The Study on Future Directions of Tax Treaty Policies on Cross-border Corporate Reorganizations in Japan : Focusing on Reorganization Clauses in Bilateral Tax Treaties

The Japanese tax system of corporate reorganizations was introduced in the FY 2001 Tax Reform Act to respond to structural changes in the Japanese economy. Its main feature is the deferral of income taxation on the transfer of assets, etc., arising from mergers and other reorganizations, under certain conditions (such as Article 62-2 of the Corporation Tax Act Hojin Zei Ho (CTA)). The FY 2007 Tax Reform Act added so-called international triangular mergers as qualified corporate reorganizations (such as Article 2(ⅻ)-8 of the CTA). The application of the Japanese tax system of cross-border corporate reorganizations (hereinafter referred to as JTSCCR) is currently restricted because the general view of the Japanese Companies Act states that direct reorganizations between domestic corporations and foreign corporations are not possible. As mentioned above, such application, however, has been gradually expanded within the limits of the Japanese Companies Act. In my opinion, discussions on the potential expansion of the JTSCCR are still considered to be at the level based on domestic tax law at this time, except for reorganization clauses in some tax treaties. This article analyzes and examines reorganization clauses in bilateral tax treaties (hereinafter referred to as reorganization clauses), as highlighted by Professor Domingo Jesús Jiménez-Valladolid de l'Hotellerie-Fallois. This article concludes that utilizing reorganization clauses as an option for tax treaty policies can break through discussions that have so far remained at the level based on domestic tax law. It's worth noting that this article is expected to not only trigger discussions on reorganization clauses in Japan but also encourage debates on the JTSCCR, highlighting its academic significance. Furthermore, such academic significance is anticipated to lead to prospective increases in trade or investment through corporate reorganizations between contracting states in bilateral tax treaties, underscoring its economic significance.