GlobalAutoTV
Click to watch Edward Carpenter -
Click to watch Edward Carpenter -
asia resources


Need an office in Asia? Office suites, meeting rooms, virtual offices, network access



free downloads
ASIA: "The Influential Rise Of India’s Auto Market" report

ASIA: "The Influential Rise Of India’s Auto Market" report. 8-page report by LMC Automotive.

proceed to download
eJournals




back to index backASIAtalk June,  2017


Japan Enacts Rules to Expand Tax-Free Re-organizations in 2017 Tax Reform

New legislation concerning tax-free reorganizations, one of the most notable changes in the Japanese government's proposal for the 2017 tax reform, has been enacted.

Under the new legislation, passed on March 27, 2017, the scope of transactions qualifying as tax-free reorganizations has been expanded to include certain types of spinoffs, which historically have been considered taxable transactions. In addition, the ownership requirements for certain intra-group demergers have also been relaxed, making it easier for multinationals to meet the requirements for tax-free treatment. As enacted, the amendments concerning qualified spinoffs have taken effect from April 1, 2017, and those concerning the relaxed requirement for intra-group demergers will be applicable on or after October 1, 2017.

Key Features

A demerger that satisfies certain requirements (ie, a qualified demerger) is tax-free to the transferor and its shareholders. Accordingly, capital gains (and losses) are not recognized by the transferor (nor its shareholders) upon the transfer of assets and liabilities; as a result, capital gains tax does not apply. Since the transferee’s tax basis in the assets and liabilities does not receive a step-up in basis upon demerger, a carryover basis results. In addition, the transferee shares received by the transferor's shareholders are not treated as a deemed dividend. 

Existing rules limit the ways that a demerger occurring between group companies can be considered a qualified demerger. In cases of demergers occurring between sister companies, the benefits for a qualified demerger are granted only when it is expected that there is (i) a continuation of the relationship between the transferor and the parent company of the transferor after the demerger and (ii) a continuation of the relationship between the transferee and the parent company of the transferee (as well as of the transferor) after the demerger.

The new legislation relaxes requirement (i) above so that after the transfer, it is no longer a requirement to continue the relationship between the transferor and its parent after the demerger. Thus, a demerger meeting the ownership requirements immediately before the demerger (but not following the demerger) will also qualify for tax-free treatment.

Companies commonly use spinoff transactions to dispose of a business. Under current law, however, a spinoff may not satisfy all of the necessary requirements for classification as a qualified demerger. The new legislation extends tax-free treatment to two types of spinoff transactions: (i) a spinoff of a business division where a company puts a business segment into a separate company and distributes its shares to the shareholders of the company and (ii) a spinoff of an existing subsidiary by a company so that the subsidiary is owned directly by the company's shareholders. These types of spinoffs qualify for tax-free treatment only if certain conditions are met.

Comments

The proposed changes aim to provide more flexibility to companies (especially public companies) that are separating or disposing of non-core or unprofitable business units. Under current law, a company that wishes to remove an unprofitable business unit from its operation through spinoff schemes cannot in most cases fulfil the requirements for tax-free treatment. By expanding tax-free restructuring options to cover certain business unit spinoffs, in contrast, the new rules will likely encourage a greater frequency of such reorganizations.

The process will not necessarily be simple. The conditions that have to be met in order to qualify for tax-free spinoffs are not straightforward. In particular, the consideration for the spinoffs cannot involve property other than shares or other equity interests of the transferee; no party can have a majority control over the transferor and the transferee after the spinoff; the principal assets and liabilities of the business would have to be transferred; and the spun-off business is expected to continue. In addition, there is a requirement that at least 80 percent of employees are expected to engage in the spun-off business, and that the directors, key management executives, statutory auditors and accounting advisors are expected to continue holding such management positions after the transfer. A company seeking to determine if a spinoff qualifies for tax-free status would need to evaluate whether these conditions have been met.

Source: DLA Piper - GAI






previous page

go top



search our site


Loading

ASIAtalk

Other articles from the same issue (June,  2017).

WardsAuto: Vietnam Playing Catch-Up in ASEAN Auto Sector
play read on

India: PE investments in auto parts up 607% in the first five months of 2017
play read on

Chinese automakers launch a global offensive via emerging Asia
play read on

Autos/Trucks: China Auto Demand Stable in April (May 2017 report)
play read on

Indonesia's auto industry looks Down Under for an export boost
play read on

Robots take over jobs in China's auto plants
play read on

Chinese-German cooperation blossoms in auto, tech
play read on

Make-in-India Lessons: Why Are Vietnam’s Electronics Exports Ten Times That of India’s?
play read on

Vietnam Is Losing Economic Ground To China Due To Lack Of High-Skilled Workers
play read on

China’s Belt and Road Initiative: Managing Risks and Disputes
play read on

Politics, Power, and Change: What’s Next for ASEAN
play read on

China customs violations and how to avoid jail time
play read on

Working with Indians: 12 Things You Need To Know
play read on

Investing in Asia: Ample Opportunity for Those Who Look
play read on

China's factory inflation cools again in May as commodity prices ease further
play read on

Japan Enacts Rules to Expand Tax-Free Re-organizations in 2017 Tax Reform
play read on

India Manufacturing Barometer: Standing strong
play read on

The Deloitte Global Chief Procurement Officer Survey 2017
play read on

An animated look at how Asia has changed over 50 years
play read on

India: Advance Pricing Agreement Survey Report 2017
play read on

Singapore, Myanmar to explore more tie-ups for firms in areas like urban solutions, transport & logistics
play read on

Chinese Cleantech Market Report (May 2017)
play read on

83% of Indians give thumbs up to country's econom: Pew survey post demonetisation
play read on

The digital future of manufacturing: Are Asian manufacturers ready?
play read on

Automation leaves one in five Asians concerned about job security
play read on

Vietnam Pocket Tax Book 2017
play read on

India 'bright spot' for global steel output growth: report
play read on

Singapore inks pact on corporate tax avoidance
play read on

More than 1.17 crore people skilled under Ministry of Skill Development and Entrepreneurship programmes
play read on

Taiwan grapples with 'talent shortfall'
play read on


Our Free eJournals
GlobalAutoExperts

To visit GlobalAutoExperts Directory, click here.


©2008 GlobalAutoIndustry.com | HCI Group, Ltd.
101 West Big Beaver Road, Suite 1400 | Troy, MI 48084 USA
USA Tel: +1.248.687.1060 | USA Fax: +1.248.927.0347
Fax UK: +44.(0)845.127.4765 | Fax Europe: +31.20.524.1659 | Fax Asia: +852.3015.8120