Act on Special Measures Concerning Taxation

Where a corporation that, following the enactment of laws and regulations, the conclusion of a treaty or other international agreement, or any other act specified by Cabinet Order as equivalent thereto (referred to in this paragraph as the "enactment of laws and regulations, etc.") with regard to the consolidation of businesses or other restrictions on business activities, is required to close or convert the business that it operates (referred to in this Article as an "operator closing its business, etc.") has received, as a result of closing or converting that business, subsidies of the State or a local government (including those equivalent thereto) or compensation contributed by remaining business operators, etc. (meaning persons operating a business of the same type as that business who continue to operate that business even after the enactment of laws and regulations, etc., and organizations formed by them), which are specified by Cabinet Order (referred to in this Article as "business closure or conversion subsidies, etc.") (including the case where it has received them through an organization to which the operator closing its business, etc. belongs or any other person in accordance with the purpose of the grant of the business closure or conversion subsidies, etc.; the same applies hereinafter in this Article), if, in the business year that includes the day on which it received them, it has reduced, by accounting as an expense or loss and within the limit of an amount equivalent to the amount of the part of those business closure or conversion subsidies, etc. corresponding to what is specified by Cabinet Order as expenses for compensating for the depreciation of machinery and other depreciable assets pertaining to that business held by the corporation (referred to in this paragraph as a "grant compensating for depreciation"), the book value of the machinery or other depreciable assets pertaining to that grant compensating for depreciation, an amount equivalent to the amount so reduced is included in deductible expenses in calculating the amount of income for that business year.

Where a corporation that is an operator closing its business, etc. has received business closure or conversion subsidies, etc., if, in the business year that includes the day on which it received them, it has made an acquisition (excluding an acquisition through a lease transaction without transfer of ownership, and including construction and manufacture; the same applies hereinafter in this Article) or improvement of fixed assets with an amount equivalent to all or part of the amount of the part of those business closure or conversion subsidies, etc. corresponding to what is specified by Cabinet Order as expenses for subsidizing the closure or conversion of the business that it operates (referred to in this Article as a "business closure or conversion subsidy"), and, with regard to those fixed assets, has reduced their book value by accounting as an expense or loss within the limit of an amount equivalent to the amount of the business closure or conversion subsidy spent on the acquisition or improvement (referred to in this paragraph as the "reduction entry limit"), or, instead of reducing their book value, has accounted for an amount not exceeding the reduction entry limit by the method of setting it aside as a reserve in the settlement of accounts finalized 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), an 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 a corporation that is an operator closing its business, etc. receives business closure or conversion subsidies, etc. and, in the business year that includes the day on which it received them, 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 day; hereinafter referred to as a "qualified company split, etc." in this paragraph, paragraph (10) and paragraph (17)), if, within the period from the beginning of that business year to the time immediately before the qualified company split, etc., it makes an acquisition or improvement of fixed assets with the amount of the business closure or conversion subsidy (limited to that received within that period) out of the amount of those business closure or conversion subsidies, etc., and transfers those fixed 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 it has reduced the book value of those fixed assets within the limit of an amount equivalent to the business closure or conversion subsidy spent on the acquisition or improvement, an amount equivalent to the amount so reduced is included in deductible expenses in calculating the amount of income for that business year.

Where a corporation that is an operator closing its business, etc. has received business closure or conversion subsidies, etc., if it is expected to make an acquisition or improvement of fixed assets with an amount equivalent to all or part of the amount of the business closure or conversion subsidy (where, in the business year that includes the day on which it received them, it has made an acquisition or improvement of fixed assets with an amount equivalent to part of that amount, the amount after deducting the amount spent on that acquisition or improvement; hereinafter the same applies in this Article) out of the amount of those business closure or conversion subsidies, etc., within the period from the day following the end of the business year that includes the day on which it received them (excluding a business year that includes the date of dissolution and a business year that includes the day before the date of a merger (excluding a qualified merger) of a merged corporation) until the day on which two years have elapsed after the day of receipt (where there are unavoidable circumstances specified by Cabinet Order, such as that the period required for the construction of a factory, etc. normally exceeds two years, the period specified by Cabinet Order; hereinafter referred to as the "designated period" in this paragraph and paragraph (6), item (ii)) (including where, in the case where the corporation carries out a qualified merger in which it is the merged corporation, the merging corporation pertaining to that qualified merger is expected to make an acquisition or improvement of fixed assets with all or part of the amount of that business closure or conversion subsidy within the designated period, and other cases specified by Cabinet Order), then, only where it has accounted for an amount not exceeding the amount of that business closure or conversion subsidy that it intends to appropriate for the acquisition or improvement of fixed assets, by the method of setting up a special account in the settlement of accounts finalized for the business year that includes the day on which it received them (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), an amount equivalent to the amount so accounted for is included in deductible expenses in calculating the amount of income for that business year.

