Chairman Kokubu’s Comments on the Ruling Coalition’s Tax Reform Outline for FY2023

December 21, 2022

The JFTC compiled Requests for FY2023 Tax Reform to ensure Japan remains open to investment and establish systems to facilitate global business.

The idea of a nation open to investment is expressed in the Basic Policy on Economic and Fiscal Management and Reform 2022. Injecting overseas growth into the Japanese economy through investment is vital not only for fiscal consolidation, but also and securing revenue sources to enhance defense capabilities in Japan. I welcome that the Ruling Coalition’s Tax Reform Outline for FY2023 indicated the direction of “building a stable tax revenue base that does not impede economic growth in the course of work to rebuild the economy and restore fiscal consolidation.

Mainly the international taxation field will introduce a new global minimum corporate tax rate of 15% (Pillar Two) based on the agreement on the OECD/G20 Inclusive Framework commended as "once-in-a-century reform of international tax regime". Pillar Two puts a floor on tax competition on corporate income tax, which is expected to create a level playing field for Japanese and overseas companies. However, introducing Pillar Two, with duplicates the scope of taxation, in addition to the burdensome Japanese Controlled Foreign Company (CFC) Rule, may further increase the excessive burden on Japanese companies and seriously erode their competitiveness with foreign companies. The Ruling Coalition’s Tax Reform Outline states the basic concept in chapter1 that necessary revisions to the CFC Rule will be examined based on the further Pillar Two legislation for Tax Reform in FY2024 and beyond. I urge the Government to make bold revisions to ensure that Japan’s tax systems are not in any way a factor that obstructs companies from actively expanding their overseas business.

As an industry association of Shosha, having been a frontrunner in overseas investment, the JFTC will strongly advocate rectifying international taxation issues. By improving the tax system, which is the basic infrastructure of investment countries, Shosha can further contribute to Japan’s fiscal consolidation and economic growth. We ask for the Government’s support to ensure Japanese companies can actively develop their overseas business.

Note: The Ruling Coalition’s Tax Reform Outline contents are tentative translations by JFTC.