Act on Special Measures Concerning Taxation

Where a corporation that files a blue return has, in each business year beginning during the period from April 1, 2025 to March 31, 2032 (hereinafter referred to in this paragraph as a "covered business year"), conducted a patent right transfer transaction, etc. (meaning the transfer of specified patent rights, etc. to a resident (meaning a resident prescribed in Article 2, paragraph (1), item (i)-2) or a domestic corporation (excluding one that is a related party), or the lending of specified patent rights, etc. to another person (excluding one that is a related party; the same applies hereinafter in this paragraph) (including the creation of rights pertaining to specified patent rights, etc. and any other act of allowing another person to use specified patent rights, etc.); the same applies hereinafter in this paragraph), the amount equivalent to 30 percent of the smaller of the following amounts is included in deductible expenses in calculating the amount of income for that covered business year.

the amount specified below for the category of the following cases:

where, for each of the specified patent rights, etc. pertaining to the patent right transfer transactions, etc. conducted by the corporation in that covered business year (for a patent right transfer transaction, etc. conducted together with a transaction other than a patent right transfer transaction, etc., limited to that patent right transfer transaction, etc. in the case where the amount of consideration for the patent right transfer transaction, etc. is made clear in the contract; the same applies hereinafter in this item), the amount specified by Cabinet Order as the amount of research and development expenses pertaining to research and development directly related to those specified patent rights, etc. has not been incurred in the business years of the corporation that began before April 1, 2025, or where that covered business year is a business year beginning on or after April 1, 2027: the total of the amounts calculated, for each patent right transfer transaction, etc. conducted in that covered business year, by multiplying the amount listed in (1) by the ratio of the amount listed in (3) to the amount listed in (2) (where the amount listed in (2) is zero, zero);

the amount specified by Cabinet Order as the amount of income pertaining to that patent right transfer transaction, etc.;

the total of the amounts specified by Cabinet Order as the amounts, out of the amount of research and development expenses incurred in that covered business year and each business year before that covered business year (limited to business years beginning on or after April 1, 2025), pertaining to research and development directly related to the specified patent rights, etc. pertaining to that patent right transfer transaction, etc.;

the total of the amount of qualified research and development expenses included in the amount listed in (2);

cases other than the case listed in (a): the amount calculated by multiplying the amount listed in (1) by the ratio of the amount listed in (3) to the amount listed in (2) (where the amount listed in (2) is zero, zero);

the total of the amounts specified by Cabinet Order as the amount of income pertaining to the patent right transfer transactions, etc. conducted in that covered business year;

the total of the amount of research and development expenses incurred in that covered business year and in each business year that began within two years before the first day of that covered business year;

the total of the amount of qualified research and development expenses included in the amount listed in (2);

the amount calculated, as specified by Cabinet Order, as the amount of income for that covered business year.

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

related party: A corporation that has, with the corporation referred to in the preceding paragraph, a relationship 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 issued shares of or capital contributions to the other corporation (excluding the shares or capital contributions held by that other corporation itself), or any other special relationship specified by Cabinet Order;

specified patent rights, etc.: Those, out of the following, that are specified by Order of the Ministry of Finance as contributing to strengthening Japan's international competitiveness (referred to in item (v), (a) as "qualified patent rights, etc."), and that the corporation referred to in the preceding paragraph acquired or produced on or after April 1, 2024:

patent rights;

works prescribed in Article 2, paragraph (1), item (i) of the Copyright Act (Act No. 48 of 1970) that are programs prescribed in item (x)-2 of that paragraph utilizing artificial intelligence-related technology prescribed in Article 2, paragraph (2) of the Basic Act on the Advancement of Public and Private Sector Data Utilization (Act No. 103 of 2016);

research and development: The following acts:

planned surveys and inquiries aimed at the discovery of new knowledge (referred to in (b) as "research");

acts of giving concrete form to the results of research or other knowledge as planning or design for new products or services or for new methods of producing products, or as planning or design to significantly improve existing products or services or existing methods of producing products;

amount of research and development expenses: The sum of the following amounts (where there is an amount to be paid by another person to cover the expenses pertaining to those amounts, the amount obtained by deducting that amount):

