Offshore Firms Face Threat From Change To Japan's Commercial Code

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

09 June 2005

Under proposed changes to Japan's commercial code, so-called "quasi-foreign" companies that do most of their business in Japan but are incorporated offshore would become illegal and would be forced to re-incorporate in Japan - a move with significant implications in terms of tax and pension rules, the Financial Times has reported.

The changes are likely to affect nearly all major US and European banks with operations in Japan, in addition to firms across a number of industries.

The European Business Community (EBC) and the American Chamber of Commerce in Japan (ACCJ) are involved in talks with Japan's Ministry of Justice in an attempt to persuade the government to change its course. Failing that, the international bodies believe they may have a case to make a complaint to the World Trade Organisation.

According to an unidentified business source quoted by the FT, the Japanese government does not intend to penalise foreign firms, but the legislation has suffered from a lack of consultation.

"There is no malicious intent," stated the source.

"These are unintended consequences that emerged as a result of a not very good consultation process on one aspect of a huge revision to the commercial code as a whole," the source added.

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