Act on Special Measures Concerning Taxation

Where, in each business year of a corporation beginning on or after April 1, 2013, the remaining amount obtained by deducting the deductible total of interest received, etc. for that business year from the total of the amount of covered interest payments, etc. of the corporation for that business year (referred to as the "total amount of covered interest payments, etc." in this paragraph, item (vi) of the following paragraph and paragraph (3), item (i)) (referred to as the "amount of covered net interest payments, etc." in this paragraph and paragraph (3)) exceeds the amount equivalent to 20 percent of the adjusted income amount of the corporation for that business year (meaning the amount specified by Cabinet Order as the amount of income that is to serve as the standard for comparison with that amount of covered net interest payments, etc.), the amount equivalent to the amount of that excess out of the total amount of covered interest payments, etc. of the corporation for that business year is not included in deductible expenses in calculating the amount of income of the corporation for that business year.

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

amount of covered interest payments, etc.: the amount of interest paid, etc. other than the amount of excluded interest payments, etc.;

interest paid, etc.: interest on liabilities paid by a corporation (including anything specified by Cabinet Order as being equivalent thereto) and any other expense or loss specified by Cabinet Order;

amount of excluded interest payments, etc.: the amount specified in the following for each category of interest paid, etc. listed therein (excluding interest paid, etc. to a non-affiliate in the case specified by Cabinet Order as a case where a related party of a corporation is found to have provided funds to that corporation through that non-affiliate, and other interest paid, etc. specified by Cabinet Order):

interest paid, etc. that is included in the income subject to taxation of the person receiving the interest paid, etc. (meaning the income specified by Cabinet Order as the income that is to be the tax base of income tax or corporation tax of that person, according to whether that person is an individual or a corporation; the same applies in (a) and (e), 1.) (excluding interest paid, etc. listed in (d) and (e); the same applies in (a)): the amount of interest paid, etc. included in that income subject to taxation;

interest paid, etc. to public service corporations specified by Cabinet Order (excluding interest paid, etc. listed in (d) and (e); the same applies in (b)): the amount of interest paid, etc. to the public service corporations specified by that Cabinet Order;

interest paid, etc. specified by Cabinet Order as pertaining to specified bond transactions with a repurchase/resale agreement, etc. (meaning the specified bond transactions with a repurchase/resale agreement, etc. prescribed in paragraph (5), item (viii) of the preceding Article) (excluding interest paid, etc. listed in (b) and (e); the same applies in (c)): the amount specified by Cabinet Order out of the amount of the interest paid, etc. specified by that Cabinet Order;

interest paid, etc. pertaining to insurance policies concluded by a life insurance company prescribed in Article 2, paragraph (3) of the Insurance Business Act and insurance policies concluded by a casualty insurance company prescribed in paragraph (4) of that Article, which is specified by Cabinet Order: the amount specified by Cabinet Order out of the amount of that interest paid, etc.;

interest paid, etc. on bonds issued by a corporation (excluding bonds specified by Cabinet Order as bonds whose acquirers are not substantially numerous) that is paid to a non-affiliate (referred to as "specified bond interest, etc." in 1.): either of the following amounts for each issue of bonds:

the total of the amount of specified bond interest, etc. for which income tax is collected under the provisions of the Income Tax Act or other laws and regulations concerning income tax upon its payment or delivery, or which is included in the income subject to taxation of the person receiving the specified bond interest, etc., and the amount of specified bond interest, etc. paid to the public service corporations specified by Cabinet Order prescribed in (b) (excluding specified bond interest, etc. for which income tax is collected under the provisions of the Income Tax Act or other laws and regulations concerning income tax upon its payment or delivery); or

the amount calculated pursuant to the provisions of Cabinet Order as the amount equivalent to the amount listed in 1.;

related party: a person that has a relationship with a corporation whereby either corporation holds, directly or indirectly, shares or capital contributions that account for 50 percent or more of the total number or the total amount of the issued shares of or capital contributions to the other corporation (excluding its own shares or capital contributions held by itself; referred to as "issued shares, etc." in this item and item (ii) of the following paragraph) or any other special relationship specified by Cabinet Order, or a relationship whereby an individual holds, directly or indirectly, shares or capital contributions that account for 50 percent or more of the total number or the total amount of the issued shares, etc. of the corporation or any other special relationship specified by Cabinet Order;

non-affiliate: a person other than a related party of a corporation;

deductible total of interest received, etc.: the amount specified by Cabinet Order as the amount obtained by apportioning the total amount of interest received, etc. for the relevant business year by the ratio of the total amount of covered interest payments, etc. for that business year to the total amount of interest paid, etc. for that business year;

interest received, etc.: interest received by a corporation (including anything specified by Cabinet Order as being equivalent thereto).