the amount, out of the amount of expenses required for research and development (excluding the following amounts), for which accounting as an expense or loss has been made as research and development expenses in each business year;

the amount of depreciation allowances of assets, losses from their retirement and losses from their transfer;

the amount of interest on liabilities and other amounts specified by Cabinet Order as being similar thereto;

the amount specified by Cabinet Order as the amount of the portion related to research and development, out of the amount expended for acquiring assets used for business in each business year and for using them for business (excluding the amount listed in (a));

amount of qualified research and development expenses: The amount of research and development expenses other than the following amounts:

the amount of research and development expenses incurred through a patent right acquisition transaction, etc. (meaning the acquisition by transfer or borrowing of qualified patent rights, etc. from another person (including the creation by another person of an exclusive license for a patent right falling under qualified patent rights, etc., the creation by another person of a provisional exclusive license for a patent right falling under qualified patent rights, etc. to be acquired based on the right to obtain a patent, and any other act by which another person allows the corporation referred to in the preceding paragraph to use qualified patent rights, etc. exclusively); the same applies hereinafter in this Article) (where a patent right acquisition transaction, etc. has been conducted together with a transaction other than a patent right acquisition transaction, etc., and the amount of consideration for the patent right acquisition transaction, etc. is not made clear in the contract, the amount of research and development expenses incurred through those transactions);

the amount specified by Cabinet Order as the amount of research and development expenses pertaining to research and development commissioned to a related party (limited to a foreign corporation) of the corporation referred to in the preceding paragraph (limited to research and development commissioned under a contract or agreement falling under a mandate contract or other contract specified by Order of the Ministry of Finance, where the work performed based on that commission falls under research and development);

where the corporation referred to in the preceding paragraph is a domestic corporation, the amount of research and development expenses pertaining to business conducted through a foreign office, etc. prescribed in Article 69, paragraph (4), item (i) of the Corporation Tax Act of that corporation (excluding the amounts listed in (a) and (b)).

Where the provisions of paragraph (1) are applied to each business year of a group tax sharing corporation that is a corporation referred to in that paragraph (limited to a business year ending on the day of the end of the business year of the group tax sharing parent corporation pertaining to that group tax sharing corporation), the amount listed in item (ii) of that paragraph is the amount specified by Cabinet Order as the amount of income of that group tax sharing corporation calculated pursuant to the provisions of Article 64-5 and Article 64-7 of the Corporation Tax Act on the basis of the income before group tax sharing and the deficit before group tax sharing prescribed in Article 64-5, paragraph (1) of that Act for that business year, or for the business year ending on that day, of that group tax sharing corporation and the other group tax sharing corporations (limited to those that have a group tax sharing full controlling interest with that group tax sharing corporation on that day).

Where a corporation referred to in paragraph (1) has, in any business year, conducted a patent right acquisition transaction, etc. with a related party of that corporation, if the amount of consideration paid by that corporation to that related party for that patent right acquisition transaction, etc. is less than the arm's length price, that patent right acquisition transaction, etc. is deemed to have been conducted at the arm's length price with regard to the application of the provisions of that paragraph for that business year and each subsequent business year of that corporation.

The arm's length price prescribed in the preceding paragraph means the amount calculated for the amount of consideration for a patent right acquisition transaction, etc. in a manner equivalent to the methods prescribed in Article 66-4, paragraph (2) (where that patent right acquisition transaction, etc. is a transaction with a foreign affiliate prescribed in paragraph (1) of that Article, the arm's length price prescribed in that paragraph).

In the case specified by Cabinet Order as the case where a corporation referred to in paragraph (1) conducts a patent right acquisition transaction, etc. with a related party of that corporation via another person (excluding any other related party of that corporation; hereinafter referred to in this paragraph as a "non-affiliate"), the patent right acquisition transaction, etc. between that corporation and that non-affiliate is deemed to be a patent right acquisition transaction, etc. conducted between that corporation and that related party, and the provisions of paragraph (4) apply.

