Interest income means income from interest on public and corporate bonds and Deposits and Savings (other than interest on public and corporate bonds that were the interest portion of public and corporate bonds whose principal portion and interest portion have been separated and are each traded independently), and from distributions of proceeds from Jointly Managed Trusts, Bond Investment Trusts, and Bond-Based Investment Trusts Under Public Offering (hereinafter referred to as "interest and similar income" in this Article).

Interest income is the amount of revenue arising from interest and similar income in the year.

Dividend income means income from dividends of surplus (these are limited to dividends from shares or capital contributions (including any beneficial interest in a Bond-Based Investment Trust other than a Bond-Based Investment Trust Under Public Offering, and including a company bond-type beneficial interest; the same applies in the following Article), and exclude any dividends that result from a decrease in capital surplus, any dividends that are based on a split (meaning a company split by split-off as prescribed in Article 2, item (xii)-9 of the Corporation Tax Act, and including a trust split in connection with a Trust Subject to Corporate Taxation; hereinafter the same applies in this paragraph and the following Article), and any share distribution (meaning a share distribution as prescribed in Article 2, item (xii)-15-2 of that Act; hereinafter the same applies in this paragraph and the following Article)), dividends of profits (these include distributions of monies as prescribed in Article 115, paragraph (1) (Interim Dividends) of the Act on the Securitization of Assets, and exclude dividends based on a split-off and any share distribution), distributions of surplus (but only those related to capital contributions), distributions of monies under Article 137 (Distribution of Monies) of the Act on Investment Trusts and Investment Corporations (other than those specified by Ministry of Finance Order as distributions of monies accompanying a decrease in the total amount of capital contributions or similar (referred to as a "distribution that reduces contributions" in paragraph (1), item (iv) of the following Article)), and interest on funds (meaning interest on funds as prescribed in Article 55, paragraph (1) (Restrictions on Payment of Interest on Funds) of the Insurance Business Act), as well as distributions of proceeds from an Investment Trust (other than a Bond Investment Trust or Bond-Based Investment Trust Under Public Offering) or Specified Trust That Issues Beneficiary Certificates (other than those relating to a qualified distribution in kind as prescribed in Article 2, item (xii)-15 of the Corporation Tax Act; hereinafter referred to as "dividends and similar income" in this Article), which the taxpayer receives from a corporation (other than a corporation in the public interest, etc. as prescribed in Article 2, item (vi) (Definitions) of the Corporation Tax Act or an Association or Foundation without Legal Personality).

Dividend income is the amount of revenue arising from dividends and similar income for the year; provided, however, that if there is any interest paid in the year on a debt that the taxpayer needed to incur in order to acquire shares or other principal that is meant to generate dividend income (other than any interest on a debt that the taxpayer needed to incur in order to acquire Securities which have generated business income or miscellaneous income or anything else specified by Cabinet Order; hereinafter the same applies in this paragraph), the dividend income is the amount of revenue arising from dividends and similar income in the year, less the total amount calculated pursuant to Cabinet Order as the part of the interest payable on the debt in the period during which the taxpayer held the principal in that year.

If monies or any other assets are issued to a Shareholder, Member, or Other Investor in a corporation (other than a corporation in the public interest, etc. as prescribed in Article 2, item (vi) (Definitions) of the Corporation Tax Act or an Association or Foundation without Legal Personality; hereinafter the same applies in this paragraph) due to any of the following circumstances involving the corporation, and the sum total of the monies and the value of assets other than monies (or, for assets relating to a qualified distribution in kind as prescribed in item (xii)-15 of that Article, the amount equivalent to the book value of those assets of the corporation immediately before the issuance) exceeds the part of the corporation's amount of stated capital, etc. as prescribed in item (xvi) of that Article which comes from the shares in or capital contributions to the corporation upon which the issuance of the monies and assets is founded, for the purpose of applying the provisions of this Act, the part of the monies or other assets in excess is deemed to be a dividend of surplus, dividend of profits, distribution of surplus, or distribution of monies as prescribed in paragraph (1) of the preceding Article:

Even if a merging corporation (meaning a merging corporation as prescribed in Article 2, item (xii) of the Corporation Tax Act; hereinafter the same applies in this paragraph) or a splitting corporation (meaning a splitting corporation as prescribed in item (xii)-2 of that Article; hereinafter the same applies in this paragraph) has not issued shares (including capital contributions; hereinafter the same applies in this paragraph) or other assets through a merger or split-off to any Shareholder, Member, or Other Investor of the merged corporation (meaning a merged corporation as prescribed in item (xi) of that Article) or to any Shareholder, Member, or Other Investor of the splitting corporation, if the merger or split-off falls under a merger or split-off specified by Cabinet Order as one in which the issuance of shares of the merging corporation or the successor corporation in a company split (meaning a successor corporation in a company split as prescribed in item (xii)-3 of that Article; hereinafter the same applies in this paragraph) is found to have been omitted, the provisions of the preceding paragraph apply by deeming, pursuant to Cabinet Order, each such Shareholder, Member, or Other Investor to have been issued shares of the merging corporation or successor corporation in a company split.

Cabinet Order prescribes the way of calculating the amount of stated capital, etc. coming from shares and capital contributions as prescribed in paragraph (1) and provides for other necessary particulars concerning the application of the provisions of the preceding two paragraphs.

Real property income means income arising from renting out real property, a right on real property, a vessel, or an aircraft (hereinafter referred to as "real estate and other such property" in this paragraph) (this includes establishing a superficies right or farming right or doing something else that gives another person the use of real estate or other such property) (other than anything falling under the category of business income or capital gains).

Real property income is gross revenues constituting real property income in the relevant year, less necessary expenses.

Business income means income arising from commercial farming, fishing, manufacturing, wholesale activities, retail sales, the service industry, or any other commercial activity prescribed by Cabinet Order (other than anything falling under the category of timber income or capital gains).

Business income is gross revenues constituting business income in the relevant year, less necessary expenses.

Salary income means income from pay, compensation, wages, annual allowances, bonuses, or salary of a similar nature (hereinafter referred to as a "salary or other wage" in this Article).

Salary income is the amount remaining after the salary income deduction is applied against revenue from a taxpayer's salary and other wages in the relevant year.

The salary income deduction prescribed in the preceding paragraph is the amount that each of the following items prescribes for the category of case set forth in the item:

Notwithstanding the provisions of the preceding two paragraphs, if the taxpayer's revenue from salary and other wages in the year is less than 6,600,000 yen, that revenue is taken to be the "amount of salary and other wages" to which Appended Table V refers, and the taxpayer's salary income arising from salary and other wages is equivalent to the amount that, using the Table, a person finds to be the "amount of salary and other wages after the salary income deduction" that the Table gives for the taxpayer's salary and other wages.

Retirement income means income arising from severance pay, a lump-sum early retirement package, other compensation received on a one-time basis due to separation from employment, and compensation of a similar nature (hereinafter referred to as "severance pay and other such compensation" in this Article).

Retirement income is equivalent to 50% of the amount remaining after the retirement income deduction is applied against revenue from severance pay and other such compensation in the year (or, if the severance pay and other such compensation is short-term severance pay, the amount that each of the following items prescribes for the category of case set forth in the item, and if it is specified officers' severance pay, the amount equivalent to the amount remaining after the retirement income deduction is applied against the revenue from the severance pay and other such compensation).

The retirement income deduction prescribed in the preceding paragraph is the amount that each of the following items prescribes for the category of case set forth in the item:

The short-term severance pay prescribed in paragraph (2) means severance pay and other such compensation that is received from the person paying the severance pay and other such compensation as severance pay and other such compensation corresponding to short-term years of service (meaning the years of service prescribed in item (i) of the preceding paragraph in which the years of service specified by Cabinet Order as a person other than an officer or similar person prescribed in the following paragraph are five years or less; the same applies in paragraph (7)), and that does not fall under the category of specified officers' severance pay prescribed in the following paragraph.

The specified officers' severance pay prescribed in paragraph (2) means severance pay and other such compensation that a person whose years of service specified by Cabinet Order as an officer or similar person (meaning a person set forth in any of the following items) (hereinafter referred to as "years of service as an officer" in this paragraph and paragraph (7)) are five years or less receives from the person paying the severance pay and other such compensation as severance pay and other such compensation corresponding to those years of service as an officer:

Notwithstanding the provisions of paragraph (3), if circumstances fall under one of the cases set forth in the following items, the retirement income deduction provided for in paragraph (2) is the amount prescribed in the relevant item:

If a taxpayer has, in the year, two or more kinds of severance pay and other such compensation from among general severance pay or other such compensation (meaning severance pay and other such compensation that falls under neither short-term severance pay (meaning the short-term severance pay prescribed in paragraph (4); hereinafter the same applies in this paragraph) nor specified officers' severance pay (meaning the specified officers' severance pay prescribed in paragraph (5); hereinafter the same applies in this paragraph); hereinafter the same applies in this paragraph), short-term severance pay, and specified officers' severance pay, and there is an overlapping period in the years of service for the general severance pay or other such compensation, the short-term years of service for the short-term severance pay, or the years of service as an officer for the specified officers' severance pay, Cabinet Order provides for the calculation of the retirement income.

