Act on Special Measures Concerning Taxation

Where there is an amount that was not included in deductible expenses pursuant to the provisions of paragraph (1) of the preceding Article (including as applied with the terms replaced pursuant to the provisions of paragraph (7) of that Article) in a business year that began within seven years before the first day of each business year of a corporation (excluding the amount included in deductible expenses in calculating the amount of income for a business year preceding that business year pursuant to the provisions of this paragraph and the following paragraph; hereinafter referred to as the "excess interest amount" in this Article), the amount equivalent to that excess interest amount (excluding the amount to be included in deductible expenses in calculating the amount of income for that business year pursuant to the provisions of the following paragraph) is included in deductible expenses in calculating the amount of income of the corporation for that business year, up to the amount equivalent to the remaining amount obtained by deducting the amount of covered net interest payments, etc. prescribed in paragraph (1) of the preceding Article from the amount equivalent to 20 percent of the adjusted income amount prescribed in that paragraph of the corporation for that business year.

Where the excess interest amount arising in a business year that began within seven years before the first day of each business year of a corporation includes an amount specified by Cabinet Order as pertaining to a foreign affiliated company prescribed in paragraph (2), item (i) of the following Article or a foreign affiliated corporation prescribed in Article 66-9-2, paragraph (1) of that corporation (referred to as the "excess interest for adjustment" in this paragraph), if, for that business year of that corporation, there is a taxable amount prescribed in paragraph (1) of the following Article, 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. (meaning the amount of covered interest payments, etc. prescribed in paragraph (2), item (i) of the preceding Article; hereinafter the same applies in this paragraph) pertaining to that excess interest 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 excess interest 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), the amount equivalent to that excess interest for adjustment is included in deductible expenses in calculating the amount of income of the corporation for that business year, up to the amount calculated pursuant to the method specified by Cabinet Order.

Where a qualified merger in which the corporation referred to in paragraph (1) or the preceding paragraph is the merging corporation has been carried out, or where the residual assets of another corporation that has a full controlling interest prescribed in Article 2, item (xii)-7-6 of the Corporation Tax Act with that corporation (limited to a full controlling interest held by that corporation or a mutual relationship prescribed in that item) and whose issued shares or capital contributions are wholly or partly held by that corporation (limited to a domestic corporation; referred to as the "distributing corporation" in this paragraph) have been determined, if there is an excess interest amount arising in each business year (referred to as the "business year within the preceding seven years" in this paragraph) of the merged corporation pertaining to that qualified merger or that distributing corporation (referred to as the "merged corporation, etc." in this paragraph) that began within seven years before the date of that qualified merger or that began within seven years before the day following the date of determination of those residual assets (limited to the excess interest amount in the case where the requirements specified by Cabinet Order are satisfied, such as the filing of a tax return (meaning a tax return prescribed in item (xxxi) of that Article; the same applies in paragraph (5)) for each business year on or after the oldest business year among the business years pertaining to that excess interest amount of the merged corporation, etc. (including any amount deemed to be the excess interest amount of the merged corporation, etc. pursuant to the provisions of this paragraph); referred to as the "amount of excess interest eligible for succession" in this paragraph), with regard to the application of the provisions of the preceding two paragraphs in each business year on or after the business year of the merging corporation pertaining to that qualified merger that includes the date of that qualified merger, or the business year of that corporation (limited to a domestic corporation; referred to as the "corporation receiving the distribution" in this paragraph) that includes the day following the date of determination of those residual assets (referred to as the "business year of the merger, etc." in this paragraph), the amount of excess interest eligible for succession arising in that business year within the preceding seven years (where the distributing corporation has two or more shareholders, etc. prescribed in item (xiv) of that Article, the amount calculated by dividing that amount of excess interest eligible for succession by the total number or the total amount of the issued shares or capital contributions of that distributing corporation (excluding its own shares or capital contributions held by that distributing corporation) and multiplying the result by the number or amount of the shares or capital contributions of that distributing corporation held by that corporation receiving the distribution) is deemed to be the excess interest amount arising in each business year of that merging corporation or corporation receiving the distribution that includes the first day of the business year within the preceding seven years in which that amount of excess interest eligible for succession arose (or, for the amount of excess interest eligible for succession arising in a business year within the preceding seven years of that merged corporation, etc. that began on or after the first day of the business year of the merger, etc. of that merging corporation or corporation receiving the distribution, the business year preceding that business year of the merger, etc.).

With regard to the application of the provisions of the preceding three paragraphs in the case where each business year of the corporation referred to in paragraph (1) or paragraph (2) is a business year beginning during the period from April 1, 2030 to March 31, 2035, the phrase "business year that began within seven years" in paragraphs (1) and (2) is deemed to be replaced with "business year that began within ten years (limited to a business year that began within seven years before that first day and a business year that began during the period from April 1, 2022 to March 31, 2025)"; the phrase "within seven years" in the preceding paragraph with "within ten years"; the phrase "each business year (referred to" with "each business year (in the case of each business year that began within ten years before the date of that qualified merger, limited to each business year that began within seven years before the date of that qualified merger and each business year that began during the period from April 1, 2022 to March 31, 2025, and in the case of each business year that began within ten years before that following day, limited to each business year that began within seven years before that following day and each business year that began during the period from April 1, 2022 to March 31, 2025; referred to"; and the phrase "business year within the preceding seven years" with "business year within the preceding ten years".

The provisions of paragraphs (1) and (2) apply only where a tax return has been filed for each business year on or after the oldest business year among the business years pertaining to the excess interest amount (in the case of applying the provisions of paragraphs (1) and (2) to an amount deemed to be the excess interest amount of the corporation pursuant to the provisions of paragraph (3), the business year of the merger, etc. referred to in paragraph (3)), and a document stating that excess interest amount, the amount to be included in deductible expenses pursuant to those provisions and the details of the calculation thereof is attached to the final return, etc., amended return form or written request for reassessment for the business year for which the application of the provisions of paragraphs (1) and (2) is sought. In this case, the excess interest amount that serves as the basis for calculating the amount to be included in deductible expenses pursuant to those provisions is limited to the excess interest amount stated in that document.

The application of the provisions of paragraphs (1) and (2) in the case where the merging corporation referred to in paragraph (3) is a corporation established by a qualified merger, and other necessary matters concerning the application of the provisions of the preceding paragraphs are specified by Cabinet Order.