Where a corporation that seeks the application of the provisions of paragraph (1) has, in the relevant business year, conducted a patent right acquisition transaction, etc. (excluding one that falls under a transaction with a foreign affiliate prescribed in Article 66-4, paragraph (1); the same applies hereinafter through paragraph (11)) with a related party of that corporation, the corporation must prepare or obtain the documents specified by Order of the Ministry of Finance as documents found to be necessary for calculating the arm's length price prescribed in paragraph (4) pertaining to that patent right acquisition transaction, etc. (including, where an electronic or magnetic record (meaning a record used in computer data processing that is created in electronic form, magnetic form or any other form that cannot be perceived by the human senses; the same applies hereinafter in this Article) has been prepared in lieu of preparing those documents, that electronic or magnetic record) by the due date for filing the return under Article 74, paragraph (1) or Article 144-6, paragraph (1) or paragraph (2) of the Corporation Tax Act for that business year (where the business year in which that patent right acquisition transaction, etc. was conducted is a business year that began before April 1, 2025, the first business year beginning on or after that date), and must retain them as specified by Order of the Ministry of Finance.

The provisions of the preceding paragraph do not apply to the documents found to be necessary for calculating the arm's length price prescribed in paragraph (4) pertaining to the patent right acquisition transactions, etc. conducted by a corporation referred to in the preceding paragraph with a single related party in the relevant business year, in the case where the total amount of consideration paid to that single related party for the patent right acquisition transactions, etc. conducted by that corporation with that single related party in the business year preceding the relevant business year (where there is no preceding business year or in any other case specified by Cabinet Order, the patent right acquisition transactions, etc. conducted by that corporation with that single related party in the relevant business year) is less than 300 million yen, or in the case specified by Cabinet Order as the case where there were no patent right acquisition transactions, etc. conducted by that corporation with that single related party in the preceding business year, nor to the documents found to be necessary for calculating the arm's length price prescribed in paragraph (4) pertaining to the patent right acquisition transactions, etc. conducted by a corporation referred to in the preceding paragraph with a related party of that corporation in the relevant business year, in the case where no amount of research and development expenses arises from those patent right acquisition transactions, etc. or where the amount of research and development expenses arising from those patent right acquisition transactions, etc. is not expected to form the basis for calculating the amount to be included in deductible expenses pursuant to the provisions of paragraph (1).

Where the relevant official of the National Tax Agency, or the relevant official of the tax office or Regional Taxation Bureau with jurisdiction over the place for tax payment of a corporation, has requested the corporation to present or submit the documents specified by Order of the Ministry of Finance prescribed in paragraph (7) pertaining to a patent acquisition transaction, etc. subject to contemporaneous documentation (meaning a patent right acquisition transaction, etc. other than a patent right acquisition transaction, etc. to which the provisions of the preceding paragraph apply; the same applies hereinafter in this paragraph) in each business year (including, where an electronic or magnetic record has been prepared or retained in lieu of preparing or retaining those documents, that electronic or magnetic record; the same applies hereinafter in this paragraph) or copies thereof, and they are not presented or submitted by the day designated by that official, taking into account the number of days normally required to prepare the presentation or submission of the documents or copies requested, within a period not exceeding 45 days from the day on which the presentation or submission was requested, or has requested the corporation to present or submit the documents specified by Order of the Ministry of Finance as documents found to be important for calculating the arm's length price prescribed in paragraph (4) (including an amount deemed to be that arm's length price pursuant to the provisions of the main clause of Article 66-4, paragraph (8) as applied mutatis mutandis pursuant to paragraph (14)) pertaining to a patent acquisition transaction, etc. subject to contemporaneous documentation in each business year (including, where an electronic or magnetic record has been prepared or retained in lieu of preparing or retaining those documents, that electronic or magnetic record; the same applies hereinafter in this paragraph) or copies thereof, and they are not presented or submitted by the day designated by that official, taking into account the number of days normally required to prepare the presentation or submission of the documents or copies requested, within a period not exceeding 60 days from the day on which the presentation or submission was requested, that official may, if it is necessary for calculating the arm's length price prescribed in paragraph (4) pertaining to the patent acquisition transaction, etc. subject to contemporaneous documentation of that corporation in each business year, to the extent found necessary, ask questions of a person engaged in a business of the same type as the business of that corporation pertaining to that patent acquisition transaction, etc. subject to contemporaneous documentation, inspect the books and documents concerning that business (including, where an electronic or magnetic record has been prepared or retained in lieu of preparing or retaining those books and documents, that electronic or magnetic record; the same applies hereinafter in this Article), or request the presentation or submission of those books and documents (including copies thereof).

