Jul.22.2003

Japanese Bankers Association

JBA Requests for Fiscal 2004 Tax Reform

On July 18, the Planning Committee finalized the content of JBA's fiscal 2004 tax reform request to be issued by JBA. The official request letter will be approved at the Board of Directors Meeting in September based on this content.

1. Promoting concurrent revitalization of finance and other industries
(1) Expansion of carry-forward deduction/carry-back refund system and review of tax-exempt write-off rules for bad loans
- To extend the carry-forward period (currently 5 years) for losses at financial institutions. To restore the carry-back refund system and extend the carry-back period (currently 1 year)
- To allow financial institutions to write-off bad loans in a tax-exempted manner, based on their own assessment, or at least, review tax treatment concerning tax exemption requirements for disposing of collateral

(2) Expansion of tax support for early revitalization of businesses
- To treat asset appraisal losses and profits from debt waivers are that are received by debtors in the same manner as when applying the Corporate Rehabilitation Law, in the event of corporate revitalization utilizing the Guideline for Multi-creditor Out-of-court Workouts or the Industrial Revitalization Corporation
- To treat loan loss reserves that creditors provide at the start of revitalization procedures in the same manner as when applying the Corporate Rehabilitation Law, in the event of corporate revitalization utilizing the Guideline for Multi-creditor Out-of-court Workouts or the Industrial Revitalization Corporation

2. Invigorating financial/capital markets and promoting international transactions
(1) Further expansion of tax measures to facilitate stock investment
- To expand tax measures such as eliminate taxes on profits from stock sales under certain requirements to facilitate stock investment by individual investors
- To introduce aggregated computation of losses and gains in publicly offered stock investment trusts, and to allow resulting losses to carry forward

(2) Review of taxation on defined contribution pension plan
- To significantly raise the contribution limit and permit matching contributions
- To abolish special corporate taxes on reserves for retirement pensions

(3) Review of taxation on commercial paper (CP)
- To eliminate withholding taxes on profits from redemption of electronic CP issued by foreign corporations (so called Samurai CP) as in the case of domestic CP
- To extend the applicable period (end of March 2004) for the special measure concerning stamp duty on promissory note-type CP (fixed amount of 5,000 yen per CP)

(4) Review of taxation concerning asset liquidation
- To extend the applicable period (end of March 2004) for the special measure on registration tax concerning ownership transfers in asset liquidation that uses SPCs
- To relax requirements for accounting dividends SPC pays as expenses

(5) Exemption of withholding tax in the Tokyo Offshore Market
- To make the exemption of withholding tax in the Tokyo Offshore Market a permanent measure, or at least, to extend the applicable period (end of March 2004).

(6) Tax exemption for interest accruing from repurchase transactions with foreign financial institutions
- To make the tax exemption for interest accruing from repurchase transactions between foreign financial institutions and specified financial institutions a permanent measure, or at least, extend the applicable period (end of March 2004)

(7) Expansion of tax exemption measures for bonds held by non-residents
- To make TBs and FBs that foreign corporations or qualified foreign investment trust funds acquire via qualified foreign intermediaries tax free
- To discharge custodian banks located in Japan from engaging in separate bookings by individuals when non-residents acquire JGBs via qualified foreign intermediaries
- To eliminate taxes on bond interest other than JGBs that non-residents receive via the transfer system

3. Invigorating the economy and rationalizing taxation
(1) Expansion of favorable treatment to facilitate housing investment
- To further expand existing measures, or at least, extend the applicable period (end of December 2003)
- To make interest on housing loans deductible from income

(2) Review of land taxation
- To make property tax more aligned with (indexed to) land prices

(3) Review of registration tax
- To lessen and simplify the registration tax, by making it a low flat rate tax. (In particular, to lessen the registration tax concerning mortgage transfers to help develop the loan market)

(4) Review of stamp tax
- To lessen and simplify the stamp tax so that financial transactions are not hampered. (In particular, to lessen the stamp tax on bills and promissory notes to help ease the burden on corporate finance)

(5) Securing a balance in taxation between various financial assets
- To realize simple and fair taxation in taxing financial assets incomes. (This will also preserve neutrality of taxation between various financial products)

4. Securing a proper management environment
(1) Review of consolidated taxation
- To abolish additional taxes in consolidated accounting
- To introduce appropriate measures for revaluating the assets of new entrants to consolidated taxation groups at market value, so as not to hamper reorganization of financial institutions
- To ease restriction on the use of carried forward losses when bank holding companies adopt consolidated taxation

(2) Review of taxation concerning reorganization
- To extend the applicable period (end of March 2004) of the special measure that allows bank holding companies to not include dividends they received in profits and ease concerned requirements
- To eliminate the registration tax for mortgage transfers accompanying partitioning/merging of financial institutions, or at least, reduce said tax for partitions to the same level as mergers

(3) Review of foreign tax exemption system
- To extend the carry-forward period (currently 3 years) for the maximum amount of foreign tax exemption and tax amount of eligible foreign corporations
- To expand the scope of eligible companies for indirect foreign tax exemption to include tertiary subsidiaries and beyond
- To deduct "profits that do not constitute profits payable as dividends" when computing undisposed taxable income in tax haven taxation