For the purpose of applying this Act, the following lump-sum payments are deemed to constitute severance pay and other such compensation as prescribed in paragraph (1) of the preceding Article:

Timber income means income arising from the felling of trees in forested land or a transfer of forested land.

Income arising from the felling of trees in forested land or a transfer of forested land within five years after the date of its acquisition is not included in timber income.

Timber income is the amount arrived at when the special timber income deduction is applied against the amount remaining after necessary expenses are deducted from gross revenue constituting timber income in the relevant year.

The special timber income deduction provided for in the preceding paragraph is 500,000 yen (or the remaining amount provided for in that paragraph, if this is less than 500,000 yen).

Capital gains means income arising from a transfer of assets (including the establishment of a superficies right or a right of lease to allow another person to own a building or structure, or an act provided for by Cabinet Order which gives another person long-term use of a piece of land pursuant to a contract; hereinafter the same applies in this Article).

The following income is not included in capital gains:

Capital gains is the amount arrived at by first treating each of the following items separately as regards the income set forth therein and calculating the sum total of the acquisition costs of assets generating the income set forth in the item plus the cost to transfer those assets, subtracting this sum from gross revenues constituting the income set forth in that item in the year, adding together the net balances from those calculations (or, if gross revenues constituting the income set forth in either one of the following items alone is less than the sum total of the acquisition costs of the assets generating that income and the cost to transfer those assets, offsetting the net balance calculated for the income set forth in the other item by an amount equivalent to the negative balance; hereinafter such an amount is referred to as "net gain" in this Article), then applying the special capital gains deduction against the net gain:

The special capital gain deduction provided for in the preceding paragraph is 500,000 yen (or the net gain, if this is less than 500,000 yen).

When a special capital gain deduction as prescribed in paragraph (3) is applied against a net gain pursuant to the provisions of that paragraph, the deduction is first applied against the part of the net gain that comes from income set forth in item (i) of that paragraph.

Occasional income means income outside of interest income, dividend income, real property income, business income, salary income, retirement income, timber income, and capital gains; which does not constitute income from one-time payments arising from continuous activities undertaken on a commercial basis; and which does not have the nature of compensation for work or other services or for the transfer of assets.

Occasional income is the amount arrived at when the amounts expended to gain the revenue arising from occasional income for the year are added together (but only amounts that were directly needed to bring about the undertaking of acts that generated the revenue or to provoke the occurrence of causes that generated the revenue), the sum total thereof is deducted from gross revenues constituting occasional income in the relevant year, and the special occasional income deduction is applied against the net balance.

The special occasional income deduction provided for in the preceding paragraph is 500,000 yen (or the net balance provided for in that paragraph, if this is less than 500,000 yen).

Miscellaneous income means income not falling under the category of interest income, dividend income, real property income, business income, salary income, retirement income, timber income, capital gains, or occasional income.

Miscellaneous income is the sum total of the amounts set forth in the following items:

The public pensions and retirement packages that the preceding paragraph provides for means:

The public pension deduction prescribed in paragraph (2) is the amount that each of the following items prescribes for the category of case set forth in the item:

Except as provided otherwise, an amount is to be treated as part of the revenue that is used to calculate the Income in Each Class for the year or is to be included in the gross revenue that is used to calculate the same, if it is to be ascribed to revenues during the year (and the value of anything other than monies, rights, or any other economic benefit is to be treated as such or included therein, if it is ascribed to revenues during the year).

The value of a thing other than monies, rights, or any other economic benefit as referred to in the preceding paragraph is its value at the time the thing or rights are acquired or at the time the benefit is enjoyed.

Notwithstanding the provisions of paragraph (1), an amount is to be treated as a part of the amount of revenue that is used to calculate the interest income or dividend income for the year from interest on a bearer public and corporate bond; dividend of surplus (meaning a dividend of surplus as prescribed in Article 24, paragraph (1) (Dividend Income)) from a bearer share (including a bearer beneficiary certificate of a Bond-Based Investment Trust other than a Bond-Based Investment Trust Under Public Offering, and a beneficiary certificate linked to a bearer company bond-type beneficial interest; referred to as a "bearer share or similar interest" in Article 169, item (ii) (Income Tax Base for Separate Taxation), Article 224, paragraph (1) and paragraph (2) (Notice by Recipients of Interest, Dividends, and Similar Income), and Article 225, paragraph (1) and paragraph (2) (Payment Reports and Notice of Payment)); or distribution of proceeds linked to a bearer beneficiary certificate from a Loan Trust, Investment Trust, or Specified Trust That Issues Beneficiary Certificates, if the taxpayer is paid that amount during the year.

Except as provided otherwise, the amounts that are to be included in the necessary expenses that are used to calculate the real property income, business income, or miscellaneous income for the year (other than any business income or miscellaneous income arising from the felling of trees in forested land or the transfer of forested land, and other than miscellaneous income arising from a public pension or retirement package as prescribed in Article 35, paragraph (3) (Definition of Public Pensions and Retirement Packages)) are the costs of goods sold to generate the gross revenue in that income type or other expenses directly necessary to the taxpayer's acquisition of gross revenue in that income type, as well as sales expenses, general administrative expenses, and other expenses for business operations in the year that are meant to generate that type of income (excluding any expense, other than a depreciation allowance, for which the taxpayer's liability does not become fixed during that year).

Except as provided otherwise, the amounts that are to be included in the necessary expenses that are used to calculate business income, timber income, or miscellaneous income are planting expenses, acquisition costs, maintenance expenses, felling expenses, and any other expenses needed to cultivate or transfer forested land (excluding any expense, other than a depreciation allowance, for which the taxpayer's liability does not become fixed during that year).

Except as provided otherwise, the asset acquisition costs that are deducted to calculate capital gains are the sum total of the amount needed to acquire the assets plus the amounts of equipment expenses and improvement expenses.

If an asset generating capital gains is a house or other asset that depreciates due to use or with the passage of time, the asset acquisition costs provided for in the preceding paragraph are the amount arrived at when the sum total of the amounts set forth in each of the following items for the category of period between the acquisition date and the transfer date which is set forth in the item is deducted from an amount equal to the sum total provided for in the preceding paragraph:

If a Resident uses Inventory (including anything that Cabinet Order prescribes to be an equivalent asset) to benefit the household, or fells trees in forested land and uses them to benefit the household, an amount equal to the value of those assets at the time of use is included in the gross revenue that is used to calculate the Resident's business income, timber income, or miscellaneous income for the year in which the date of use falls.

If Inventory owned by a Resident (including forested land generating business income or anything that Cabinet Order prescribes as an asset equivalent to Inventory; hereinafter the same applies in this Article) has devolved due to circumstances as set forth in one of the following items, an amount equal to what is set forth in the applicable item is included in the gross revenue that is used to calculate the Resident's business income or miscellaneous income for the year in which the day that the circumstances occur falls:

Calculation of business income, timber income, capital gains, or miscellaneous income if a Resident transfers Inventory acquired through an inter vivos gift, legacy, or transfer as set forth in the items of the preceding paragraph is as follows:

If a Resident engaged in agriculture harvests crops (but only rice, barley, wheat, or a crop prescribed by Cabinet Order), an amount equal to the value of the crops at the time of the harvest (hereinafter referred to as the "value of the harvest" in this Article) is included in the gross revenue that is used to calculate the Resident's business income for the year in which the date of the harvest falls.

The Resident is deemed to acquire a crop as referred to in the preceding paragraph for the value of the harvest at the time prescribed in that paragraph.

If a Resident has been granted by the issuing corporation a right that Cabinet Order specifies as a right to acquire shares without compensation or at an advantageous price, and the Resident, the Resident's heir, or any other person specified by Cabinet Order transfers the right to the issuing corporation, the provisions of this Act (other than Article 224-3 (Notice by Recipients of Consideration for Transferring Shares), Article 225 (Payment Reports and Notice of Payment), Article 228 (Report on Consideration for Transfer of Shares Received by the Person of Record), and the penal provisions relating to these provisions) apply by deeming the amount arrived at when the acquisition cost of the right is deducted from the amount of the consideration for the transfer to be the amount of revenue relating to business income, the amount of revenue from salary or other wages prescribed in Article 28, paragraph (1) (Salary Income), the amount of revenue from severance pay and other such compensation prescribed in Article 30, paragraph (1) (Retirement Income), the amount of revenue relating to occasional income, or the amount of revenue relating to miscellaneous income (other than that relating to public pensions and retirement packages prescribed in Article 35, paragraph (3) (Miscellaneous Income)), paid by the issuing corporation.

