Act on Special Measures Concerning Taxation

Where a resident has an amount of dividends of surplus and similar distributions (meaning dividends of surplus, dividends of profit or distributions of surplus prescribed in Article 24, paragraph (1) of the Income Tax Act; hereinafter the same applies in this Article) received from a foreign corporation, the portion of the amount of dividends of surplus and similar distributions up to the sum of the following amounts pertaining to the foreign corporation is deducted in calculating the amount of dividend income pertaining to the amount of dividends of surplus and similar distributions received from the foreign corporation for the year that includes the day on which the resident receives payment of the amount of dividends of surplus and similar distributions (hereinafter referred to in this Article as the "dividend date"):

the amount calculated pursuant to the method specified by Cabinet Order, by taking into consideration the number of shares, etc. held directly by the resident in the foreign corporation (meaning the number of shares of or amount of capital contributions to a foreign corporation held by a resident; the same applies in the following item and item (i) of the following paragraph) and the status of the relationship of substantive control between the resident and the foreign corporation (meaning the relationship of substantive control prescribed in paragraph (2), item (v) of that Article; the same applies in the following item and item (ii) of the following paragraph), out of the taxable amount, partially taxable amount or partially taxable amount for a financial subsidiary, etc. pertaining to the foreign corporation that is included in gross revenue in the calculation of the amount of miscellaneous income for the year that includes the dividend date pursuant to the provisions of paragraph (1), paragraph (8) or paragraph (10) of the preceding Article;

the amount calculated pursuant to the method specified by Cabinet Order, by taking into consideration the number of shares, etc. held directly by the resident in the foreign corporation and the status of the relationship of substantive control between the resident and the foreign corporation, out of the taxable amount, partially taxable amount or partially taxable amount for a financial subsidiary, etc. pertaining to the foreign corporation that was included in gross revenue in the calculation of the amount of miscellaneous income for each year within the three years preceding the year that includes the dividend date pursuant to the provisions of paragraph (1), paragraph (8) or paragraph (10) of the preceding Article (if there is an amount of dividends of surplus and similar distributions received from the foreign corporation in those years (limited to the portion of the amount to which the provisions of this paragraph were applied; hereinafter the same applies in this item), the balance remaining after deducting the amount equivalent to that amount of dividends of surplus and similar distributions; referred to in paragraph (3) as the "already-taxed amount").

In the case referred to in the preceding paragraph, where the foreign corporation referred to in that paragraph has an amount of dividends of surplus and similar distributions received from another foreign corporation, the amount obtained by deducting, from the amount of dividends of surplus and similar distributions received by the resident referred to in that paragraph from the foreign corporation referred to in that paragraph, the portion of that amount of dividends of surplus and similar distributions to which the provisions of that paragraph apply (limited to the amount up to whichever is the smaller of the following amounts pertaining to the foreign corporation) is deducted in calculating the amount of dividend income pertaining to the amount of dividends of surplus and similar distributions received from the foreign corporation for the year that includes the dividend date of the resident:

the amount specified by Cabinet Order as the portion corresponding to the number of shares, etc. held directly by the resident in the foreign corporation referred to in the preceding paragraph, out of the amount of dividends of surplus and similar distributions received by the foreign corporation referred to in the preceding paragraph from another foreign corporation in the year that includes the dividend date and in each year within the two years preceding that year (excluding those specified by Cabinet Order as the amount of dividends of surplus and similar distributions received before the first day of the business year of the other foreign corporation to which the provisions of paragraph (1), paragraph (8) or paragraph (10) of the preceding Article apply) (if there is an amount of dividends of surplus and similar distributions received from the foreign corporation in each year within the two years preceding the year that includes the dividend date (referred to in (b) of the following item as "each year within the preceding two years") (limited to the portion, out of the amount to which the provisions of this paragraph were applied, corresponding to the amount of dividends of surplus and similar distributions received by the foreign corporation from the other foreign corporation; hereinafter referred to in this paragraph as the "amount of dividends, etc. to which the special rule applied"), the balance remaining after deducting the amount of dividends, etc. to which the special rule applied; referred to in the following paragraph as "indirect dividends, etc.");

the sum of the following amounts:

the amount calculated pursuant to the method specified by Cabinet Order, by taking into consideration the number of shares, etc. held indirectly by the resident referred to in that item in the other foreign corporation (meaning the number of shares of or amount of capital contributions to another foreign corporation specified by Cabinet Order as being held indirectly by a resident through a foreign corporation; the same applies in (b)) and the status of the relationship of substantive control between the resident and the other foreign corporation, out of the taxable amount, partially taxable amount or partially taxable amount for a financial subsidiary, etc. pertaining to the other foreign corporation referred to in the preceding item that is included in gross revenue in the calculation of the amount of miscellaneous income for the year that includes the dividend date pursuant to the provisions of paragraph (1), paragraph (8) or paragraph (10) of the preceding Article;

the amount calculated pursuant to the method specified by Cabinet Order, by taking into consideration the number of shares, etc. held indirectly by the resident referred to in that item in the other foreign corporation and the status of the relationship of substantive control between the resident and the other foreign corporation, out of the taxable amount, partially taxable amount or partially taxable amount for a financial subsidiary, etc. pertaining to the other foreign corporation referred to in the preceding item that was included in gross revenue in the calculation of the amount of miscellaneous income for each year within the preceding two years pursuant to the provisions of paragraph (1), paragraph (8) or paragraph (10) of the preceding Article (if there is an amount of dividends, etc. to which the special rule applied that was received from the foreign corporation referred to in the preceding paragraph in each year within the preceding two years, the balance remaining after deducting that amount of dividends, etc. to which the special rule applied; referred to in the following paragraph as the "indirectly taxed amount").

The provisions of the preceding two paragraphs apply only if the resident has continuously filed tax returns for each year from the earliest of the years pertaining to the already-taxed amount or the indirect dividends, etc. or indirectly taxed amount onward (limited to each year for which the resident is required to file a return pursuant to the provisions of Article 120, paragraph (1), Article 124, paragraph (1) (including as applied mutatis mutandis pursuant to Article 125, paragraph (5) of that Act), Article 125, paragraph (1), Article 126, paragraph (1) or Article 127, paragraph (1) of the Income Tax Act), and a document stating the amount of dividends of surplus and similar distributions subject to the deduction under the preceding two paragraphs and the details of its calculation is attached to the tax return, amended return form or written request for reassessment for the year that includes the dividend date. In this case, the amount to be deducted pursuant to those provisions is limited to the amount stated as such amount.

Matters concerning the determination as to whether or not a resident falls under any of the categories listed in the items of Article 40-4, paragraph (1), the calculation of the maximum credit prescribed in Article 95, paragraph (1) of the Income Tax Act for a resident who is subject to the provisions of the preceding two Articles, and other necessary matters concerning the application of the provisions of the preceding two Articles are specified by Cabinet Order.