Consolidated Tax Regime Unpopular With Japanese Business Groups

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

05 April 2002

A poll of businesses based in Japan conducted by The Yomiuri Shimbun newspaper has revealed that almost half of the organisations questioned will not be using the consolidated tax return system to pay their fiscal 2002 taxes.

The system, which will be put in place sometime in April, but will be retroactive to the beginning of the new financial year, will allow business groups to be taxed after all the profits and losses incurred by their member companies have been combined. When the proposal was developed, it was thought that this would ease the tax burden for corporate groups operating both profitable and unprofitable firms.

However, groups of companies which choose to pay their taxes in this way must pay a 2% surcharge in addition to their corporate income tax for two years, and are unable to carry their subsidiaries' losses over to the next accounting term. These provisions have, in the view of many Japanese companies, severely limited the benefits for corporate groups.

According to the Yomiuri Shimbun survey, 16 of the 50 major companies questioned said that they do not plan to pay tax under the new consolidated regime this fiscal year, and a further 7 revealed that they do not plan to do so for the time being. 25 firms said that they would wait and see what amendments are made to the system following discussions in the Diet in May.

According to the newspaper, only two companies - Hitachi Ltd, and Daiwa Securities Group - said that they planned to use the optional consolidated tax system.

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