JAPAN Law and Practice Contributed by: Jiro Mikami, Ryo Okubo, Hiromi Hattori and Tomohiro Koyasu, Nagashima Ohno & Tsunematsu
If any original copy of a loan application is issued, the same tax is applied, so the loan application is typically submitted to the lenders by facsimile or by email (on which no tax is imposed as it is a copy for the purposes of the Stamp Tax Act). For guarantee agreements, a stamp of JPY200 is required on each original copy. For securities agreements, a stamp of JPY4,000 is required on each original copy if the agreement falls under the definition of “continuous agreement” under the Stamp Tax Act. 8.2 Withholding Tax/Qualifying Lender Concepts Under Japanese domestic tax laws, interest payable by the borrower to a foreign lender is generally subject to withholding tax at a rate of 20.42%. The withholding tax may be reduced or exempted under applicable tax treaties if the conditions for treaty benefits are met. 8.3 Thin-Capitalisation Rules Japanese thin-capitalisation rules are applicable to interest that is: • paid by the borrower to its foreign controlling shareholders and certain third-party lenders (eg, those who receive financing or guaran- tees from the foreign controlling sharehold- ers); and • not subject to Japanese taxation at the hands of the recipients. A certain portion of the interest is not deduct- ible in calculating tax income if both the gross amount of debts (whether interest-bearing or not) owed by a domestic entity exceeds three times the amount of capital of the domestic entity and the gross amount of debts owed by a domestic entity to its foreign controlling shareholders and the third-party lenders exceeds three times the amount of capital of the domestic entity multi-
plied by the ownership percentage of the foreign controlling shareholders. In addition to the thin-capitalisation rules, Japa- nese tax laws also contain earning-stripping rules, which will generally deny the deduction of interest if and to the extent that the total amount of the interest that is paid to both related and third-party lenders and not subject to Japanese taxation at the hands of the recipients exceeds 20% of earnings before interest, taxes, depreci- ation and amortisation (EBITDA) of the domestic entity as calculated for this purpose. Certain industries such as financial services, aviation, transportation, telecommunications, broadcasting companies, securities exchanges and utility companies are heavily regulated in Japan. The laws that regulate these businesses often require prior approval from, or advance notice to, the regulator for a change of control or other types of acquisition. In addition, the Foreign Exchange and Foreign Trade Act (Act No 228 of 1949) (the “FEFTA” ) requires a foreign acquirer to obtain advance approval from the government and to be subject to a 30-day waiting period (unless shortened) before being able to acquire shares in a Japa- nese company whose business relates to: • national security; • public order; • public security; or • certain protected businesses (such as soft- ware, agriculture, petroleum, leather, aviation and marine transportation). 9. Takeover Finance 9.1 Regulated Targets Regulated Industries
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