We reported in our homepage on March 30 about the system of dividends received from foreign subsidiaries which could not be included in taxable income. This new system has made an impact on whether or not foreign income withholding tax should be deductible in the calculation of the corporation enterprise tax. This system allowed that 5% of dividends received from foreign subsidiaries are included to taxable income. According to the theory, it is not unusual to think that the withholding tax imposed on dividends received from foreign subsidiaries should be deductible from taxable income. However, this foreign withholding tax should not be deductible from taxable income, complying with the Corporation Tax Law. It is concluded that this foreign withholding tax is not deductible even though the 5% of the dividends received from foreign subsidiaries can be included to taxable income. So, we need to be more careful of this matter.
An accounting standard of asset retirement obligation has been newly applied since April 1st, 2010, and its amount recorded as debt is discounted to the present value on accounting basis. However, since tax law adopts the defined obligation principle, the interest generated by the obligation is not deductible from taxable income. Therefore, we need to pay attention to the treatment of addition on the attached sheet of tax return and tax effect accounting when we consider the application of this accounting standard. On the other hand, we consider that the tax system requires some revision in order to step closer towards the accounting.
Accounting Standards Board of Japan (ASBJ) renewed the schedule of an announced project on 12th April, 2010, in which they renew accounting standards. Renewal took place only once in a year, but from now more frequent renewals are planned whenever necessary, reflecting acceleration of convergence on accounting standards.
Standards to be renewed in this year are business combination, ntangible assets, presentation of financial statements (comprehensive profit), fair value, retirement benefit, and earnings per share. Continuing renewal projects in and after the next year are 15, including emission credit which has been newly added. There are still many issues left to argue.
Accounting standards and information for disclosure are expected to become more complicated in the future.
Considering the situation where it stays difficult for those who passed the CPA exams to get a job in general companies (not in audit corporations or accounting firms), we are wondering if individual investors and related parties will get well informed of those renewals.
On March 17, 2010, Accounting Standards Board of Japan decided to abolish the Accounting Standard, its Implementation Guidance and Practical Solution 26 on tentative treatment of change in category of bonds on March 31, 2010, which was an application deadline.
In the context of crisis in financial markets since fall in 2008, International Accounting Standards Board announced the change in category of financial assets. Accordingly, a tentative treatment of change in bonds had been announced. However, as few application of this had been seen and necessity of this application is low under this economic condition, they came to conclusion of this abolition.
Besides, when the category was changed, a note of additional information on its change was required as long as the balance existed even after the fiscal year when the change was made.
However, this note will be unnecessary after the application deadline.
Due to this abolition of tentative treatment, it will not be allowed to change in category of bonds categorized in “marketable securities” into “securities held to maturity”.
On November 28, 2008, the Accounting Standard 20 (an accounting standard regarding disclosure of market value of investment properties) and the Accounting Standards Implementation Guide 23 (the accounting standards implementation guide regarding disclosure of market value of investment properties) were publicly announced. As a principle, these will be effective from the fiscal year ended fter March 31, 2010.
The purpose of this enforcement is to convert Japanese accounting standards to IFRS in terms of transactions of investment properties. According to this accounting standard, investment property is considered as a property held to earn rentals or capital appreciation, and you have to express the information of market value in notes of the financial statements while the amount recorded in the balance sheet is based on cost method.
Idle properties and parking lots charging by hour are within scope of investment property while hotels owned for operation are not.
The market value shown in notes is an amount based on observable market price. If the observable market price is not available, it is permitted to use the amount reasonably estimated as a note.
Due to the newly amended taxation system in the fiscal year ended 31 March, 2009, dividends received from foreign subsidiaries are excluded from taxable income. The followings are the notes to be primarily considered on whether this system should be applied to your case.
(1) Fiscal year of a parent company receiving dividend from its foreign subsidiaries should begin on or after 1 April, 2009.
(2) The resolution date on distribution of dividend should begin or after 1 April, 2009.
According to Corporation Tax Law Basic Interpretive Regulation (CTLBIR) 2-1-27, a parent company should record dividend income on the date when foreign subsidiaries make a resolution to distribute dividend. Therefore, in the case the resolution is made on or before 31 April, 2009, you have to be careful because this taxation system can not be applied, even though the parent company receives dividend from its foreign subsidiaries on 1 April, 2009.
As CTLBIR 2-1-28 permits you to record dividend income on its payment date, you have to examine carefully whether or not this taxation system is applicable as well as how to record dividend received.
Revisions of Group Corporation Tax Act are currently being prepared. One of them is related to Special Application by Small and Medium Enterprises (SME). Today’s act allows this Special Application for SME to be applied by corporations whose shareholder’s equity is not greater than 100 million yen, and applicants are benefited from five special treatments such as reduced tax rate. However, after this revision in effect from 1st April 2010, these corporations mentioned above will not be allowed to have an access to the Special Application for SME if they are subsidiaries wholly owned by a parent company whose shareholder’s equity is not less than 500 million yen.
Therefore, you would like to pay attention to whether your fit this case.
An exposure draft of revised auditing standards of Japan was announced by Business Accounting Council of Japanese Financial Services Agency on 5th March, 2010, and it will only be public until 19th March, 2010. The main purpose of this revision is to coordinate Japanese auditing standards with international ones and to improve clarity of audit reports. The revised standards are expected to be effective from the next audits of companies for the year ended 31 March, 2012.
There are three categories in the standards; introduction, summary, audit opinion category, and there has been a change in the “summary” category. This hasbeen clearly divided into another two categories, “manager’s responsibility” and “auditor’s responsibility.” Other changes can be seen in contents of notes.
Changes mentioned above would not affect workload of audited companies nor of auditors, while contents of “retrospective application of accounting standards” announced along with the above changes will do. Therefore, we would like to keep a close eye on this matter.
