Act on Special Measures Concerning Taxation

With regard to domestic source income prescribed in Article 161, paragraph (1) of the Income Tax Act (limited, for a nonresident, to the domestic source income listed in items (i) and (iv) of that paragraph (excluding that which falls under the domestic source income listed in items (ii), (iii), (v) through (xi) and (xiii) through (xvii) of that paragraph) and, for a foreign corporation, to the domestic source income listed in item (iv) of that paragraph) held by a nonresident or foreign corporation that is a partner who has concluded an investment partnership contract, that conducts business through a permanent establishment under that investment partnership contract and that satisfies the following requirements, which is attributable to that permanent establishment, no income tax is imposed:

being a limited partner of the investment partnership formed by that investment partnership contract;

not performing any act specified by Cabinet Order as the execution of operations pertaining to the business conducted under that investment partnership contract;

the ratio calculated as specified by Cabinet Order as the ratio of the interest in the partnership property pertaining to that investment partnership contract (referred to as the "share ratio in investment partnership property" in paragraphs (5) and (9)) being less than 25 percent (or 50 percent, if that investment partnership contract provides that a council specified by Cabinet Order, composed of the limited partners or the general partners with unlimited liability, or persons nominated by them, is to be established in the investment partnership formed by that investment partnership contract);

not being a person having a special relationship specified by Cabinet Order with a general partner with unlimited liability of the investment partnership formed by that investment partnership contract.

If a nonresident has received the application of the provisions of the preceding paragraph with respect to covered domestic source income (meaning domestic source income listed in Article 161, paragraph (1), items (i) and (iv) of the Income Tax Act (excluding that which falls under the domestic source income listed in items (ii), (iii), (v) through (xi) and (xiii) through (xvii) of that paragraph) that is attributable to a permanent establishment pertaining to the business conducted under an investment partnership contract concluded by the nonresident; hereinafter the same applies in this paragraph), the amount specified by Cabinet Order as the amount of loss pertaining to covered domestic source income arising from the business conducted through a permanent establishment under the investment partnership contract concluded by the nonresident to which that application pertains (referred to as a "special application partnership business" in the following paragraph) is deemed not to exist for the purpose of applying the provisions of that Act and other laws and regulations concerning income tax.

If the provisions of paragraph (1) apply, the domestic source income listed in Article 161, paragraph (1), item (i) of the Income Tax Act (limited to that which falls under the domestic source income listed in items (ii), (iii), (v) through (xi) and (xiii) through (xvii) of that paragraph) held by a nonresident that is attributable to a permanent establishment pertaining to a special application partnership business is deemed not to fall under the domestic source income listed in item (i) of that paragraph, and the provisions of that Act and other laws and regulations concerning income tax apply accordingly.

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

investment partnership contract: This means an investment limited partnership contract prescribed in Article 3, paragraph (1) of the Limited Partnership Act for Investment and a foreign partnership contract;

investment partnership: This means an investment limited partnership prescribed in Article 2, paragraph (2) of the Limited Partnership Act for Investment and anything similar thereto formed by a foreign partnership contract;

limited partner: This means a limited partner of an investment limited partnership prescribed in Article 2, paragraph (2) of the Limited Partnership Act for Investment and a person similar thereto under a foreign partnership contract;

partnership property: This means partnership property prescribed in Article 668 of the Civil Code as applied mutatis mutandis pursuant to Article 16 of the Limited Partnership Act for Investment and property similar thereto under a foreign partnership contract;

general partner with unlimited liability: This means a general partner with unlimited liability of an investment limited partnership prescribed in Article 2, paragraph (2) of the Limited Partnership Act for Investment and a person similar thereto under a foreign partnership contract;

foreign partnership contract: This means a contract in a foreign country that is similar to an investment limited partnership contract prescribed in Article 3, paragraph (1) of the Limited Partnership Act for Investment.

