The government released its 2017 tax reform plan on 8 December 2016. A tax reform bill will be prepared based on the Outline. The Bill will be submitted to the Diet and is expected to be enacted by the end of March 2017.
According to the plan, the key measures are as follows:
-The possibility of research and development credits will be expanded to a range between 6% and 14% from 8% to 10%.
-New CFC income rules have been proposed, with a foreign subsidiary being subject to CFC rules if: it fails to meet any of the economic activity tests and the foreign tax burden is less than 20%; it meets all the economic activity tests but the foreign tax burden is less than 20%. However, only certain passive income will be included as CFC income; or it is either a “paper” company, “cash-box” company or located in a blacklisted country, and has a foreign tax burden that is less than 30%.
-The definition of taxable income for non-permanent residents will be expanded and revised to “income other than foreign source income” and “any foreign source income that is paid or remitted into Japan”.
-The threshold on the lower-earning spouse’s annual income will be increased from JPY 1.03 million to JPY 1.5 million for households that are eligible to receive the special spouse tax deduction (a maximum deduction of JPY 380,000).
-The scope of the indicators for profit-linked compensation is expanded by adding an indicator for the stock market and sales. Compensations paid by the subsidiary of a publicly traded company to its directors will also be subject to this rule. Stock options are included in a deductible pre-determined compensation if certain requirements, such as an issuance of the fixed number of the stock option at the predefined time, are met.