JAPAN Law and Practice Contributed by: Eri Hirata, Takunori Kono, Naoki Matsumoto and Ikki Kawasaki, Nishimura & Asahi
contracts with regard to the Cropland Act and other relevant laws and regulations. 6.3 Due Diligence and Documentation Article 3 permission is required for ownership and leases of agricultural land, and it is necessary for a corporation to satisfy the requirements for a Corpora- tion Qualified to Own Agricultural Land in order for it to own agricultural land. Therefore, it is necessary to confirm whether entities engaged in agribusiness have obtained Article 3 permits and whether they satisfy the relevant requirements for agricultural land owner- ship. In principle, the majority of the voting rights in corporations eligible to own agricultural land must be held by agricultural workers. However, this should be confirmed, because the inheritances of agricultural workers may affect fulfilment of the requirements for agricultural land ownership and the continuity of agri- business. Since the rights in and scope of agricultural land for agribusiness are often unclear, the history of transfers of ownership of agricultural land and the status of the determination of boundaries need to be investigated. The presence or absence of stable offtakers with a certain potential sales volume and the content of rel- evant contracts should also be investigated, from the perspectives of management stability and bankability. It is also necessary to confirm that intellectual prop- erty is protected. In the context of agribusiness, if producing agricultural products linked to local natural conditions and historical and traditional conditions, it is necessary to confirm whether the geographical indi- cations (GI) for those products are protected under GI laws. If new plant varieties are created, it is necessary to confirm whether the variety is registered in compli- ance with the seed and seedling law. In addition, if the name of agricultural products is branded, trade mark registration must be confirmed, and if agricul- tural equipment and methods of cultivating and raising agricultural products are developed, patents must be confirmed. When documenting a contract, fulfilment of the requirements for agricultural land ownership is con- sidered a warranty item; the acquisition of permis-
sion and completion of registration, including Article 3 permission, is generally a prerequisite to closing, and covenants requiring lender approval are included for modification and termination of contracts that are important to agribusiness. 6.4 Legal Practice and Risk Allocation Farmland legislation and related regulations are com- plex and varied. In addition, in the conventional agri- cultural sector, financing has often been provided through the personal credit and relationships of the entity carrying out the business. In light of this, the lender’s position makes it difficult to analyse risks or to bear the risk of providing large-scale funding. Legal considerations governing deal structure and individual transactions related to agribusiness will enable the appropriate identification of risks, the reduction of risks through contractual arrangements, and the fair distribution of risks between lenders and borrowers. Agri-Legal (legal services focused on agricultural and rural law) can help identify and distribute risks in agri- business, as well as contribute to raising significant funding and increasing agribusiness activities. Under Japanese law, various taxes are levied on agri- cultural land and property interests therein, including ownership, use and transfer, in the course of agri- cultural operations. The following section provides an overview of the key tax frameworks applicable to these aspects of agricultural land management. Actual tax treatment may vary, depending on specific circumstances and any applicable special tax meas- ures. Due to the complexity of Japan’s tax system, it is strongly recommended that businesses seek advice from qualified tax professionals when planning or engaging in agricultural operations. 7. Taxation and Incentives in Agribusiness 7.1 Tax Regime for Rural Operations Taxes on Ownership and Use of Agricultural Land Owners of agricultural land are subject to fixed asset tax and, within designated city planning areas, city planning tax.
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