The provisions of paragraph (1) apply, for the period on and after the date of submission, only if a nonresident or foreign corporation has submitted a document stating that it seeks the application of the provisions of that paragraph, its name, its address (or, for a nonresident who has a residence in Japan, its residence; hereinafter the same applies in this Article), its share ratio in investment partnership property and other matters specified by Order of the Ministry of Finance (hereinafter referred to as a "special application return" in this Article), with the document specified by Order of the Ministry of Finance as a document certifying that it satisfies the requirements listed in items (i) through (iii) of that paragraph attached, to the district director having jurisdiction over the place for tax payment under the provisions of Article 17 of the Income Tax Act (or, if a designation has been made under the provisions of Article 18, paragraph (2) of that Act, the designated place for tax payment) for the income tax on the domestic source income listed in Article 161, paragraph (1), item (iv) of that Act, via the general partner with unlimited liability of the investment partnership pertaining to the investment partnership contract who handles the distribution, prescribed in that item, of that domestic source income (hereinafter referred to as the "person handling the distribution" in this Article), and has continuously satisfied the requirements listed in the items of paragraph (1) from the date of conclusion of that investment partnership contract to the date of that submission.

If a person who has submitted a special application return ceases to satisfy any of the requirements listed in the items of paragraph (1), the provisions of that paragraph do not apply on or after the date on which the person ceased to satisfy it, until the date on which the dissolution of the investment partnership pertaining to that special application return or any other event specified by Cabinet Order occurs.

In the case referred to in paragraph (5), when a special application return has been submitted to the district director prescribed in that paragraph, it is deemed to have been submitted on the date on which it was received by the person handling the distribution pertaining to that special application return.

A person who submits a special application return must, at the time of its submission, present to the person handling the distribution through whom it is submitted the document specified by Order of the Ministry of Finance as a document certifying that the person falls under a nonresident or foreign corporation, and that person handling the distribution must confirm the name and address stated in that special application return by means of that document.

If a person who has submitted a special application return comes to fall under any of the cases listed in the following items, the person must submit the return specified in each of those items, with the attached documents (meaning, for the return specified in item (i), where the change prescribed in that item is a change in the content of the investment partnership contract pertaining to that special application return or a change in the share ratio in investment partnership property (limited to a change that, where the content of the investment partnership contract has been changed to provide that the council specified by Cabinet Order prescribed in paragraph (1), item (iii) is to be established, first makes the share ratio in investment partnership property 25 percent or more after that change), the document specified by Order of the Ministry of Finance as a document certifying that the person satisfies the requirements listed in paragraph (1), items (i) through (iii) even after that change in the content of the investment partnership contract or change in the share ratio in investment partnership property, and, for the return specified in item (ii), the document specified by Order of the Ministry of Finance prescribed in paragraph (5)) attached, to the district director prescribed in paragraph (5) via the person handling the distribution pertaining to that special application return, by the day before the date on which the domestic source income listed in Article 161, paragraph (1), item (iv) of the Income Tax Act that the person first receives under the investment partnership contract pertaining to that special application return on or after the date on which the person came to fall under that case is deemed to have been paid under the provisions of Article 212, paragraph (5) of that Act (or, if the person is a nonresident, by that day before or by March 15 of the year following the year that includes the date on which the person first comes to have domestic source income prescribed in Article 161, paragraph (1) of that Act on or after the date on which the person came to fall under that case, whichever is earlier):

if the person has changed any of the matters specified by Order of the Ministry of Finance prescribed in paragraph (5) that are stated in that special application return, or any of the matters specified by Order of the Ministry of Finance prescribed in the following item that are stated in the return specified in that item: a return stating the name, address, share ratio in investment partnership property and other matters specified by Order of the Ministry of Finance after that change;

if five years have elapsed from the day following the date on which that special application return was submitted, the date on which the return specified in the preceding item was submitted or the date on which the return specified in this item was submitted, whichever is the latest: a return stating the name, address, share ratio in investment partnership property and other matters specified by Order of the Ministry of Finance of the person who submitted that special application return.

The provisions of paragraph (6) apply mutatis mutandis to the case where a person who has submitted a special application return fails to submit the return specified in each item of the preceding paragraph that the person is required to submit under the provisions of that paragraph (including the case where the person fails to attach the attached documents prescribed in that paragraph that are required to be attached to the return specified in each of those items under the provisions of that paragraph), and the provisions of paragraphs (7) and (8) apply mutatis mutandis to the submission of the return specified in each item of the preceding paragraph. In this case, the phrase "ceases to satisfy any of the requirements listed in the items of paragraph (1)" in paragraph (6) is deemed to be replaced with "fails to submit the return specified in each item of paragraph (9) that the person is required to submit under the provisions of that paragraph (including the case where the person fails to attach the attached documents prescribed in that paragraph that are required to be attached to the return specified in each of those items under the provisions of that paragraph)", the phrase "ceased to satisfy it" is deemed to be replaced with "came to fall under the case listed in each of those items", the phrase "that paragraph" is deemed to be replaced with "paragraph (1)", the phrase "paragraph (5)" in paragraph (7) is deemed to be replaced with "paragraph (9)", the phrase "a special application return has been submitted to the district director prescribed in that paragraph" is deemed to be replaced with "the return specified in each item of that paragraph has been submitted to the district director prescribed in paragraph (5)", the phrase "that special application return" is deemed to be replaced with "the return specified in each of those items", the phrase "submits a special application return" in paragraph (8) is deemed to be replaced with "submits the return specified in each item of the following paragraph", and the phrase "that special application return" is deemed to be replaced with "the return specified in each of those items".

