Tax
First Supreme Court Decision on General Anti-Avoidance Rule Concerning Reorganization Transactions
On February 29, 2016, the Supreme Court (first petty bench)
issued a decision describing the standards for applying the general
anti-avoidance rule concerning reorganization transactions under
Article 132-2 of the Japanese Corporate Tax Law (the
"Anti-Avoidance Rule").
The Anti-Avoidance Rule authorizes tax authorities to disallow a
taxpayer's act or calculation if "the corporate tax burden
is determined to have been unduly decreased" due to
reorganization transactions including, but not limited to, a
merger. In this case, the surviving company (the
"Taxpayer") in a tax-qualified merger claimed that it
assumed the net operating losses of the acquired company and
included the same in its deductible expenses. However, the relevant
tax authority denied the above inclusion by applying the
Anti-Avoidance Rule.
The Supreme Court held that the Anti-Avoidance Rule is applicable
if the tax provisions concerning reorganization transactions are
abused to decrease a corporate tax burden. According to the Supreme
Court, abuse is found if the concerned act or calculation is
intended to decrease the tax burden by exploiting reorganization
transactions and such act or calculation applies (or avoids) the
tax provisions related to reorganization transactions in a manner
beyond the original purpose or underlying policy of the relevant
provisions, taking into account circumstances such as: (i) whether
the concerned act or calculation is unusual, and (ii) whether the
concerned act or calculation has any reasonable purpose other than
tax burden reduction.
In upholding the application of the Anti-Avoidance Rule in this
case, the Supreme Court found that abuse of the tax provisions
concerning reorganization transactions decreased the corporate tax
burden. The Supreme Court reached this conclusion in light of the
circumstances where the Taxpayer's act was unusual in formally
satisfying the statutory requirements for utilization of net
operating losses and lacked any reasonable purpose other than tax
burden reduction.
Going forward, a taxpayer contemplating a reorganization
transaction that would result in a tax burden reduction is advised
to be prudent in understanding the underlying purpose of the
relevant tax provisions and establishing a reasonable purpose for
the transaction separate from tax burden reduction.
Finance
Tightened Regulations on Managers of Professional Funds—The Amended Financial Instruments and Exchange Act Come into Force
The amendments (the "Amendments") to the Financial
Instruments and Exchange Act (the "FIEA"), which impose
stricter regulations on professional funds, came into force on
March 1, 2016.
In response to incidents where certain funds misused the FIEA
exemption for professional funds (i.e., the Specially Permitted
Business for Qualified Institutional Investors ("Special
Business")) and caused losses to "layman" investors,
the Amendments impose stricter regulations on Special Business
operators (the "Operators"). These regulations include:
(i) limiting which nonprofessionals may invest in funds; (ii)
introducing grounds for Operator disqualification; (iii) expanding
Operator conduct controls; (iv) expanding the amount of detail
required in notifications filed by an Operator; and (v) broadening
enforcement powers and criminal penalties.
The Amendments are important for fund managers who market or plan
to market their funds to Japanese investors. Additionally, the
Amendments require financial institutions and operating companies
that invested, or plan to invest, in such funds to conduct a more
thorough due diligence review to verify that funds are duly in
compliance with Special Business regulations.
For more details, please see Jones Day Commentary, "
Tightened Regulations on Managers of Funds Marketed to Japanese
Investors Will Come into Force Shortly."
Trans-Pacific Partnership
Signing of the Trans-Pacific Partnership
On February 2, 2016 (local time), the Japanese government signed the Trans-Pacific Partnership (the "TPP") in Auckland, New Zealand. Consequently, on March 8, 2016, the Japanese government submitted the "Bill on the Amendment of Relevant Acts Due to the Conclusion of Trans-Pacific Partnership" (the "Bill") to the Diet in order to implement the TPP and reform relevant domestic laws, together with a bill to seek the Diet's approval of the TPP. The Bill comprises amendments to 11 Acts, including the Copyright Act. The Bill will be deliberated at the Diet beginning in April 2016, and the deliberations will be keenly watched.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
