Japan Tightens Up Offshore Tax Loophole

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

27 February 2004

The Japanese Finance Ministry has confirmed that it is in talks with the Dutch government to close down an offshore tax loophole allowing foreign investors to avoid capital gains tax on certain investments, according to the Financial Times.

The measure comes in the wake of a public outcry that a foreign consortium was allowed to acquire the Japanese bank Shinsei, which the government recently bailed out using around $37 billion in taxpayer's money.

The consortium managed to acquire the bank through a firm headquartered in the Netherlands, a move which, according to the Japanese government, will allow it to forgo capital gains tax payments when the shares are sold on.

Consequently, it has been reported that Japan is now in talks with the Dutch government to amend the tax treaty between the two nations which will make firms liable for capital gains tax at 30% when selling the shares of a bank that has received public support. Japan has also negotiated a similar clause in its tax treaty with the US.

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