Banks Reach Settlement With Tokyo Government On Local Tax

by Mary Swire, Tax-News.com, Hong Kong

16 September 2003

After a second round of negotiations last Friday, a broad agreement has been reached between the Tokyo metropolitan government and the fifteen banks that filed a lawsuit against it in protest at a local corporate tax they considered excessive.

The agreement was reached after the Tokyo government proposed lowering the 3% tax to a rate of 0.9%, a figure based on the average tax payments made by the bank in the ten years up to the end of the last financial year in March 2003. The banks had rejected an earlier retroactive offer of a reduction to 1% based on average tax payments in the ten business years up to March 2002.

The Tokyo government's offer has been made with the proviso that the Supreme Court has a say in the agreement, and a final settlement is reached via court mediation. This way, the Tokyo authorities are hoping to prevent a flurry of further claims by the banks' shareholders or city residents.

The Tokyo government imposed the local corporate tax on banks holding at least 5 trillion yen in funds in April 2000 at a rate of 3% of gross operating income. In all, some thirty banks were affected by the measure (only 15 of which eventually pursued lawsuits against the authority) and the city has colleced 317.3 billion yen in revenue since the tax was first levied.

As part of the settlement, the metropolitan government will have to refund 234.4 billion yen to the affected banks. The two parties are expected to formally exchange a written agreement on September 17.

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