Japanese Tax Commission Mulls R&D Tax Breaks

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

29 January 2002

According to reports, the Japanese Council on Economic and Fiscal Policy which is chaired by Prime Minister Junichiro Koizumi, is set to discuss the extension of preferential tax treatment for companies engaged in research and development and capital investment activities.

The reforms under discussion form part of a far-reaching programme of changes to the country's tax system designed to reinvigorate the ailing Japanese economy. Although the Prime Minister favours the reduction of preferential tax treatment for companies in the interests of equality and fairness for all taxpayers, the panel is reported to believe that given the prolonged recession and current deflationary trend, the country's businesses need encouragement to invest in R&D and in plants and other facilities.

At present, Japanese companies are permitted to deduct a portion of R&D costs from their corporate tax assessment, but only if spending for the fiscal year in question amounts to more than the average amount of three fiscal years out of the previous five, and exceeds the previous year's spending. However, under the new proposals set to be discussed, a certain proportion of R&D spending could be deducted from a company's tax assessment, regardless of how costs compare to previous years.

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