The provisions of paragraph (1) do not apply in any of the following cases:

where the amount of covered net interest payments, etc. of the corporation for the relevant business year (where the corporation is a group tax sharing corporation, the remaining amount obtained by deducting the total of the amount of covered net interest receipts, etc. (meaning the remaining amount obtained by deducting the total amount of covered interest payments, etc. from the deductible total of interest received, etc.; the same applies in (a) of the following item) from the total of the amount of covered net interest payments, etc. for the relevant business year of that group tax sharing corporation and of the other group tax sharing corporations that have a group tax sharing full controlling interest with that group tax sharing corporation as of the last day of the relevant business year of that group tax sharing corporation (limited to a business year ending on the last day of the business year of the group tax sharing parent corporation pertaining to that group tax sharing corporation), for the relevant business year and for the business years ending on that last day) is 20 million yen or less;

where the amount listed in (a) for the relevant business year of a domestic corporation and the other domestic corporations that have a specified capital relationship with that domestic corporation (meaning a relationship specified by Cabinet Order as a relationship whereby one domestic corporation holds, directly or indirectly, shares or capital contributions that account for more than 50 percent of the total number or the total amount of the issued shares, etc. of another domestic corporation (referred to as a "specified capital relationship between the parties" in this item), or a relationship between domestic corporations each of which has a specified capital relationship between the parties with one domestic corporation) (limited to those whose first day and last day of the business year are respectively the first day and last day of the business year of that domestic corporation that includes that first day) does not exceed the amount equivalent to 20 percent of the amount listed in (b) for the relevant business year of that domestic corporation and those other domestic corporations:

the remaining amount obtained by deducting the total of the amount of covered net interest receipts, etc. from the total of the amount of covered net interest payments, etc.;

the amount specified by Cabinet Order as the amount of income that is to serve as the standard for comparison with the amount listed in (a).

The provisions of the preceding paragraph apply only where the final return, etc. has attached thereto a document stating that the provisions of that paragraph apply and a written statement concerning the calculation thereof, and the documents on that calculation have been preserved.

Even where a corporation has filed a final return, etc. without the document or written statement set forth in the preceding paragraph attached thereto or failed to preserve the documents on the calculation set forth in the paragraph, the district director may, when they find any unavoidable reason for the corporation's failure to attach a necessary document or written statement or preserve the necessary documents on the calculation, apply the provisions of paragraph (3), only if the document and written statement as well as the documents on the calculation are submitted.

Where the amount of the excess prescribed in paragraph (1) for the relevant business year of a domestic corporation is the amount calculated pursuant to the method specified by Cabinet Order as corresponding to the excess prescribed in paragraph (1) of the preceding Article (including as applied with the terms replaced pursuant to the provisions of paragraph (2) of that Article) for the relevant business year of that domestic corporation or less, the provisions of paragraph (1) do not apply.