If, in any year, a Resident is issued a national or local government subsidy or benefit or anything that Cabinet Order prescribes as being equivalent thereto (hereinafter referred to as a "government subsidy or its equivalent" in this Article and the following Article) which is meant to be allocated to acquiring or improving Fixed Assets (including forested land; hereinafter the same applies in this Article and the following Article) (but only if the final decision that the Resident need not return the government subsidy or its equivalent is reached by December 31 of that year (or by the time of the Resident's death or Absence From Japan, if the Resident dies or the Resident's Absence From Japan occurs partway through the year; hereinafter the same applies in this paragraph and paragraph (1) of the following Article)), and the Resident acquires or improves Fixed Assets in line with the purpose for which it is issued by December 31 of that year, an amount equal to the amount of the government subsidy or its equivalent issued (or, if the Fixed Assets are Depreciable Assets acquired or improved in a year before that year, the amount calculated pursuant to Cabinet Order based on the amount of the government subsidy or its equivalent) is not included in the gross revenue that is used to calculate that Resident's Income in Each Class.

If, in any year, a Resident is issued Fixed Assets in lieu of a government subsidy or its equivalent, an amount equal to the value of those Fixed Assets is not included in the gross revenue that is used to calculate that Resident's Income in Each Class.

The provisions of the preceding two paragraphs apply only if the Tax Return indicates recourse to the application of those provisions, indicates the amount that is not being included in gross revenue pursuant to those provisions, and gives the information prescribed by Ministry of Finance Order.

Even if no Tax Return is filed or if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district tax office director may apply the provisions of paragraph (1) or paragraph (2) on finding there to be unavoidable circumstances for the Resident's failure to file the Tax Return or fill it out in that manner.

Cabinet Order provides for the necessary particulars concerning the calculation of the depreciation allowance provided for in Article 49, paragraph (1) (Calculating Depreciation Allowances for Depreciable Assets; Depreciation Methods) for Fixed Assets that have been subject to the provisions of paragraph (1) or for Fixed Assets as prescribed in paragraph (2) that are acquired by a Resident subject to the provisions of paragraph (1) or paragraph (2); and provides for the necessary particulars concerning the calculation of business income, timber income, capital gains, or miscellaneous income in the event that such a Resident transfers those Fixed Assets.

If, in any year, a Resident is issued a government subsidy or its equivalent that is meant to be allocated to acquiring or improving Fixed Assets, and the final decision that the Resident need not return the government subsidy or its equivalent has not been reached by December 31 of the relevant year, an amount equal to the government subsidy or its equivalent is not included in the gross revenue that is used to calculate that Resident's Income in Each Class for the year.

If the final decision is reached that a Resident subject to the provisions of the preceding paragraph need not return the whole or a part of the government subsidy or its equivalent referred to in that paragraph which the Resident has been issued, an amount equal to the part of the government subsidy or its equivalent which is subject to the final decision, less the part that Cabinet Order prescribes out of the amount allocated to acquiring or improving Fixed Assets in line with the purpose for which the government subsidy or its equivalent has been issued, is included in the gross revenue that is used to calculate that Resident's Income in Each Class for the year in which the date of the final decision falls.

If it is determined that a Resident subject to the provisions of the preceding paragraph needs to return the whole or a part of the government subsidy or its equivalent referred to in that paragraph which the Resident has been issued, an amount equal to the part of the government subsidy or its equivalent that is subject to the final decision is not included in the necessary expenses or amounts expended that are used to calculate that Resident's Income in Each Class for the year in which the date of the determination falls.

The provisions of paragraph (1) apply only if a Tax Return indicates recourse to the application of the provisions of that paragraph, indicates the amount that is not being included in gross revenue pursuant to that paragraph, and gives the information prescribed by Ministry of Finance Order.

Even if no Tax Return is filed or if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district tax office director may apply the provisions of paragraph (1) on finding there to be unavoidable circumstances for the Resident's failure to file the Tax Return or fill it out in that manner.

Cabinet Order provides for the necessary particulars concerning the calculation of a depreciation allowance as prescribed in Article 49, paragraph (1) (Calculating Depreciation Allowances for Depreciable Assets; Depreciation Methods) for Fixed Assets that a Resident subject to the provisions of paragraph (1) uses a government subsidy or its equivalent to acquire or improve; and provides for the necessary particulars concerning the calculation of business income, timber income, capital gains, or miscellaneous income in the event that such a Resident transfers those Fixed Assets.

If a Resident is issued a national or local government subsidy that is meant to cover the expenses of an administratively necessary relocation, reconstruction, or removal of the Resident's assets or any other similar action (other than the improvement of a Fixed Asset or an action as prescribed by Cabinet Order; hereinafter referred to as the "relocation, reconstruction, or removal" of assets in this paragraph), or is issued an amount of money that is meant to cover the expenses of a relocation, reconstruction, or removal of the Resident's assets due to an expropriation under the Land Expropriation Act (Act No. 219 of 1951) or the occurrence of any other compelling reason prescribed by Cabinet Order, and the Resident allocates the money issued thereto to cover the relocation, reconstruction, or removal of assets for which it has been issued, the amount allocated to cover those expenses is not included in the gross revenue that is used to calculate that Resident's Income in Each Class; provided, however, that this does not apply to an amount equal to the part of the monies allocated to cover expenses which is included in the necessary expenses that are used to calculate the Income in Each Class or the part of the monies so allocated which is found to have been a necessary transfer expense.

If a Resident receives forgiveness of a debt that the Resident owes in a case where there has been an order granting discharge as prescribed in Article 252, paragraph (1) (Requirements for an Order Granting Discharge) of the Bankruptcy Act (Act No. 75 of 2004) or an order confirming a rehabilitation plan, or in any other case where the Resident has lost financial resources and has extreme difficulty in paying debts, the value of the economic benefit received through that forgiveness is not included in the gross revenue that is used to calculate that Resident's Income in Each Class.

In the case referred to in the preceding paragraph, the provisions of that paragraph do not apply to the part of the value of the economic benefit received through the forgiveness of the debt referred to in that paragraph that is equivalent to the sum total of the amounts that the following items prescribe for the categories of case set forth in those items that apply to the Resident referred to in that paragraph (for the amounts prescribed in items (i) through (iv), the amounts calculated as if there were no value of the economic benefit, and for the amount prescribed in item (v), the amount arrived at if gross income, retirement income, and timber income are calculated as if the provisions of that paragraph did not apply):

The provisions of paragraph (1) apply only if the Tax Return states that the provisions of that paragraph are to be applied, the amount not included in gross revenue pursuant to the provisions of that paragraph, and any other information specified by Ministry of Finance Order.

Even if no Tax Return is filed or if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district director may apply the provisions of paragraph (1) on finding there to be unavoidable circumstances for the Resident's failure to file the Tax Return or fill it out in that manner.

If a reduction is made to the amount of foreign income taxes as prescribed in Article 95, paragraph (1) (Foreign Tax Credit) which is used as the basis for calculating the amount to be credited pursuant to the provisions of Article 95, paragraphs (1) through (3) in any of the seven years beginning in the year after that in which a Resident is subject to the provisions of those paragraphs, the amount that Cabinet Order prescribes as corresponding to the part of the reduction to foreign income taxes which is pertinent to the application of the foreign tax credit under that Article in the year in which the date of the decision to reduce those taxes falls is not included in gross revenue that is used to calculate the Resident's real property income, business income, timber income, occasional income, or miscellaneous income for the year. In such a case, the amount arrived at when the amount specified by that Cabinet Order is deducted from the amount of the reduction is included in the gross revenue that is used to calculate the Resident's miscellaneous income for the year.

The expenses set forth as follows which a Resident expends or pays to the government are not included in the necessary expenses that are used to calculate the Resident's real property income, business income, timber income, or miscellaneous income:

A bribe as prescribed in Article 198 (Bribes) of the Penal Code (Act No. 45 of 1907), monies as prescribed in Article 18, paragraph (1) (Prohibition on Supplying Foreign Public Officials with Illicit Gains) of the Unfair Competition Prevention Act (Act No. 47 of 1993), or other monies in the nature of a gain paid by a Resident, and the value of any article other than monies or of any right or economic benefit that a Resident supplies (and any additional expenses needed to provide them), is not included in the necessary expenses that are used to calculate the Resident's real property income, business income, timber income, or miscellaneous income.