Where the relevant official of the National Tax Agency, or the relevant official of the tax office or Regional Taxation Bureau with jurisdiction over the place for tax payment of a corporation, has requested the corporation to present or submit the documents specified by Order of the Ministry of Finance as documents found to be important for calculating the arm's length price prescribed in paragraph (4) (including an amount deemed to be that arm's length price pursuant to the provisions of the main clause of Article 66-4, paragraph (8) as applied mutatis mutandis pursuant to paragraph (14)) pertaining to a patent acquisition transaction, etc. exempt from contemporaneous documentation (meaning a patent right acquisition transaction, etc. to which the provisions of paragraph (8) apply; the same applies hereinafter in this paragraph) in each business year (including, where an electronic or magnetic record has been prepared or retained in lieu of preparing or retaining those documents, that electronic or magnetic record; the same applies hereinafter in this paragraph) or copies thereof, if they are not presented or submitted by the day designated by that official, taking into account the number of days normally required to prepare the presentation or submission of the documents or copies requested, within a period not exceeding 60 days from the day on which the presentation or submission was requested, that official may, if it is necessary for calculating the arm's length price prescribed in paragraph (4) pertaining to the patent acquisition transaction, etc. exempt from contemporaneous documentation of that corporation in each business year, to the extent found necessary, ask questions of a person engaged in a business of the same type as the business of that corporation pertaining to that patent acquisition transaction, etc. exempt from contemporaneous documentation, inspect the books and documents concerning that business, or request the presentation or submission of those books and documents (including copies thereof).

The relevant official of the National Tax Agency, or the relevant official of the tax office or Regional Taxation Bureau with jurisdiction over the place for tax payment of a corporation may, if it is necessary for calculating the arm's length price prescribed in paragraph (4) pertaining to the patent right acquisition transactions, etc. of the corporation, retain the books and documents (including copies thereof) submitted pursuant to the provisions of the preceding two paragraphs.

The authority of the relevant official under the provisions of the preceding three paragraphs must not be construed as being granted for the purpose of a criminal investigation.

The relevant official of the National Tax Agency, the Regional Taxation Bureau, or the tax office, when asking questions, conducting an inspection, or requesting presentation or submission pursuant to the provisions of paragraph (9) or paragraph (10), must carry an identification card and present it to the person concerned when requested.

The provisions of paragraph (1) apply only where the final return, etc. for the business year for which the corporation seeks the application of those provisions contains a statement of the inclusion in deductible expenses of the amount to be included in deductible expenses pursuant to those provisions, and a written statement concerning the calculation of the amount to be included in deductible expenses, a document stating, where the transactions forming the basis for the calculation of the amount to be included in deductible expenses include a patent right acquisition transaction, etc. conducted with a related party of the corporation, the name of that related party, the location of its head office or principal office and other matters specified by Order of the Ministry of Finance, and other documents specified by Order of the Ministry of Finance (referred to in the following paragraph as the "detailed statement, etc.") are attached to that final return, etc. In this case, the amount to be included in deductible expenses pursuant to the provisions of paragraph (1) is limited to the amount to be included in deductible expenses pertaining to that statement.

Even where a final return, etc. without the statement or attachment referred to in the preceding paragraph has been filed, if the district director finds that there were unavoidable circumstances for the absence of the statement or attachment, the district director may apply the provisions of paragraph (1), but only if a document containing that statement and the detailed statement, etc. are submitted.

With regard to the application of the provisions of Article 67, paragraph (3) and paragraph (5) of the Corporation Tax Act, any amount included, pursuant to the provisions of paragraph (1), in the amount of deductible expenses of a corporation subject to the provisions of the paragraph is to be included in the amount of income, etc. prescribed in these provisions.

Beyond what is provided for in paragraph (2) and the preceding three paragraphs, the calculation of the amount of revenue reserves of a corporation to which the provisions of paragraph (1) have been applied, the procedures concerning the retention of the books and documents (including copies thereof) referred to in paragraph (9) and paragraph (10), and other necessary matters concerning the application of the provisions of paragraph (1), paragraphs (3) through (8), paragraph (11) or paragraph (14) are specified by Cabinet Order.