Article 95Foreign Tax Credit

①If a Resident has to pay foreign income taxes in any year (meaning taxes imposed pursuant to foreign laws or orders which are equivalent to income taxes and provided for by Cabinet Order; hereinafter the same applies in this paragraph and paragraph (9)), the amount of those foreign income taxes (other than any foreign income taxes imposed on income arising from a transaction provided for by Cabinet Order as one that cannot be regarded as an ordinary transaction undertaken by a Resident; other than any foreign income taxes prescribed by Cabinet Order as being imposed pursuant to foreign income tax laws or orders using as the tax base an amount on which income taxes are not to be imposed under the provisions of laws and orders concerning a Resident's income taxes; and any other foreign income taxes as prescribed by Cabinet Order; hereinafter referred to as the "amount of credit-eligible foreign income tax" in this Article) is allowed as a credit against the amount of income tax for the year, up to what is calculated pursuant to Cabinet Order as the part of the amount of income tax for the year as calculated pursuant to the provisions of Article 89 through Article 93 (Tax Rates and Related Matters) which corresponds to the amount of foreign income arising in that year (meaning the amount prescribed by Cabinet Order as equivalent to the amount that would be the tax base if income tax were imposed only on income related to foreign source income) (hereinafter the amount so calculated is referred to as the "maximum credit" in this Article).

②If the credit-eligible foreign income taxes which a Resident has to pay in any year exceed the sum total of the maximum credit for the year and the amount specified by Cabinet Order as the maximum credit for local taxes, and part of the maximum credit in any of the three years prior to the relevant year (hereinafter referred to as "any of the last three years" in this Article) is an amount prescribed by Cabinet Order as being carried over to the relevant year (hereinafter referred to as the "maximum carry-over credit" in this Article), the amount by which the former exceeds the latter is credited against income taxes for the year pursuant to Cabinet Order, up to maximum carry-over credit.

③If the credit-eligible foreign income taxes which a Resident has to pay in any year are less than the maximum credit for the year, and part of the credit-eligible foreign income taxes that the Resident has had to pay in any of the last three years constitute an amount prescribed by Cabinet Order as being carried over to the relevant year (hereinafter referred to as "carry-over, credit-eligible foreign income taxes" in this Article), the carry-over, credit-eligible foreign income taxes are credited against income taxes for the year pursuant to Cabinet Order, up to the amount remaining when the credit-eligible foreign income taxes that the Resident is to pay that year are deducted from the maximum credit.

④The foreign source income prescribed in paragraph (1) means the following:

⑤The internal transactions prescribed in item (i) of the preceding paragraph means a transfer of assets, provision of services, or any other fact that occurred between a Resident's foreign office or similar establishment and place of business or similar place, which, if the same fact had occurred between independent business operators, would be found to constitute a sale of assets, purchase of assets, provision of services, or any other transaction (excluding a guarantee of an obligation related to the borrowing of funds, underwriting of reinsurance for insurance liability under an insurance policy, or any other transaction prescribed by Cabinet Order as similar thereto) between those business operators.

⑥If a tax treaty contains provisions on foreign source income (meaning foreign source income prescribed in paragraph (1); the same applies hereinafter in this paragraph) that differ from the provisions of the preceding two paragraphs, then with regard to a Resident who is subject to the application of that tax treaty, notwithstanding those provisions, foreign source income is as prescribed in that tax treaty to the extent of those different provisions.

⑧If a Resident's foreign office or similar establishment is located in the treaty partner of a tax treaty (limited to a tax treaty that provides that, if a Resident's foreign office or similar establishment conducts operations of purchasing Inventory for the place of business or similar place as well as other operations, the income arising from the operations of purchasing that Inventory is not included in the income that should be attributed to that foreign office or similar establishment) and the Resident's foreign office or similar establishment conducts operations of purchasing Inventory for the place of business or similar place as well as other operations, the income set forth in paragraph (4), item (i) arising from the operations of that foreign office or similar establishment of purchasing that Inventory is deemed not to exist.

⑨If the foreign income taxes that a Resident has had to pay are reduced in any of the seven years beginning in the year after one in which the Resident is subject to any of paragraphs (1) through (3) with respect to those foreign income taxes, Cabinet Order provides for the application of those provisions for the year in which the day that the amount is reduced falls.

⑩The provisions of paragraph (1) apply only if a Tax Return, Amended Return, or written request for Reassessment (referred to as a "Tax Return or similar filing" in the following paragraph) is accompanied by a document giving the amount allowed as a credit under the provisions of paragraph (1) and the details of the calculation thereof, a document evidencing that the amount of credit-eligible foreign income tax has been imposed, and the other documents prescribed by Ministry of Finance Order (referred to as the "detailed statement" in this paragraph). In such a case, the amount of credit-eligible foreign income tax and the other amounts prescribed by Ministry of Finance Order that form the basis for calculating the amount allowed as a credit under the provisions of paragraph (1) are limited to the amounts stated as those amounts in the detailed statement, except in the case where the district director finds that there are special circumstances.

⑪The provisions of paragraph (2) and paragraph (3) apply only if the Tax Return or similar filing for each of the years in association with which there is a maximum carry-over credit or carry-over, credit-eligible foreign income taxes, beginning with the earliest year, is accompanied by a document indicating the maximum credit for that year and the amount of credit-eligible foreign income tax that the Resident has had to pay in that year, and if the Tax Return or similar filing for the year in which the Resident seeks to apply those provisions is accompanied by a document giving the amount allowed as a credit under those provisions and information to be used as the basis for calculating the maximum carry-over credit or the carry-over, credit-eligible foreign income taxes, and by the other documents prescribed by Ministry of Finance Order. In such a case, the maximum credit for each of those years, the amount of credit-eligible foreign income tax that the Resident has had to pay in each of those years, and the other amounts prescribed by Ministry of Finance Order that form the basis for calculating the amount allowed as a credit under those provisions are limited to the amounts stated as the amounts forming the basis for that calculation in the documents attached to the Tax Return or similar filing for each of those years pursuant to the provisions of the first sentence of this paragraph, except in the case where the district director finds that there are special circumstances.

⑫A Resident who is subject to the application of the provisions of paragraphs (1) through (3) must, pursuant to Ministry of Finance Order, prepare a document giving the details of the transactions attributed to the Resident's foreign office or similar establishment and other documents specified by Ministry of Finance Order, with regard to those transactions the Resident has conducted with other persons in which the income arising from the transaction is attributed to the Resident's foreign office or similar establishment in the calculation of the Resident's amount of foreign income prescribed in paragraph (1) for the year.

⑬A Resident who is subject to the application of the provisions of paragraphs (1) through (3) must, if a transfer of assets, provision of services, or any other fact between the Resident's place of business or similar place and foreign office or similar establishment falls under the internal transactions prescribed in paragraph (4), item (i), prepare, pursuant to Ministry of Finance Order, a document giving the details of that fact and other documents specified by Ministry of Finance Order.

⑭The first sentence of Article 92, paragraph (2) (Dividend Tax Credits) applies mutatis mutandis to an amount allowed as a credit under paragraphs (1) through (3).

⑮Beyond what is provided for in paragraph (9) through the preceding paragraph, necessary matters concerning the application of the provisions of paragraphs (1) through (8) are specified by Cabinet Order.

⑯A credit under paragraphs (1) through (3) is referred to as a foreign tax credit.