If a Resident who in the year conducts an operation that is meant to generate real property income, business income, or timber income, or a Resident who in the year conducts an operation that is meant to generate miscellaneous income and whose revenue relating to that operation for the year before the previous year exceeds 3,000,000 yen, has filed a Tax Return (other than a return filed after the deadline that was filed in anticipation that a determination would be made regarding the income taxes as a result of an investigation of the income taxes pertaining to the return; hereinafter the same applies in this paragraph) based on an act of concealment or disguise (meaning concealing or disguising all or part of the facts that should form the basis for calculating the amount of income or the amount of income tax), or has not filed a Tax Return, the cost of sales relating to the gross revenue of such income for the year to which the Tax Return relates and other expenses directly required to obtain that gross revenue (other than the amounts specified by Cabinet Order as the amounts directly required to acquire assets in the sale or transfer of those assets and as the amounts directly required to acquire assets in the provision of services requiring the delivery of those assets; hereinafter referred to as the "cost of sales" in this paragraph), and the selling expenses, general administrative expenses, and other expenses incurred in the year in connection with the operation that is meant to generate such income (if the Resident has filed a Tax Return for the year, other than the part of those amounts that formed the basis for calculating the amount set forth in Article 120, paragraph (1), item (i) (Filing an Income Tax Return) stated in that Tax Return, or the tax base or other amounts set forth in Article 19, paragraph (4), item (i) (Amended Return) of the Act on General Rules for National Taxes stated in an Amended Return relating to that Tax Return (other than an Amended Return filed after the Resident came to anticipate that a Reassessment would be made regarding the income taxes as a result of an investigation of the income taxes pertaining to the return)), are not included in the necessary expenses that are used to calculate the Resident's real property income, business income, timber income, and miscellaneous income for each year; provided, however, that this does not apply to the cost of sales or expenses that fall under any of the following cases:

An outlay as set forth in items (ii) through (viii) of paragraph (1), any monies prescribed in paragraph (2), and the value of any article other than monies or of any right or other economic benefit prescribed in that paragraph is not included in the amounts expended that are used to calculate the occasional income of a Resident as referred to in paragraph (1) or paragraph (2).

If a Resident has recourse to the application of the provisions of Article 95, paragraph (1) (Foreign Tax Credit) or Article 138, paragraph (1) (Refunding Tax Withheld) as regards credit-eligible foreign income taxes as prescribed in Article 95, paragraph (1), the credit-eligible foreign income taxes are not included in the necessary expenses or amounts expended that are used to calculate the Resident's real property income, business income, timber income, miscellaneous income, or occasional income.

In the calculation of the amount that, pursuant to the provisions of Article 37, paragraph (1) (Necessary Expenses), is included, in association with the Inventory of a Resident, in the necessary expenses that are used to calculate the Resident's business income, the value of Inventory held by the Resident on December 31 of the relevant year (or at the time of the Resident's death or Absence From Japan, if the Resident dies or the Resident's Absence From Japan occurs partway through the year; the same applies in this Article through Article 50) which is used as the basis for that calculation (hereinafter referred to as "closing Inventory" in this paragraph) is the amount of money assessed based on the valuation method that the Resident has selected for the closing Inventory from among the method of taking the average acquisition cost of Inventory as the assessed value of the Inventory held on December 31 of that year and the other valuation methods prescribed by Cabinet Order (or based on the valuation method prescribed by Cabinet Order, if the Resident does not select a valuation method or if the value is not assessed based on the selected valuation method).

Cabinet Order provides for special provisions on the selectable valuation methods referred to in the preceding paragraph, the way of selecting a valuation method, the acquisition cost of Inventory to be used as the basis for calculating the assessed value of Inventory, and other necessary particulars concerning the valuation of Inventory.

In the calculation of the amount that, pursuant to the provisions of Article 37, paragraph (1) (Necessary Expenses), is included, in association with a Security that a Resident holds, in the necessary expenses that are used to calculate the Resident's business income, the value of a Security held by the Resident on December 31 of the relevant year which is used as the basis for that calculation is the amount of money assessed based on the valuation method that the Resident has selected for Securities (or based on the valuation method prescribed by Cabinet Order, if the Resident does not select a valuation method or if the value of the Security is not assessed based on the selected valuation method).

Cabinet Order provides for the types of the selectable valuation methods referred to in the preceding paragraph, the way of selecting a valuation method, and other necessary particulars concerning the valuation of Securities.

The amount that, pursuant to the provisions of Article 37, paragraph (1), is included, in association with a Security of the same class that the Resident acquires on two or more occasions, in the necessary expenses that are used to calculate the amount of a Resident's miscellaneous income, or that, pursuant to the provisions of Article 38, paragraph (1) (Acquisition Costs Deducted to Calculate Capital Gains) is included, in association with such a Security, in the acquisition costs that are used to calculate the Resident's capital gains, is the value assessed pursuant to Cabinet Order and in accordance with the provisions of paragraph (1), based on the amount needed to acquire the Security on each occasion.

In the calculation of the amount that, pursuant to the provisions of Article 37, paragraph (1) (Necessary Expenses), is included, in association with the crypto-assets (meaning crypto-assets as prescribed in Article 2, paragraph (14) (Definitions) of the Payment Services Act (Act No. 59 of 2009); hereinafter the same applies in this Article) of a Resident, in the necessary expenses that are used to calculate the Resident's business income or miscellaneous income, the value of crypto-assets held by the Resident on December 31 of the relevant year which is used as the basis for that calculation is the amount of money assessed based on the valuation method that the Resident has selected for crypto-assets (or based on the valuation method prescribed by Cabinet Order, if the Resident does not select a valuation method or if the value is not assessed based on the selected valuation method).

Cabinet Order provides for the types of selectable valuation methods referred to in the preceding paragraph, the way of selecting a valuation method, and other necessary particulars concerning the valuation of crypto-assets.

The amount that, pursuant to the provisions of Article 37 (Necessary Expenses), is included in the necessary expenses that are used to calculate a Resident's real property income, business income, timber income, or miscellaneous income, as the depreciation allowance for a Depreciable Asset held by the Resident on December 31 of the relevant year is the amount calculated pursuant to Cabinet Order based on the depreciation method that the Resident has selected for the asset from among the method under which the depreciation allowance is the same every year, the method under which the depreciation allowance decreases every year at a fixed rate, and the other depreciation methods prescribed by Cabinet Order by date of acquisition and asset category (or based on the depreciation method prescribed by Cabinet Order, if the Resident does not select a depreciation method).

Cabinet Order establishes special provisions on the selectable depreciation methods referred to in the preceding paragraph and provides for the way of selecting a depreciation method, the acquisition costs of Depreciable Assets that are to be used as the basis of the calculation of the depreciation allowance, special provisions under which the amount corresponding to the part of an amount expended on a Depreciable Asset that extends its usable life or similar is treated as the acquisition cost of a Depreciable Asset, and other particulars that need to be prescribed concerning the depreciation of Depreciable Assets.

The amount that, pursuant to the provisions of Article 37 (Necessary Expenses), is included in the necessary expenses that are used to calculate a Resident's real property income, business income, timber income, or miscellaneous income, as the depreciation allowance for a Deferred Asset that a Resident possesses on December 31 of the relevant year is the amount calculated pursuant to Cabinet Order on the basis of the period during which the expenses for the Deferred Assets continue to affect the calculation.

Beyond what is provided for in the preceding paragraph, Cabinet Order provides for the necessary particulars concerning the depreciation of Deferred Assets.

A loss incurred due to circumstances such as the demolition, removal, or destruction (including a decrease in value due to damage) of a Fixed Asset, or of any other equivalent asset as provided by Cabinet Order, which is used in a business run by a Resident that is meant to generate real property income, business income, or timber income (other than any part of the loss covered by insurance benefits, compensation for damage, or anything similar to these, and excluding loss due to or related to the transfer of an asset) is included in the necessary expenses that are used to calculate the Resident's real property income, business income, or timber income for the year in which the day of the loss falls.

A loss incurred in the course of business due to accounts receivable, loans, advance payments, or bad debt claims equivalent to these, or due to other circumstances as provided by Cabinet Order, in a business run by a Resident which is meant to generate real property income, business income, or timber income is included in the necessary expenses that are used to calculate the Resident's real property income, business income, or timber income for the year in which the day of the loss falls.

A loss due to Disaster, robbery, or misappropriation involving forested land owned by a Resident (other than any part of the loss covered by insurance benefits, compensation for damage, or anything similar to these) is included in the necessary expenses that are used to calculate the Resident's business income or timber income for the year in which the day of the loss falls.

