Income tax and incentives for corporate transactions: A Japanese perspective

Tetsuya Watanabe*

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

There are many transactions between a corporation and its stakeholders (i.e. shareholders, employees, creditors, directors, and so on). In many cases, the tax burden cannot be ignored. The Companies Act is a national-level (not a state or other local) law in Japan. The Income Tax Act (ITA) and Corporate Tax Act (CTA) are also national-level laws. Accordingly, tax rules may have an effect on corporate transactions that are also governed by the Companies Act. So there may be an incentive to arrange transactions in such a way that the tax burden could be mitigated. Even if corporate law and tax law were not the same level of law, tax rules would have an effect on incentives in corporate transactions. For example, bond interest is generally deductible by the issuing corporation (CTA. Art. 22(3)) but any dividend payment is non-deductible (CTA. Art. 22(5)). Accordingly, there is an incentive to prefer debt financing for corporations compared with equity financing. The purpose of this chapter is to consider whether the tax rules that provide an incentive or disincentive for corporate transactions are desirable or not as a matter of legislation. In other words, how should corporate law and tax law live together in the real world of business?.

Original languageEnglish
Title of host publicationEnterprise Law
Subtitle of host publicationContracts, Markets, and Laws in the US and Japan
PublisherEdward Elgar Publishing Ltd.
Pages289-301
Number of pages13
ISBN (Electronic)9781781004456
ISBN (Print)9781781004449
DOIs
Publication statusPublished - 2014 Jan 1

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • General Business,Management and Accounting
  • General Social Sciences

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