") (hereinafter referred to in this paragraph and paragraph (4) as the "reduction entry limit"), or has, instead of reducing its book value, accounted 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.

The book value immediately before the transfer prescribed in the preceding paragraph is, in the cases listed in the following items, to be the amount specified in the relevant item:

where the corporation has acquired an exchange balancing payment together with the asset acquired by exchange: the amount remaining after deducting, from the book value, the amount calculated pursuant to the provisions of Cabinet Order as the portion of the book value corresponding to the amount of that exchange balancing payment;

where the corporation has paid an exchange balancing payment together with the exchange: the amount obtained by adding the amount of that exchange balancing payment to the book value;

where there is an amount calculated pursuant to the provisions of Cabinet Order as expenses required for the exchange of the asset transferred by exchange that pertain to the asset acquired by exchange: the amount obtained by adding that calculated amount to the book value.

The provisions of Article 65-7, paragraphs (5) and (6) apply mutatis mutandis where the provisions of paragraph (1) are applied, and the provisions of paragraph (8) of that Article apply mutatis mutandis to an asset acquired by exchange to which the provisions of paragraph (1) have been applied.

If a corporation carries out, in the business year that includes the day on which it made the exchange prescribed in paragraph (1), 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 day; hereinafter referred to in this paragraph and paragraph (6) as a "qualified company split, etc."), and transfers an asset acquired by exchange pertaining to that exchange that it acquired during the period from the beginning of that business year until immediately before the qualified company split, etc. to a succeeding corporation in a company split, a corporation receiving a capital contribution in kind or a corporation receiving a distribution in kind through the qualified company split, etc., then, only if, with regard to that asset acquired by exchange, the corporation has reduced its book value within the limit of the amount equivalent to the reduction entry limit pertaining to that asset acquired by exchange, the amount equivalent to the amount so reduced is included in deductible expenses in calculating the amount of income for that business year.

The provisions of Article 65-7, paragraph (8) apply mutatis mutandis to an asset acquired by exchange to which the provisions of the preceding paragraph have been applied.

The provisions of paragraph (4) apply only if the corporation seeking the application of the provisions of that paragraph has submitted to the district director with jurisdiction over the place for tax payment, within two months after the day of the qualified company split, etc., a document stating the reduced amount prescribed in that paragraph and other matters specified by Order of the Ministry of Finance.

The provisions of Article 65-7, paragraph (13) apply mutatis mutandis to an asset acquired by exchange to which the provisions of paragraph (1) or (4) have been applied.

Beyond what is specified in paragraphs (2) and (3) and the preceding three paragraphs, necessary matters concerning the application of the provisions of paragraph (1) or (4) are specified by Cabinet Order.