A loss involving assets (other than forested land and assets prescribed in Article 62, paragraph (1) (Loss of Assets Not Ordinarily Necessary in Everyday Life, Due to Disaster)) used in the business operations of a Resident which are meant to generate real property income or miscellaneous income or are the basis of such income (other than any part of the loss covered by insurance benefits, compensation for damage, or anything similar to these; other than any loss due to or related to the transfer of an asset; and other than any loss prescribed in paragraph (1) or paragraph (2) or Article 72, paragraph (1) (Casualty Loss Deduction)) is included in the necessary expenses that are used to calculate the Resident's real property income or miscellaneous income for the year in which the day of the loss falls, up to the amount of the real property income or miscellaneous income for the year (meaning the amount of real property income or miscellaneous income for the year as calculated without applying the provisions of this paragraph).

Cabinet Order provides for the necessary particulars concerning the calculation of the loss prescribed in paragraph (1) and the preceding two paragraphs.

If a Resident running a business that is meant to generate real property income, business income, or timber income has accounts receivable, lendings, advance payments, or equivalent monetary claims (other than those that are to be represented by bonds; the same applies in the following paragraph) arising in the course of business (hereinafter referred to as "lendings and other claims" in this paragraph), any amount that the Resident transfers into the reserve account for bad debts in each year (other than a year in which the day of a complete business transfer or discontinuation falls; the same applies in the following paragraph) as the expected amount of the loss on those lendings and other claims on part of which a loss due to a bad debt or other equivalent circumstances is expected because a fact prescribed by Cabinet Order has occurred, such as their repayment being subject to a grace period or being made in installments based on a decision confirming a reorganization plan (this includes any other lendings and other claims held against the debtor associated with the lendings and other claims in question; hereinafter referred to as "individually assessed loans or other claims" in this paragraph and the following paragraph), is included in the necessary expenses that are used to calculate the Resident's real property income, business income, or timber income for the year, up to the amount calculated pursuant to Cabinet Order based on the part of the amount transferred which, as of December 31 of the relevant year (or as of the time of the Resident's death, if the Resident dies partway through the year; the same applies in the following paragraph), there is found to be no prospect of collecting or having repaid with regard to the individually assessed loans or other claims; provided, however, that this does not apply if the Resident dies and the heir does not take over the business.

The amount that a Blue-Return-filing Resident running a business that is meant to generate business income transfers into the reserve account for bad debts in any year as the expected amount of losses due to bad debts in accounts receivable, lendings, and equivalent monetary claims arising in the course of business (other than individually assessed lendings and other claims; hereinafter referred to as "collectively assessed loans" in this paragraph) is included in the necessary expenses that are used to calculate the Resident's business income for the year, up to the amount calculated pursuant to Cabinet Order based on the amount of collectively assessed loans that the Resident holds as of December 31 of the relevant year; provided, however, this does not apply if the Resident dies and the heir does not take over the business, and does not apply in any other case as prescribed by Cabinet Order.

The part of a reserve account for bad debts which is included in the necessary expenses that are used to calculate the real property income, business income, or timber income for the year in which that amount is transferred into the account pursuant to the provisions of the preceding two paragraphs is included in the gross revenue that is used to calculate the real property income, business income, or timber income for the year following that in which the amount is transferred into the account.

The provisions of paragraph (1) and paragraph (2) apply only if a Tax Return gives the details of the inclusion of the amount transferred into the reserve account for bad debts in necessary expenses.

Even if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district tax office director may apply the provisions of paragraph (1) or paragraph (2) on finding there to be unavoidable circumstances for the Resident's failure to fill out the Tax Return in that manner.

Cabinet Order provides for the necessary particulars concerning the handling, in the event of the death of a Resident as prescribed in paragraph (1) or paragraph (2), of any amount of a reserve account for bad debts that has been included in the necessary expenses that are used to calculate the real property income, business income, or timber income for the year in which the date of the Resident's death falls.

If a Blue-Return-filing Resident running a business that is meant to generate business income has established rules for severance packages as prescribed by Cabinet Order, the amount that the Resident transfers to the severance package reserves account in any year to cover severance packages that are paid to employees of the business (other than a spouse or other relative whose living expenses are paid from the same resources as the Resident; hereinafter the same applies in this Article) upon their separation from employment is included in the necessary expenses that are used to calculate the Resident's business income for the year, up to the amount calculated pursuant to Cabinet Order based on the amount of any increase that is found to have arisen in the year in the estimated amount that the Resident would have to pay in severance packages if all employees of the business that the Resident employs as of December 31 of that year (or as of the time of Resident's death, if the Resident dies partway through the year) were to resign of their own accord.

A Resident holding monies under a severance package reserves account (but only amounts of monies included in the necessary expenses that are used to calculate business income for the year in which that amount is transferred into the account pursuant to the provisions of the preceding paragraph; this excludes any monies that it has already been established must be withdrawn pursuant to the provisions of this paragraph; hereinafter the same applies in this Article) must withdraw the monies under the severance package reserves account if an employee as referred to in the preceding paragraph separates from employment, if approval to file a Blue Return is rescinded, or in any other case prescribed by Cabinet Order.

An amount of monies under a severance package reserves account which it has been established must be withdrawn pursuant to the provisions of the preceding paragraph is included in the gross revenue that is used to calculate the amount of business income for the year in which the day it was established that the amount was to have been withdrawn falls; and any amount of monies under a severance package reserves account which is withdrawn even though it does not fall under the provisions of that paragraph is included in the gross revenue that is used to calculate business income for the year in which the day it is withdrawn falls.

The provisions of paragraph (1) apply only if a Tax Return gives the details of the inclusion of the amount transferred into the severance package reserves account in necessary expenses.

Even if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district tax office director may apply the provisions of paragraph (1) on finding there to be unavoidable circumstances for the Resident's failure to fill out the Tax Return in that manner.

Beyond what is prescribed in paragraph (2) to the preceding paragraph, Cabinet Order provides for the handling of amounts of monies under severance package reserves accounts following the death of the Resident holding them and for other necessary particulars concerning the application of the provisions of paragraph (1).

If, due to reasons such as being employed in a business run by a Resident which is meant to generate real property income, business income, or timber income, the spouse or any other relative whose living expenses are paid from the same resources as a Resident is paid a consideration by that business, an amount equal to that consideration is not to be included in the necessary expenses that are used to calculate the real property income, business income, or timber income from the Resident's business, and any amount that is to be included in the necessary expenses that are used to calculate the relative's Income in Each Class from that consideration is included in the necessary expenses that are used to calculate the real property income, business income, or timber income from the Resident's business. In such a case, the amount of the consideration paid to the relative and amounts to be included in the necessary expenses that are used to calculate the relative's Income in Each Class from consideration are deemed not to be a part of the calculation of the relative's Income in Each Class.

Notwithstanding the provisions of the preceding Article, if the spouse or other relative (other than one under 15 years of age) whose living expenses are paid from the same resources as a Resident that the director of the district tax office has approved to file a Blue Return, who works exclusively in a business as prescribed in the preceding Article which is run by the Resident (hereinafter referred to as a "relative employed only by a blue-return filer" in this Article) is paid a salary by the business of up to the amount stipulated in the document referred to in the following paragraph and in the way that is stipulated in that document, the part of the salary that, in light of the period, nature, and extent of the relative's service; the type and size of the business; salaries ordinarily paid in the same type and similar size of business; and any other circumstances provided for by Cabinet Order, is found to be appropriate as consideration for the relative's work, is included in the necessary expenses that are used to calculate the real property income, business income, or timber income from the Resident's business for the year in which the salary is paid, and is treated as the annual revenue constituting salary income of the relative employed only by the blue-return filer.

A Resident seeking to apply the provisions of the preceding paragraph to income taxes in and after the current year must submit a document to the competent district tax office director for the locality in which the Resident pays taxes, giving the names of relatives employed only by the blue-return filer, the details of their duties, the amounts of their salaries, the pay periods for those salaries, and the information prescribed by Ministry of Finance Order, no later than March 15 of the relevant year (or within two months from the day on which the Resident starts a business as referred to in that paragraph, if this is on or after January 16 of that year).

If a Resident (other than one as prescribed in paragraph (1)) has a spouse or other relative whose living expenses are paid from the same resources as the Resident (excluding a relative under 15 years of age) and who works exclusively in a business as prescribed in the preceding Article which is run by the Resident (hereinafter referred to as a "relative employed only by the Resident" in this Article), whichever is the lower of the following amounts is deemed to constitute the necessary expenses for each relative employed only by the Resident which are used to calculate the real property income, business income, or timber income from that business of the Resident for the year:

If the provisions of the preceding paragraph are applied, the amount deemed to be the necessary expenses for each of the relatives employed only by the Resident pursuant to the provisions of that paragraph is deemed to be the revenue constituting salary income of each of the relatives employed only by the Resident which is used to calculate their Income in Each Class for the year.

