Japan Corporate and Tax Quarterly Update: Recent legal reform – 2022 tax reform proposal and changes to the share delivery regime

On December 10, 2021, Japan announced its 2022 tax reform proposal, which contains a number of changes to the existing tax rules that may impact companies doing business in Japan, including changes that may provide some companies with a chance to reduce their Japanese tax burden, as well as changes that may result in potential pitfalls (eg, disallowance of certain incentives, etc.) for failure to comply with the new provisions.

Additionally, amendments were made to the Japanese Companies Act (“JCA”) in 2021 introducing a share delivery regime. This regime is now available as another M&A transaction regime under which a target corporation survives and an acquiring corporation delivers shares as consideration. The new share delivery regime can be used for partial acquisitions and does not require inspection by a person elected by the court. As such, it provides certain advantages over the previously existing methods for carrying out such transactions. In addition, the Japanese Corporate Tax Act (“JCTA”) was amended in 2021 to make it possible to structure transactions using the share delivery regime in a tax-free manner, thus providing potential tax benefits as well.

The following article provides a brief overview of the relevant 2022 tax reform proposal items that would likely have the largest impact on multinational companies doing business in Japan and outlines the recent legal changes related to the share delivery regime.