Tax Effective Cross Border Finance - IPBA 2012

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New Japanese Participation Exemption Regime Under 2009 Tax Reform• Worldwide Taxation of Repatriated Profits. JCo is generally subject to Japanese taxon dividends from foreign subsidiary companies.• New Participation Exemption. From April 1, 2009, JCo may claim a 95% deductionfor repatriated profits from ≥25%-owned foreign subsidiaries.• ≥25%-Ownership (Participation). ≥25% participation is generally based on voting control or number ofshares. The 25% threshold may be reduced under an applicable tax treaty.This is MoFo. 4
Application of Participation Exemption – ETR of 2%No Participation ExemptionNew Participation ExemptionJ-CO(Japan)Income 595Tax (175)*Net 420J-CO(Japan)Income 700Tax (14)*Net 686JapanJapan100%Dividend 700WHT (0)Net 686Germany10%Dividend 700WHT(15%) (105)Net 595NetherlandsGermanyHoldCo(Netherlands)10%Dividend Income 700Tax (0)Net 700Dividend 700WHT (0)Net 686SubCo(Germany)Business Income 1,000Tax (300)Net 700SubCo(Germany)Business Income1,000Tax (300)Net 700BusinessBusiness*175 = (595+105) x 40% - 105 : As the ownership percentage is less than 25%, theParticipation Exemption is not applicable (and thus JCo can claim a credit for foreignwithholding tax).* 14 = 700 x 5% x 40%: As the ownership percentage is 25% or more, theParticipation Exemption is applicable.This is MoFo. 5
Page 1 and 2: © 2011 Morrison & Foerster LLP | A
Page 3: Tax Planning - Japan Corporates•
Page 7 and 8: Reduction of Withholding Tax on Div
Page 9 and 10: Using Holdco - Beware of Japanese A
Page 11 and 12: Regional Headquarter Company Singap

Tax Effective Cross Border Finance - IPBA 2012

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