The provisions of paragraph (3) do not apply unless a Tax Return indicates recourse to the application of the provisions of that paragraph and gives information about the amounts that are deemed to be necessary expenses pursuant to the provisions of that paragraph.

Even if no Tax Return is filed or if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district tax office director may apply the provisions of paragraph (3) on finding there to be unavoidable circumstances for the Resident's failure to file the Tax Return or fill it out in that manner.

In a case as referred to in paragraph (1) or paragraph (3), whether a relative as prescribed in those provisions is under 15 years of age is determined by the relative's age as of December 31 of the relevant year (or as of the time of the Resident's death or the start of the Resident's Absence From Japan, if the Resident prescribed in these provisions dies or becomes Absent From Japan partway through the year); provided, however, that if such a relative has already died as of that point in time, whether that relative was under 15 years of age is determined by the relative's age as of the time of death.

Cabinet Order prescribes procedures for if the details of the requirements for a relative employed only by a blue-return filer or relative employed only by a Resident change and for if information that has been given in the document referred to in paragraph (2) changes, and provides for other necessary particulars concerning the application of the provisions of paragraph (1) and paragraph (3).

Notwithstanding the provisions of Article 28, paragraph (2) and paragraph (4), if a Resident has specific expenses in any year and the sum of the specific expenses for the year exceeds an amount equivalent to half of the salary income deduction prescribed in Article 28, paragraph (2) (Salary Income), the salary income prescribed in that paragraph for the year is the amount arrived at when the amount by which such expenses exceed that amount is deducted from the remaining amount that is referred to in paragraph (2) of that Article.

The specific expenses prescribed in the preceding paragraph means the following expenses of a Resident (excluding, if any part of the expenses is reimbursed by the person who pays the Resident a salary or other wage as prescribed in Article 28, paragraph (1) (hereinafter referred to as the "person paying the salary or other wage" in this paragraph) and income tax is not imposed on the reimbursed part, that reimbursed part, and, if any part of the expenses is covered by the payment of an education and training benefit as prescribed in Article 10, paragraph (5), item (i) (Unemployment Benefits, etc.) of the Employment Insurance Act (Act No. 116 of 1974), a single mother household self-reliance support education and training benefit as prescribed in Article 31, item (i) (Single Mother Household Self-Reliance Support Benefits) of the Act on Welfare of Mothers and Fathers with Dependents and Widows (Act No. 129 of 1964), or a single father household self-reliance support education and training benefit as prescribed in that item as applied mutatis mutandis pursuant to Article 31-10 (Single Father Household Self-Reliance Support Benefits) of that Act, that part so covered):

The provisions of paragraph (1) apply only if a Tax Return, Amended Return, or request for Reassessment (referred to as a "Tax Return or similar filing" in the following paragraph) indicates recourse to the application of the provisions of paragraph (1) and gives the sum of the amount of specific expenses prescribed in that paragraph, and is accompanied by a detailed statement of the specific expenses set forth in each of the items of the preceding paragraph and the certifying documents prescribed in those items.

When filing a Tax Return or similar filing indicating recourse to the application of the provisions of paragraph (1), the filer must include with that Tax Return or similar filing a document prescribed by Cabinet Order as evidencing the fact that the Resident has incurred the specific expenses prescribed in that paragraph and the amount spent, or must present such a document at the time of filing that Tax Return or similar filing.

Beyond what is prescribed in the preceding three paragraphs, Cabinet Order provides for the details of the scope of specific expenses prescribed in paragraph (2) and for other necessary particulars concerning the application of the provisions of paragraph (1).

If a Resident makes a transaction in a foreign currency (meaning that the Resident sells or purchases assets, provides services, borrows or lends monies, or conducts any other transaction involving payment in a foreign currency; hereinafter the same applies in this Article), the yen equivalent of that transaction (meaning the amount arrived at when the amount of the foreign-currency-denominated transaction is converted into a Japanese-currency-denominated amount; the same applies in the following paragraph) is the amount arrived at when the amount of the transaction is converted into yen based on the foreign exchange rate as of the time of the foreign-currency transaction, and this is used to calculate the Resident's Income in Each Class for the year.

If a Resident conducting business that is meant to generate real property income, business income, timber income, or miscellaneous income fixes the yen equivalent of assets acquired or liabilities incurred through a transaction in a foreign currency based on a foreign exchange futures contract or similar contract (meaning what is provided for by Ministry of Finance Order as a contract that fixes the yen equivalent of assets acquired or liabilities incurred through a transaction in a foreign currency; hereinafter the same applies in this paragraph) and enters an indication of this, pursuant to Ministry of Finance Order, in the books and documents connected with the Resident's business or in any other document prescribed by Ministry of Finance Order, as on the day that the foreign exchange futures contract or similar contract is concluded, the yen equivalent of the assets or liabilities is treated as the amount arrived at via the conversion into yen pursuant to the preceding paragraph, and this is used to calculate the Resident's real property income, business income, timber income, or miscellaneous income for each year.

Beyond what is prescribed in the preceding paragraph, Cabinet Order establishes special provisions on the conversion of transactions in a foreign currency and provides for other necessary particulars concerning the application of the provisions of the preceding two paragraphs.

If, in any year, due to a share exchange implemented by a corporation issuing shares that a Resident holds (hereinafter referred to as "old shares" in this paragraph) (such a share exchange is limited to one in which the shareholders of the corporation are not issued assets other than the shares (including capital contributions; hereinafter the same applies in this paragraph) of any one corporation from among a wholly owning parent corporation resulting from a share exchange which is as prescribed in Article 2, item (xii)-6-3 (Definitions) of the Corporation Tax Act (hereinafter referred to as a "wholly owning parent corporation resulting from a share exchange" in this paragraph) and the corporations that are related to the wholly owning parent corporation resulting from the share exchange in a way that Cabinet Order prescribes as constituting a relationship whereby they directly or indirectly hold all the issued shares or capital contributions in the wholly owning parent corporation resulting from the share exchange (other than the treasury shares or capital contributions that the wholly owning parent corporation resulting from the share exchange holds itself) (monies and other assets issued to the shareholders as dividends of surplus and monies and other assets issued to any shareholder dissenting from the share exchange as a consideration based on an exercise of appraisal rights are not considered to be assets other than such shares)), the Resident transfers old shares to the wholly owning parent corporation resulting from the share exchange and is issued those shares, or if the Resident ceases to hold the old shares due to a specified share exchange without consideration implemented by the corporation that issued the old shares (meaning a share exchange in which the shareholders of the corporation are not issued the shares of the wholly owning parent corporation resulting from a share exchange or other assets, and which Cabinet Order prescribes as a share exchange in which the issuance of the shares of the wholly owning parent corporation resulting from a share exchange to the shareholders of the corporation is found to have been omitted), for the purpose of applying Article 27 (Business Income), Article 33 (Capital Gains), Article 35 (Miscellaneous Income), or Article 59 (Special Provisions on Capital Gains and Gifts), the transfer or gift of the old shares is deemed not to have taken place.

If, in any year, due to a share transfer implemented by a corporation issuing shares that a Resident holds (hereinafter referred to as "old shares" in this paragraph) (such a share transfer is limited to one in which the shareholders of the corporation are not issued assets other than shares in a wholly owning parent corporation resulting from a share transfer as prescribed in Article 2, item (xii)-6-6 of the Corporation Tax Act (hereinafter referred to as a "wholly owning parent corporation resulting from a share transfer" in this paragraph) (monies and other assets issued to any shareholder dissenting from the share transfer as a consideration based on an exercise of appraisal rights are not considered to be assets other than such shares)), the Resident transfers old shares to the wholly owning parent corporation resulting from the share transfer and is issued shares therein, for the purpose of applying Article 27, Article 33, and Article 35, the transfer of the old shares is deemed not to have taken place.

If, in any year, a Resident transfers Securities as set forth in one of the following items due to the cause prescribed in the item, and is issued shares (including capital contributions; hereinafter the same applies in this paragraph) or share options in the corporation making the acquisition provided for in that item due to that cause (unless the value of the shares or share options issued thereto is found not to be close to the value of the transferred Securities), for the purpose of applying Article 27, Article 33, and Article 35, the transfer of the Securities is deemed not to have taken place:

Cabinet Order prescribes the calculation of the acquisition costs for Securities that a Resident acquires subject to the application of the preceding three paragraphs and provides for other necessary particulars concerning the application of the preceding three paragraphs.

