The Japanese Financial Services Agency (FSA) has presented a tax reform proposal to the Ministry of Finance, which includes relaxing the rules for foreign tax credits in Japan.
The proposal explains that Japan typically uses the credit method to eliminate double taxation, permitting a foreign tax credit for taxes paid abroad. However, if Japan has a tax treaty with a foreign country, any foreign tax amount exceeding the limits set by the treaty is ineligible for a foreign tax credit.
This restriction remains in effect even when a tax treaty is not applicable because certain provisions have been suspended by the other country.
Therefore, it is proposed that measures be introduced to address foreign tax credits in light of the international context, aiming to prevent excessive tax burdens by offering a full foreign tax credit.
