Japan Press Weekly

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2017 January 5 - 10 [ECONOMY]

JCP Diet debate victory leads to reducing taxation loopholes

The effort that a Japanese Communist Party Dietmember made in the Diet has finally led the government to improve its countermeasures against currently-legal global tax evasion methods, a technique which many multinational corporations widely use through their offshore companies in tax havens.

As a main feature of its 2017 tax reform, the Abe Cabinet decided to take a scalpel to a charitable trust mechanism.

“This is a technique that a number of multinationals use in tax havens such as the Cayman Islands. They can legally dodge taxes by holding less than 50% of their stakes in their overseas subsidiaries,” JCP member of the House of Councilors Daimon Mikishi revealed this tax loophole in the Diet (May 23, 2016, Audit Committee).

Under the current anti-tax haven measures, parent companies have to aggregate the income of their subsidiaries located outside Japan where the taxation rate is below 20% into the head office income. However, if their parent companies hold less than 50% of the stake, such subsidiaries are untaxed in Japan.

In response to Daimon, Finance Minister Aso Taro said, “What you have said is absolutely correct.” Prime Minister Abe Shinzo said, “It is as you have just pointed out.”

The newly-decided tax reform will make the income of offshore companies which are effectively under control of parent companies chargeable even if their parent companies’ share is below 50%.

Regarding the new measure, Daimon said, “This will be a step forward in the right direction.”

The government in its 2017 tax reform will also expand the scope of taxable offshore subsidiaries by redressing the present anti-tax haven rules.

As mentioned above, parent companies at present have to add the income of their operations abroad whose local tax burdens are less than 20%.

Daimon has repeatedly pointed out that this system allows parent companies to take advantage of loopholes. He criticized them for establishing bogus companies in slightly-higher-than-20%-tax regions abroad to evade taxes at home (March 18, 2010, Finance Committee).

The new tax reform will, however, close this loophole by identifying these shell companies which do not even have any office as being formed to accomplish tax evasion and will apply their added income to Japan’s taxation.

Daimon said, “Public criticism against tax avoidance has brought about the stepped-up reform this time. However, many other loopholes remain. Further revelation of tax evasion tactics used by corporations in addition to enhanced countermeasures will be necessary.”

Past related articles:
> Japanese firms and individuals cited in Panama Papers take so-what attitude toward their tax avoidance [May 11, 2016]
> Japanese billionaires transfer their assets overseas to avoid taxes [May 9, 2016]
> 99% of Japanese subsidiaries in Cayman Islands are shell companies: JCP Daimon [April 26, 2016]