If, in any year, a Resident exchanges a Fixed Asset that the Resident has held for at least one year and which is as set forth in one of the following items, for a Fixed Asset held by another person for at least one year which is as set forth in the item (other than one that the other person is found to have acquired solely for the purpose of the exchange) and uses the asset as set forth in the item which the Resident acquires in the exchange (hereinafter referred to as the "acquired asset" in this Article) for the same purpose as that for which the asset as set forth in the item which the Resident has transferred in the exchange (hereinafter referred to as the "transferred asset" in this Article) was used immediately prior to the transfer, for the purpose of applying Article 33 (Capital Gains), the transferred asset (other than a part thereof that is equivalent to the value of any monies or other assets acquired along with the acquired assets) is deemed not to have been transferred:

The provisions of the preceding paragraph do not apply if the difference between the value of the acquired asset and that of the transferred asset at the time of the exchange referred to in that paragraph exceeds 20% of whichever asset is of greater value.

The provisions of paragraph (1) apply only if a Tax Return indicates recourse to the application of the provisions of that paragraph, indicates the values of the acquired asset and transferred asset, and gives any other information prescribed by Ministry of Finance Order.

Even if no Tax Return is filed or if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district tax office director may apply the provisions of paragraph (1) on finding there to be unavoidable circumstances for the Resident's failure to file the Tax Return or fill it out in that manner.

A Cabinet Order provides for the necessary particulars concerning the calculation of the depreciation allowance prescribed in Article 49, paragraph (1) (Calculating Depreciation Allowances for Depreciable Assets; Depreciation Methods) which is required to be made for an acquired asset by a Resident subject to the application of paragraph (1), as well as for the necessary particulars concerning the calculation of the amount of capital gains in the event that such a Resident transfers the acquired asset.

If forested land that a Resident owns (excluding forested land generating business income) or assets generating capital gains have devolved due to any of the following circumstances, such assets are deemed to have been transferred to the Resident, with an amount equivalent to their value as of the time the circumstances arose being used in the calculation of the Resident's timber income, capital gains, or miscellaneous income:

If a Resident transfers an asset as prescribed in the preceding paragraph to an individual at a price as prescribed in item (ii) of that paragraph and the amount of the consideration is less than the sum total of the necessary expenses or acquisition costs and transfer costs which are deducted to calculate timber income, capital gains, or miscellaneous income from the transfer of that asset, there is deemed to be no such negative balance when timber income, capital gains, or miscellaneous income is calculated.

If a Resident transfers an asset as prescribed in paragraph (1) of the preceding Article which was acquired due to any of the following circumstances, the Resident is deemed to continue to possess that asset as regards the calculation of business income, timber income, capital gains, or miscellaneous income:

In the case referred to in the preceding paragraph, when an asset set forth in one of the following items that was acquired through hereditary succession or a legacy set forth in item (i) of that paragraph is transferred, the acquisition cost of the asset is as prescribed in that item, notwithstanding the provisions of that paragraph:

In the case referred to in paragraph (1), when a right set forth in one of the following items that was acquired through hereditary succession or a legacy set forth in item (i) of that paragraph is extinguished, the calculation of the amount of capital gains is as prescribed in that item, notwithstanding the provisions of that paragraph. In such a case, the provisions of Article 38, paragraph (2) (Acquisition Costs Deducted to Calculate Capital Gains) do not apply.

If a Resident transfers an asset acquired through an inter vivos gift, hereditary succession, or a legacy as set forth in Article 59, paragraph (1), item (i), the Resident is deemed to have acquired the asset, with an amount equivalent to the value thereof at the time the Resident acquired it being used in the calculation of business income, timber income, capital gains, or miscellaneous income.

If a Resident who makes a departure from Japan (meaning ceasing to have a domicile or residence in Japan; the same applies hereinafter in this Article) holds, at the time of that departure from Japan, Securities or an equity interest in a contribution under a silent partnership contract prescribed in Article 174, item (ix) (Tax Base for a Domestic Corporation's Income Taxes) (excluding Securities that represent the right to acquire shares without contribution or at an advantageous price and that would generate domestic source income prescribed in Article 161, paragraph (1) (Domestic Source Income), and other Securities prescribed by Cabinet Order; hereinafter referred to as "Securities and similar interests" in this Article through Article 60-4 (Special Provisions on Capital Gains upon Application of Foreign Exit Tax Provisions)), for the calculation of that person's business income, capital gains, or miscellaneous income, the Securities and similar interests are deemed to have been transferred at the time of the departure from Japan, for the amount prescribed in each of the following items for the category of case set forth in that item:

If a Resident who makes a departure from Japan is, at the time of that departure from Japan, a party to a contract for margin transactions prescribed in Article 156-24, paragraph (1) (License and Application for License) of the Financial Instruments and Exchange Act or when-issued transactions (meaning transactions for the purchase and sale of Securities before those Securities are issued which are specified by Ministry of Finance Order) that have not been settled (hereinafter referred to as "unsettled margin transactions or similar transactions" in this Article through Article 60-4), for the calculation of that person's business income or miscellaneous income, the amount of profit or loss prescribed in each of the following items for the category of case set forth in that item is deemed to have arisen at the time of the departure from Japan:

If a Resident who makes a departure from Japan is, at the time of that departure from Japan, a party to a contract for derivatives transactions prescribed in Article 2, paragraph (20) (Definitions) of the Financial Instruments and Exchange Act that have not been settled (hereinafter referred to as "unsettled derivatives transactions" in this Article through Article 60-4), for the calculation of that person's business income or miscellaneous income, the amount of profit or loss prescribed in each of the following items for the category of case set forth in that item is deemed to have arisen at the time of the departure from Japan:

If an individual (including the individual's heir) to whom the provisions of the preceding three paragraphs (including as applied pursuant to paragraph (8) (including as applied mutatis mutandis pursuant to paragraph (9); the same applies in item (i)) or paragraph (10)) have applied with regard to income tax for the year that includes the date of the departure from Japan transfers (including anything similar to a transfer that Cabinet Order prescribes; the same applies in paragraph (8)) or settles Securities and similar interests held at the time of the departure from Japan, or unsettled margin transactions or similar transactions or unsettled derivatives transactions to whose contracts the individual was a party at that time, the calculation of business income, capital gains, or miscellaneous income is governed by the following; provided, however, that this does not apply to the Securities and similar interests, unsettled margin transactions or similar transactions, and unsettled derivatives transactions in the case where neither a Tax Return has been filed nor a determination has been made with regard to income tax for the year that includes that date, to Securities and similar interests, unsettled margin transactions or similar transactions, and unsettled derivatives transactions for which the amount prescribed in the items of paragraph (1), the items of paragraph (2), or the items of the preceding paragraph for the category of case set forth in those items has not been included in the gross revenue used to calculate business income, capital gains, or miscellaneous income for the year that includes that date, or to Securities and similar interests, unsettled margin transactions or similar transactions, and unsettled derivatives transactions to which the main clause of paragraph (6) (including as applied pursuant to paragraph (7)) has applied.

The provisions of the preceding paragraphs do not apply to a Resident for whom the amount prescribed in each of the following items for the category of case set forth in that item, as of the time of the departure from Japan, for the Securities and similar interests held, and the unsettled margin transactions or similar transactions and unsettled derivatives transactions to whose contracts the Resident is a party, at the time of that departure from Japan is less than 100,000,000 yen, or to a Resident for whom the total of the periods prescribed by Cabinet Order as periods during which the Resident had a domicile or residence in Japan within the 10 years before the date of the departure from Japan is five years or less.

An individual to whom the provisions of paragraphs (1) through (3) are to apply with regard to income tax for the year that includes the date of the departure from Japan may, for those of the Securities and similar interests held at the time of the departure from Japan, or the unsettled margin transactions or similar transactions or unsettled derivatives transactions to whose contracts the individual was a party at that time, that are prescribed in each of the following items for the category of case set forth in that item, treat all of the transfers of Securities and similar interests, the settlements of unsettled margin transactions or similar transactions, and the settlements of unsettled derivatives transactions that were deemed to have been made pursuant to the provisions of paragraphs (1) through (3) in the calculation of the business income, capital gains, or miscellaneous income for that year of the Resident referred to in those paragraphs as not having occurred; provided, however, that this does not apply to the amount equivalent to the income from transfers of Securities and similar based on the facts concealed or disguised, in the case where all or part of the facts that should form the basis for calculating the business income, capital gains, or miscellaneous income from the transfer of the Securities and similar interests, the business income or miscellaneous income from the settlement of the unsettled margin transactions or similar transactions, or the business income or miscellaneous income from the settlement of the unsettled derivatives transactions (hereinafter referred to as "income from transfers of Securities and similar" in this paragraph) were concealed or disguised and, because a Tax Return was filed based on that concealment or disguise or a Tax Return was not filed, a determination or Reassessment is made, or a return filed after the deadline or an Amended Return is filed, by the day on which five years have elapsed from the date of the individual's departure from Japan (excluding the case where a return filed after the deadline or an Amended Return was filed by that day and the filing was not made in anticipation of a determination or Reassessment with regard to income tax as a result of an examination concerning that income tax).

