Act on Special Measures Concerning Taxation

Where assets held by a corporation that are prescribed in the items of paragraph (1) of the preceding Article have come to fall under the cases listed in those items (including where a transfer through expropriation, etc. is deemed to have been made, pursuant to the provisions of paragraph (2) of that Article, with regard to the land, etc. prescribed in item (i) of that paragraph or the assets on the land prescribed in item (ii) of that paragraph, and excluding where the provisions of paragraph (1) of the following Article apply; the same applies in the following paragraph), if the corporation is expected to acquire substitute assets, within the period from the day following the last day of the business year that includes the date of the expropriation, etc. (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 from the date of the expropriation, etc. (in a case specified by Cabinet Order where it is difficult to acquire substitute assets within that period because all or part of the project pertaining to the expropriation, etc. has not been completed, the period required for the construction of a factory, etc. normally exceeds two years, or there are other unavoidable circumstances, with regard to those substitute assets, the period from the day following that last day until the date specified by Cabinet Order; hereinafter referred to as the "designated period" in this paragraph and paragraph (4), item (ii)), with an amount equivalent to all or part of the amount of the compensation, consideration or settlement money (where, in the business year that includes the date of the expropriation, etc., substitute assets have been acquired with an amount equivalent to part of the amount of the compensation, consideration or settlement money, or where assets that are to become substitute assets have been acquired during the period from the day one year before prescribed in paragraph (3) of the preceding Article pertaining to the expropriation, etc. until the day before the first day of the business year that includes the date of the expropriation, etc., the amount after deducting the acquisition price of those assets; hereinafter the same applies in this Article) (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 the qualified merger is expected to acquire substitute assets within the designated period, and other cases specified by Cabinet Order; the same applies in paragraph (3) of the following Article), then, only where the corporation has accounted for an amount not exceeding the amount calculated by multiplying the amount of the compensation, consideration or settlement money that it intends to appropriate for the acquisition of those substitute assets by the gain ratio, by the method of setting up a special account in the settlement of accounts finalized for the business year that includes the date of the expropriation, etc. (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 (limited to a corporation whose assets prescribed in the items of paragraph (1) of the preceding Article have come to fall under the cases listed in those items) carries out a qualified company split or a qualified capital contribution in kind (limited to one carried out on or after that date; hereinafter referred to as a "qualified company split, etc." in this Article, except in paragraph (8)) in the business year that includes the date of the expropriation, etc., 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 acquire substitute assets, with an amount equivalent to all or part of the amount of the compensation, consideration or settlement money, within the period from the date of the qualified company split, etc. until the day on which two years have elapsed from the date of the expropriation, etc. (in a case specified by Cabinet Order where it is difficult for the succeeding corporation in a company split or the corporation receiving a capital contribution in kind to acquire substitute assets within that period because all or part of the project pertaining to the expropriation, etc. has not been completed, the period required for the construction of a factory, etc. normally exceeds two years, or there are other unavoidable circumstances, with regard to those substitute assets, the period from the date of the qualified company split, etc. until the date 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 calculated by multiplying the amount of the compensation, consideration or settlement money that the succeeding corporation in a company split or the corporation receiving a capital contribution in kind intends to appropriate for the acquisition of those substitute assets by the gain ratio, 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.

The provisions of the preceding paragraph 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.

Where a corporation has carried out a qualified merger, a qualified company split or a qualified capital contribution in kind (hereinafter referred to as a "qualified merger, etc." in this paragraph), 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, etc. 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 the qualified merger, etc. (hereinafter referred to as the "merging corporation, etc." in this Article).

qualified merger: the amount of the special account referred to in paragraph (1) held immediately before the qualified merger (where there is any amount that has already been included in gross profits or that should be included in gross profits, the amount after deducting those amounts; the same applies hereinafter in this Article);

qualified company split, etc.: of the amount of the special account referred to in paragraph (1) held immediately before the qualified company split, etc., an amount equivalent to the amount calculated by multiplying, by the gain ratio, the amount 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 of substitute assets in the case where it is expected to acquire those substitute assets, with an amount equivalent to all or part of the amount of the compensation, consideration or settlement money, 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 (1) 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 the 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, etc. pursuant to the provisions of paragraph (4) is deemed to be the amount of the special account set up by the merging corporation, etc. pursuant to the provisions of paragraph (1).

The provisions of paragraph (1) of the preceding Article apply mutatis mutandis where a corporation that has set up the special account referred to in paragraph (1) has acquired substitute assets, with an amount equivalent to all or part of the amount of the compensation, consideration or settlement money that it intends to appropriate for the acquisition of substitute assets, within the designated period prescribed in that paragraph (where the amount of the special account is the amount of a special account during the year succeeded to pursuant to the provisions of paragraph (4), or in other cases specified by Cabinet Order, the period prescribed in paragraph (2) or any other period specified by Cabinet Order; referred to as the "designated period" in the following paragraph and paragraph (12)). In this case, the phrase "the settlement of accounts finalized for that business year" in paragraph (1) of that Article is deemed to be replaced with "the settlement of accounts finalized for the business year that includes the date of acquisition of those substitute assets".