Where the amount of the excess prescribed in paragraph (1) for the relevant business year of a domestic corporation includes an amount specified by Cabinet Order as pertaining to a foreign affiliated company prescribed in Article 66-6, paragraph (2), item (i) or a foreign affiliated corporation prescribed in Article 66-9-2, paragraph (1) of that domestic corporation (referred to as the "amount for adjustment" in this paragraph), if, for the relevant business year of that domestic corporation, there is a taxable amount prescribed in paragraph (1) of Article 66-6, a partially taxable amount prescribed in paragraph (8) of that Article or a partially taxable amount for a financial subsidiary, etc. prescribed in paragraph (10) of that Article pertaining to that foreign affiliated company (limited to one where the amount of covered interest payments, etc. pertaining to that amount for adjustment is included in calculating the amount of applicable income prescribed in paragraph (1) of that Article pertaining to that taxable amount, the partially applicable amount prescribed in paragraph (8) of that Article pertaining to that partially taxable amount, or the partially applicable amount for a financial subsidiary, etc. prescribed in paragraph (10) of that Article pertaining to that partially taxable amount for a financial subsidiary, etc.), or if there is a taxable amount prescribed in Article 66-9-2, paragraph (1), a partially taxable amount prescribed in paragraph (8) of that Article or a partially taxable amount for a financial affiliated corporation prescribed in paragraph (10) of that Article pertaining to that foreign affiliated corporation (limited to one where the amount of covered interest payments, etc. pertaining to that amount for adjustment is included in calculating the amount of applicable income prescribed in paragraph (1) of that Article pertaining to that taxable amount, the partially applicable amount prescribed in paragraph (8) of that Article pertaining to that partially taxable amount, or the partially applicable amount for a financial affiliated corporation prescribed in paragraph (10) of that Article pertaining to that partially taxable amount for a financial affiliated corporation), with regard to the application of the provisions of paragraph (1) to that domestic corporation for that business year, the phrase "amount of that excess" in that paragraph is deemed to be replaced with "remaining amount obtained by deducting, from the amount of that excess, the amount specified by Cabinet Order out of the amount for adjustment prescribed in paragraph (7)".

With regard to the application of the provisions of paragraph (1), paragraph (2) and paragraph (3) (limited to the part pertaining to item (i)) to a foreign corporation, the following provisions apply:

the amount of covered interest payments, etc. referred to in paragraph (1) pertaining to the business conducted by that foreign corporation through its permanent establishment is to include the amount listed in (a) and exclude the amount listed in (b):

the amount that is to fall under interest paid, etc. from that permanent establishment of that foreign corporation to the head office, etc. of that foreign corporation prescribed in Article 138, paragraph (1), item (i) of the Corporation Tax Act in an internal dealing prescribed in that item;

out of the amounts included in deductible expenses, pursuant to the provisions of Article 142-5, paragraph (1) of the Corporation Tax Act, in calculating the amount of income pertaining to the domestic source income listed in Article 141, item (i), (a) of that Act of that foreign corporation for the relevant business year, the amount specified by Cabinet Order as being equivalent to the amount of covered interest payments, etc. of that foreign corporation;

the phrase "Article 2, paragraph (3)" in paragraph (2), item (iii), (d) is deemed to be replaced with "Article 2, paragraph (8)", the phrase "life insurance company" with "foreign life insurance company, etc.", the phrase "paragraph (4) of that Article" with "paragraph (9) of that Article", and the phrase "casualty insurance company" with "foreign casualty insurance company, etc.".

Where the amount of the excess prescribed in paragraph (1) pertaining to the business conducted through the permanent establishment of a foreign corporation for the relevant business year of that foreign corporation is the amount calculated pursuant to the method specified by Cabinet Order as the amount of the portion corresponding to the shortfall prescribed in Article 142-4, paragraph (1) of the Corporation Tax Act for the relevant business year of that foreign corporation or less, the provisions of paragraph (1) do not apply with regard to the calculation of the amount of income pertaining to the domestic source income listed in Article 141, item (i), (a) of that Act.

Where the amount of the excess prescribed in paragraph (1) pertaining to the business conducted through the permanent establishment of a foreign corporation for the relevant business year of that foreign corporation exceeds the amount calculated pursuant to the method specified by Cabinet Order as the amount of the portion corresponding to the shortfall prescribed in Article 142-4, paragraph (1) of the Corporation Tax Act for the relevant business year of that foreign corporation (excluding the case where the provisions of paragraph (3) (limited to the part pertaining to item (i)) apply), the provisions of Article 142-4, paragraph (1) of that Act do not apply with regard to the calculation of the amount of income pertaining to the domestic source income listed in Article 141, item (i), (a) of that Act.

The application of the provisions of the Corporation Tax Act with respect to the amount not included in deductible expenses pursuant to the provisions of paragraph (1), and other necessary matters concerning the application of the provisions of paragraphs (1) through (3) and paragraph (6) through the preceding paragraph are specified by Cabinet Order.