For the purpose of applying the provisions of the preceding paragraph to an individual to whom the provisions of paragraphs (1) through (3) have applied with regard to income tax for the year that includes the date of the departure from Japan and who, pursuant to Article 137-2, paragraph (2) (Tax Payment Grace Period Where the Special Provisions on Capital Gains upon Departure from Japan Apply), has been granted a tax payment grace period under paragraph (1) of that Article, the term "five years" in that paragraph is deemed to be replaced with "10 years".

If an individual (including the individual's heir) to whom the provisions of paragraphs (1) through (3) have applied with regard to income tax for the year that includes the date of the departure from Japan and who has been granted a tax payment grace period under Article 137-2, paragraph (1) (including as applied pursuant to paragraph (2) of that Article; the same applies in paragraph (10)) has, by the expiry base date prescribed in paragraph (1) of that Article for that tax payment grace period, transferred (excluding a transfer made at a price lower than the value at the time of the transfer and any other transfer prescribed by Cabinet Order; hereinafter the same applies in this paragraph and the following paragraph) or settled Securities and similar interests that the individual has continued to hold since the time of the departure from Japan, or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions that the individual has not settled, or has transferred them by a gift or inheritance with limited liability (meaning a gift, hereditary succession (but only hereditary succession subject to qualified acceptance), or a legacy (but only a universal legacy which is associated with a qualified acceptance); hereinafter the same applies in this paragraph and the following paragraph), and the transfer price for the transfer or the amount equivalent to the value of the Securities and similar interests at the time of the gift or inheritance with limited liability, or the amount of profit or loss arising from the settlement, the amount equivalent to the amount of profit or loss calculated pursuant to Ministry of Finance Order on the assumption that the unsettled margin transactions or similar transactions were settled at the time of the gift or inheritance with limited liability (referred to as the "deemed margin transaction profit or loss at a gift or inheritance with limited liability" in paragraph (8) of the following Article), or the amount equivalent to the amount of profit or loss calculated pursuant to Ministry of Finance Order on the assumption that the unsettled derivatives transactions were settled at the time of the gift or inheritance with limited liability (referred to as the "deemed derivatives profit or loss at a gift or inheritance with limited liability" in paragraph (8) of the following Article) falls under any of the following cases, then, for the purpose of applying the provisions of paragraphs (1) through (3) with regard to that individual's income tax for the year that includes the date of the departure from Japan, the phrase "the amount prescribed in each of the following items for the category of case set forth in that item" in paragraph (1) may be deemed to be replaced with "the transfer price for the transfer of those Securities and similar interests prescribed in paragraph (8) or the amount equivalent to the value of those Securities and similar interests at the time of the gift or inheritance with limited liability", the phrase "the amount of profit or loss prescribed in each of the following items for the category of case set forth in that item" in paragraph (2) may be deemed to be replaced with "the amount of profit or loss arising from the settlement prescribed in paragraph (8) or the deemed margin transaction profit or loss at a gift or inheritance with limited liability", and the phrase "the amount of profit or loss prescribed in each of the following items for the category of case set forth in that item" in paragraph (3) may be deemed to be replaced with "the amount of profit or loss arising from the settlement prescribed in paragraph (8) or the deemed derivatives profit or loss at a gift or inheritance with limited liability":

The provisions of the preceding paragraph apply mutatis mutandis if an individual to whom the provisions of paragraphs (1) through (3) are to apply with regard to income tax for the year that includes the date of the departure from Japan and who has given notification of a tax agent pursuant to Article 117, paragraph (2) of the Act on General Rules for National Taxes by the time of the departure from Japan has, by the Filing Deadline for income tax for the year that includes that date, transferred or settled Securities and similar interests that the individual has continued to hold since that date, or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions that the individual has not settled, or has transferred them by a gift or inheritance with limited liability.

If an individual (including the individual's heir) to whom the provisions of paragraphs (1) through (3) have applied with regard to income tax for the year that includes the date of the departure from Japan and who has been granted a tax payment grace period under Article 137-2, paragraph (1) holds, on the day on which five years have elapsed from that date (or, if the individual has been granted a tax payment grace period under paragraph (1) of that Article pursuant to paragraph (2) of that Article, the day on which 10 years have elapsed; hereinafter the same applies in this paragraph), Securities and similar interests that the individual has continued to hold since the time of the departure from Japan, or unsettled margin transactions or similar transactions or unsettled derivatives transactions that the individual has not settled, and these fall under any of the following cases, then, for the purpose of applying the provisions of paragraphs (1) through (3) with regard to that individual's income tax for the year that includes the date of the departure from Japan, the phrases "the time of the departure from Japan", "the day three months before the scheduled date of the departure from Japan (or, for Securities and similar interests acquired after that day, as of the time of acquisition)", "the day three months before the scheduled date of the departure from Japan (or, for unsettled margin transactions or similar transactions for which the contract was concluded after that day, at the time of conclusion)", and "the day three months before the scheduled date of the departure from Japan (or, for unsettled derivatives transactions for which the contract was concluded after that day, at the time of conclusion)" in those provisions may be deemed to be replaced with "the day on which five years have elapsed from the date of the departure from Japan (or, if the individual has been granted a tax payment grace period under paragraph (1) of Article 137-2 pursuant to paragraph (2) of that Article (Tax Payment Grace Period Where the Special Provisions on Capital Gains upon Departure from Japan Apply), the day on which 10 years have elapsed)":

For the purpose of applying the provisions of paragraph (6) through the preceding paragraph, Securities and similar interests that an individual has acquired after the time of the departure from Japan due to any of the following events are deemed to have been continuously held by that individual:

Beyond what is provided for in paragraph (6) through the preceding paragraph, Cabinet Order provides for the necessary particulars concerning the application of the provisions of paragraphs (1) through (5).

If Securities and similar interests held by a Resident are transferred to a Nonresident by gift, hereditary succession, or a legacy (hereinafter referred to as a "gift or similar transfer" in this Article), for the calculation of that Resident's business income, capital gains, or miscellaneous income, unless otherwise provided, the Securities and similar interests are deemed to have been transferred at the time of the gift or similar transfer, for the amount equivalent to their value at that time.

If a contract for unsettled margin transactions or similar transactions to which a Resident is a party is transferred to a Nonresident by a gift or similar transfer, for the calculation of that Resident's business income or miscellaneous income, the amount equivalent to the amount of profit or loss calculated pursuant to Ministry of Finance Order on the assumption that the unsettled margin transactions or similar transactions were settled is deemed to have arisen at the time of the gift or similar transfer.

If a contract for unsettled derivatives transactions to which a Resident is a party is transferred to a Nonresident by a gift or similar transfer, for the calculation of that Resident's business income or miscellaneous income, the amount equivalent to the amount of profit or loss calculated pursuant to Ministry of Finance Order on the assumption that the unsettled derivatives transactions were settled is deemed to have arisen at the time of the gift or similar transfer.

If an individual (including the individual's heir) who received a transfer of Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions from a Resident to whom the provisions of the preceding three paragraphs (including as applied pursuant to paragraph (8) (including as applied mutatis mutandis pursuant to paragraph (10); the same applies in item (i)) or paragraph (11)) have applied with regard to income tax for the year that includes the date of the gift or the date of commencement of inheritance (hereinafter referred to as the "date of the gift or similar transfer" in this Article) transfers (meaning a transfer as prescribed in paragraph (4) of the preceding Article; the same applies in paragraph (9)) or settles those Securities and similar interests or contracts for unsettled margin transactions or similar transactions or unsettled derivatives transactions, the calculation of business income, capital gains, or miscellaneous income is governed by the following; provided, however, that this does not apply to those Securities and similar interests, unsettled margin transactions or similar transactions, and unsettled derivatives transactions in the case where neither a Tax Return has been filed nor a determination has been made with regard to income tax for the year that includes the date of the gift or similar transfer, to those Securities and similar interests, unsettled margin transactions or similar transactions, and unsettled derivatives transactions for which the amount equivalent to the value of the Securities and similar interests at the time of the gift or similar transfer, or the amount equivalent to the amount of profit or loss on the unsettled margin transactions or similar transactions or unsettled derivatives transactions, has not been included in the gross revenue used to calculate business income, capital gains, or miscellaneous income for the year that includes the date of the gift or similar transfer, or to Securities and similar interests, unsettled margin transactions or similar transactions, and unsettled derivatives transactions to which the first sentence of paragraph (6) (including as applied pursuant to paragraph (7)) has applied.