The provisions of paragraph (9) of the preceding Article apply mutatis mutandis where a corporation that has set up the special account referred to in paragraph (1) 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 the date of the expropriation, etc.; hereinafter referred to as a "qualified company split, etc." in this paragraph), and the corporation has acquired substitute assets, with an amount equivalent to all or part of the amount of the compensation, consideration or settlement money that it intends to appropriate for the acquisition of substitute assets, within the designated period of the business year that includes the date of the qualified company split, etc., and transfers those substitute 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 (9) of that Article is deemed to be replaced with "in calculating the amount of income for the business year that includes the date of acquisition of those substitute assets".

In the cases referred to in the preceding two paragraphs, of the amount of the special account referred to in paragraph (1), an amount equivalent to the amount calculated by multiplying the acquisition price of the substitute assets by the gain ratio is included in gross profits in calculating the amount of income for the business year that includes the date on which the substitute assets were acquired.

Where a corporation that has set up the special account referred to in paragraph (1) has carried out a non-qualified share exchange, etc. prescribed in Article 62-9, paragraph (1) of the Corporation Tax Act in which it is the wholly owned subsidiary corporation in a share exchange or similar act or the wholly owned subsidiary corporation in a share transfer (hereinafter referred to as a "non-qualified share exchange, etc." in this paragraph), if the corporation holds the amount of the special account referred to in paragraph (1) (excluding an amount less than the amount specified by Cabinet Order) immediately before the non-qualified share exchange, etc., the amount of that special account is included in gross profits in calculating the amount of income for the business year that includes the date of the non-qualified share exchange, etc.

Where a corporation that has set up the special account referred to in paragraph (1) has come to fall under the category of a domestic corporation prescribed in Article 64-11, paragraph (1) of the Corporation Tax Act, another domestic corporation prescribed in Article 64-12, paragraph (1) of that Act, or a group tax sharing corporation prescribed in Article 64-13, paragraph (1) of that Act (limited to one that satisfies the requirement listed in item (i) of that paragraph), if the corporation holds the amount of the special account referred to in paragraph (1) (excluding an amount less than the amount specified by Cabinet Order) at the end of the business year immediately before the start of group tax sharing prescribed in Article 64-11, paragraph (1) of that Act, the business year immediately before joining group tax sharing prescribed in Article 64-12, paragraph (1) of that Act, or the business year immediately before the end of group tax sharing prescribed in Article 64-13, paragraph (1) of that Act, the amount of that special account is included in gross profits in calculating the amount of income for that business year immediately before the start of group tax sharing, business year immediately before joining group tax sharing or business year immediately before the end of group tax sharing.

Where a corporation that has set up the special account referred to in paragraph (1) has come to fall under any of the cases listed in the following items (excluding where the special account is to be succeeded to by the merging corporation, etc. pursuant to the provisions of paragraph (4)), the amount specified in each of those items is included in gross profits in calculating the amount of income for the business year that includes the day on which it has come to fall under that case (or, in the case listed in item (iv), the business year that includes the day before the date of the merger).

where the corporation has reversed the amount of the special account referred to in paragraph (1) within the designated period in a case other than the cases that fall under the provisions of the preceding three paragraphs: the amount so reversed;

where the corporation holds the amount of the special account referred to in paragraph (1) on the day on which the designated period elapses: the amount of that special account;

where the corporation 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 (1): the amount of that special account;

where the corporation has carried out, within the designated period, a merger in which it is the merged corporation, if it holds the amount of the special account referred to in paragraph (1): the amount of that special account.

The provisions of paragraphs (5) and (6) of the preceding Article apply mutatis mutandis where an amount is included in deductible expenses pursuant to the provisions of paragraph (1) or paragraph (7).

The provisions of paragraphs (7) and (8) of the preceding Article apply mutatis mutandis to assets to which the provisions of paragraph (7) or paragraph (8) have been applied.

The provisions of paragraph (11) of the preceding Article apply mutatis mutandis where the provisions of paragraph (8) are applied.

The provisions of paragraph (12) of the preceding Article apply mutatis mutandis to assets to which the provisions of paragraph (7) or paragraph (8) have been applied.

Where it has become difficult for a corporation to acquire substitute assets within the designated period prescribed in paragraph (7) due to unavoidable circumstances arising from an emergency disaster designated as a specified emergency disaster pursuant to the provisions of Article 2, paragraph (1) of the Act on Special Measures concerning Preservation of Rights and Interests of Victims of Specified Disaster, if the corporation is expected to acquire substitute assets during the period from the first day of the designated period until the date specified by Cabinet Order that falls within two years after the last day of the designated period, and has obtained the approval of the district director having jurisdiction over its place for tax payment pursuant to the provisions of Order of the Ministry of Finance, then with regard to the application of the provisions of the preceding paragraphs, the designated period prescribed in those provisions is the period from that first day until that date specified by Cabinet Order.

Beyond what is provided for in paragraph (12) through the preceding paragraph, matters necessary for the application of the provisions of paragraphs (1) through (11) are specified by Cabinet Order.