The Japanese government is reportedly considering a proposal to effectively defer indefinitely the corporate tax on gains from companies’ sales of non-core businesses. The measure would be conditional on reinvesting the sale proceeds within several years in acquisitions related to the core business.
The Japanese government is pursuing a proposal to effectively defer indefinitely the approximately 30% corporate tax imposed on profits from the sale of non-core businesses, with the aim of accelerating corporate restructuring and industrial realignment.
Specifically, the deferral would apply on the condition that the sale proceeds are reinvested within several years in acquisitions related to the core business, and that the acquired businesses are also funded.
The proposal is intended to remove obstacles to disposing of non-core businesses and reallocating capital to growth sectors. It is seen as potentially improving the situation in which Japan’s large conglomerates continue to hold non-core businesses. Reuters has pointed to the potential for correcting inefficient capital allocation. Requirements that have yet to be defined and the timing of implementation are expected to be adjusted going forward.
If the tax reform is enacted, Japan’s mergers and acquisitions market is expected to receive a further boost. Statistics showing that the value of M&A transactions involving Japanese companies expanded significantly last year have also been cited as background. The proposal is expected to be included in the tax reform request by the end of this month.