Where a corporation that is an operator closing its business, etc. receives business closure or conversion subsidies, etc. and, in the business year that includes the day on which it received them, carries out a qualified company split or a qualified capital contribution in kind (limited to one carried out on or after that day; hereinafter referred to as a "qualified company split, etc." in this Article, except in paragraph (10) and paragraph (17)), if the succeeding corporation in a company split or the corporation receiving a capital contribution in kind pertaining to the qualified company split, etc. is expected to make an acquisition or improvement of fixed assets with an amount equivalent to all or part of the amount of the business closure or conversion subsidy out of the amount of those business closure or conversion subsidies, etc., within the period from the date of the qualified company split, etc. until the day on which two years have elapsed after the day of receipt (where there are unavoidable circumstances specified by Cabinet Order, such as that the period required for the construction of a factory, etc. normally exceeds two years, the period specified by Cabinet Order), then, only where the corporation has set up an account equivalent to the special account referred to in the preceding paragraph (hereinafter referred to as a "special account during the year" in this Article) within the limit of the amount of that business closure or conversion subsidy that the succeeding corporation in a company split or the corporation receiving a capital contribution in kind intends to appropriate for the acquisition or improvement of fixed assets, an amount equivalent to the amount of the special account during the year so set up is included in deductible expenses in calculating the amount of income for that business year.

Where a corporation has carried out a qualified merger, a qualified company split or a qualified capital contribution in kind, the amount of the special account or the amount of the special account during the year specified in each of the following items according to the category of qualified merger, qualified company split or qualified capital contribution in kind listed in that item is to be succeeded to by the merging corporation, the succeeding corporation in a company split or the corporation receiving a capital contribution in kind pertaining to that qualified merger, qualified company split or qualified capital contribution in kind:

qualified merger: the amount of the special account referred to in paragraph (4) held immediately before the qualified merger (where there is any amount that has already been included in gross profit or that should be included in gross profit, the amount after deducting those amounts; hereinafter the same applies in this Article);

qualified company split, etc.: of the amount of the special account referred to in paragraph (4) held immediately before the qualified company split, etc., the amount of the special account that the succeeding corporation in a company split or the corporation receiving a capital contribution in kind pertaining to the qualified company split, etc. intends to appropriate for the acquisition or improvement of fixed assets in the case where it is expected to make an acquisition or improvement of fixed assets with the amount of the business closure or conversion subsidy pertaining to that special account by the last day of the designated period, and the amount of the special account during the year set up upon the qualified company split, etc.

The provisions of the preceding paragraph apply, in the case of a corporation that has set up the special account referred to in paragraph (4) and has carried out a qualified company split, etc. (excluding a corporation that has set up both that special account and a special account during the year and that passes on only the amount of the special account during the year to the succeeding corporation in a company split or the corporation receiving a capital contribution in kind through the qualified company split, etc.), only where the corporation that has set up the special account submits, within two months after the date of the qualified company split, etc., a document stating the amount of that special account to be passed on to the succeeding corporation in a company split or the corporation receiving a capital contribution in kind through the qualified company split, etc. and other matters specified by Order of the Ministry of Finance to the district director having jurisdiction over its place for tax payment.

The amount of the special account or the amount of the special account during the year succeeded to by the merging corporation, the succeeding corporation in a company split or the corporation receiving a capital contribution in kind pursuant to the provisions of paragraph (6) is deemed to be the amount of the special account set up by that merging corporation, succeeding corporation in a company split or corporation receiving a capital contribution in kind pursuant to the provisions of paragraph (4).

The provisions of paragraph (2) apply mutatis mutandis where a corporation that has set up the special account referred to in paragraph (4) has made an acquisition or improvement of fixed assets, with an amount equivalent to all or part of the amount of the business closure or conversion subsidy, out of the amount of business closure or conversion subsidies, etc., that it intends to appropriate for the acquisition or improvement of fixed assets, within the designated period prescribed in that paragraph (where the amount of that special account is the amount of a special account during the year succeeded to pursuant to the provisions of paragraph (6), or in other cases specified by Cabinet Order, the period prescribed in paragraph (5) or any other period specified by Cabinet Order; hereinafter referred to as the "designated period" in this Article). In this case, the phrase "the settlement of accounts finalized for that business year" in paragraph (2) is deemed to be replaced with "the settlement of accounts finalized for the business year that includes the day on which the acquisition or improvement of those fixed assets was made".