A nonresident or foreign corporation referred to in paragraph (5) or a person who has submitted a special application return referred to in paragraph (9) (hereinafter referred to as a "nonresident, etc." in this paragraph and paragraph (13)) may, in lieu of submitting a special application return under the provisions of paragraph (5) or submitting the return specified in each item of paragraph (9) under the provisions of that paragraph, provide the person handling the distribution referred to in those provisions with the matters to be stated in that special application return or in the return specified in each of those items by electronic or magnetic means (meaning the method of using an electronic data processing system or any other method using information and communications technology that is specified by Order of the Ministry of Finance; the same applies in paragraph (13)). In this case, that nonresident, etc. is deemed to have submitted that special application return or the return specified in each of those items to that person handling the distribution.

With regard to the application of the provisions of paragraphs (7) and (10) in the case where the provisions of the preceding paragraph apply, the phrase "when a special application return" in paragraph (7) is deemed to be replaced with "when the matters to be stated in a special application return", the phrase "the date on which it was received" is deemed to be replaced with "the date on which they were provided", the phrase "a special application return has" in paragraph (10) is deemed to be replaced with "the matters to be stated in a special application return have", and the phrase "the return specified in each item of that paragraph has" is deemed to be replaced with "the matters to be stated in the return specified in each item of that paragraph have".

When a nonresident, etc. provides, by electronic or magnetic means, the matters to be stated in a special application return or in the return specified in each item of paragraph (9) pursuant to the provisions of paragraph (11), the nonresident, etc. may, in lieu of submitting the document specified by Order of the Ministry of Finance prescribed in paragraph (5) under the provisions of that paragraph or submitting the attached documents prescribed in paragraph (9) under the provisions of that paragraph, provide the person handling the distribution referred to in paragraph (5) or (9) with the matters to be stated in that document specified by Order of the Ministry of Finance or those attached documents by electronic or magnetic means. In this case, that nonresident, etc. is deemed to have submitted that special application return or the return specified in each of those items with that document specified by Order of the Ministry of Finance or those attached documents attached, under the provisions of paragraph (5) or (9).

Where the provisions of paragraph (1) apply, the following applies:

with regard to the application of the provisions of Article 166 of the Income Tax Act, the phrase "including those that fall under internal dealings; Article 148, paragraph (1)" in that Article is deemed to be replaced with "including those that fall under internal dealings (excluding those pertaining to covered domestic source income prescribed in Article 41-21, paragraph (2) (Special Provisions on Taxation of Foreign Partners) of the Act on Special Measures Concerning Taxation); Article 148, paragraph (1)";

with regard to the application of the provisions of Article 166-2, paragraph (2) and Article 232 of the Income Tax Act, the phrase "internal dealings" in that paragraph and in paragraph (1) of that Article is deemed to be replaced with "internal dealings (excluding those pertaining to covered domestic source income prescribed in Article 41-21, paragraph (2) (Special Provisions on Taxation of Foreign Partners) of the Act on Special Measures Concerning Taxation)".

The person handling the distribution pertaining to an investment partnership contract concluded by a nonresident or foreign corporation that receives the application of the provisions of paragraph (1) must state, in the statement of partners' income pertaining to an investment limited partnership referred to in Article 227-2 of the Income Tax Act that the person submits with respect to that nonresident or foreign corporation pursuant to the provisions of that Article, the fact that the nonresident or foreign corporation has submitted a special application return pursuant to the provisions of paragraph (5) and other matters specified by Order of the Ministry of Finance.

Beyond what is provided for in paragraph (5) through the preceding paragraph, necessary matters concerning the application of the provisions of paragraph (1) and the application of other provisions of laws and regulations concerning income tax with respect to nonresidents who have concluded investment partnership contracts are specified by Cabinet Order.