1. Accounting (Source: “Keiei Zaimu Magazine”)
The Ministry of Justice convened the 14th meeting of the Legislative Council’s Corporate Law Subcommittee, at which reform of certain issues of the Companies Act such as “the role of corporate governance” and “parent-subsidiary discipline” is being studied. In this meeting, the protection of parent company shareholders (the advisability of introducing multiple derivative actions, etc.) was debated. This has become an issue in Japan after the ban on establishing pure holding companies was lifted in 1997, accelerating the formation of “business groups”. Under the existing Companies Act, derivative claims can only be brought by the direct shareholders of the company. This means that shareholders of the parent or ultimate holding company are denied the right to take legal actions against wrongdoings committed at the operating subsidiary company. In the working draft, the Subcommittee is proposing to allow “multiple derivative lawsuits” on condition that the subsidiary (a) holds a certain degree of importance in the business group and (b) is a fully-owned subsidiary of the parent. The business community is, however, voicing objections to this proposal arguing that “the rights of parent company shareholders are already sufficiently protected under the existing law”.
2. Taxation (Source: “Zeimu Tsushin Magazine”)
On November 7, the National Tax Agency published the ASMT* Directive and Administrative Guidelines with respect to the revision of transfer pricing taxation. Major issues covered are (i) considerations for applying the “best method rule” and (ii) inclusion of “disasters” as a valid reason for extending the submission deadline of transfer pricing documentation (Note: If a taxpayer, with no valid reason, fails to provide sufficient documentation in a timely manner, the tax authorities are allowed to compute arm’s-length price based on secret comparables).
*Act on Special Measures concerning Taxation
3. This Week’s Words of Wisdom (Source: English Words of Wisdom to Enrich Life)
“The greatest risk is standing still.” (anonymous)
I feel that this quote describes exactly the attitude that the Japanese government and people have today towards the country’s fiscal problem. If Japan continues on its current path, default on the national debt is just a matter of time. Everybody knows that the only option is to go ahead with drastic spending cuts and large consumption tax hikes, but politicians are shelving the problem for fear of losing elections, and the Japanese people are also shying away from reality.