The provisions of paragraph (3) apply mutatis mutandis where a corporation that has set up the special account referred to in paragraph (4) carries out a qualified company split, etc., and the corporation has made an acquisition or improvement of fixed assets, with an amount equivalent to all or part of the amount of the business closure or conversion subsidy, out of the amount of business closure or conversion subsidies, etc., that it intends to appropriate for the acquisition or improvement of fixed assets, within the designated period of the business year that includes the date of the qualified company split, etc., and transfers those fixed 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. In this case, the phrase "in calculating the amount of income for that business year" in paragraph (3) is deemed to be replaced with "in calculating the amount of income for the business year that includes the day on which the acquisition or improvement of those fixed assets was made".

Where a corporation that has set up the special account referred to in paragraph (4) has come to fall under any of the cases listed in the following items (excluding where that special account is to be succeeded to by the merging corporation, the succeeding corporation in a company split or the corporation receiving a capital contribution in kind pursuant to the provisions of paragraph (6)), the amount specified in each of those items is included in gross profit in calculating the amount of income for the business year that includes the day on which it has come to fall under that case (in the case listed in item (v), the business year that includes the day before the date of the merger):

where it has appropriated an amount equivalent to all or part of the amount of the special account referred to in paragraph (4) for the acquisition or improvement of fixed assets within the designated period: an amount equivalent to the amount so appropriated;

where it has reversed the amount of the special account referred to in paragraph (4) within the designated period in a case other than the case falling under the provisions of the preceding item: the amount so reversed;

where it holds the amount of the special account referred to in paragraph (4) on the day on which the designated period elapses: the amount of that special account;

where it has dissolved within the designated period (excluding where it has dissolved due to a merger), if it holds the amount of the special account referred to in paragraph (4): the amount of that special account;

where it has carried out, within the designated period, a merger in which the corporation is the merged corporation, if it holds the amount of the special account referred to in paragraph (4): the amount of that special account.

The provisions listed in the items of Article 53, paragraph (1) do not apply to assets to which the provisions of paragraph (2) (including as applied mutatis mutandis pursuant to paragraph (9); the same applies in the following paragraph and paragraph (14)) or paragraph (3) (including as applied mutatis mutandis pursuant to paragraph (10); the same applies in the following paragraph and paragraph (14)) have been applied.

Where the provisions of laws and regulations concerning corporation tax are applied to assets to which the provisions of paragraph (2) or paragraph (3) have been applied, the amount included in deductible expenses in calculating the amount of income for each business year pursuant to those provisions is not included in the acquisition price of those assets.

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 pertaining to 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) that has received, through that qualified merger, etc., the transfer of fixed assets to which the provisions of paragraph (2) or paragraph (3) have been applied applies the provisions of laws and regulations concerning corporation tax to those fixed assets, the amount that was not included in the acquisition price of those fixed assets by the merged corporation, the splitting corporation, the corporation making a capital contribution in kind or the corporation making a distribution in kind pertaining to that qualified merger, etc. is not included in the acquisition price of those fixed assets.

The provisions of paragraph (1), (2), (4) or (9) apply only if the final return, etc. contains a statement concerning the inclusion in deductible expenses of the amount to be included in deductible expenses pursuant to those provisions, and has attached to it a written statement concerning the calculation of the amount to be included in deductible expenses and other documents specified by Order of the Ministry of Finance.

Even where a final return, etc. without the statement or attachment referred to in the preceding paragraph has been filed, the district director may, when the district director finds that there were unavoidable circumstances for the absence of the statement or attachment, apply the provisions of paragraph (1), (2), (4) or (9), only if a document containing that statement, and the written statement and the documents specified by Order of the Ministry of Finance referred to in that paragraph, are submitted.

The provisions of paragraph (3) 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 reduced as 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. The same applies where the provisions of that paragraph are applied as read with the replacement of terms pursuant to the provisions of paragraph (10).

The provisions of paragraph (5) 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 special account during the year and other matters specified by Order of the Ministry of Finance to the district director having jurisdiction over its place for tax payment.

Matters necessary for the application of the provisions of paragraphs (1) through (11) and other matters necessary for the application of the provisions of the Corporation Tax Act with regard to business closure or conversion subsidies, etc. are specified by Cabinet Order.