Earnings stripping rules were introduced in 2012 with the aim of preventing tax avoidance by limiting the deductibility of interest paid to related persons where it is disproportionate to income. Under the rules, if ’Net Interest Payments to Related Persons’ exceed 50 percent of ‘Adjusted Taxable Income’, the excess portion is disallowed. See Chapter 4 for further information on the above rules.
1.8.13 Translation into Japanese Currency (Yen) of Assets/Liabilities in Foreign Currencies With respect to foreign currency receivables and payables, a company may select either: (i) the method of translation based on the exchange rate at the time such receivables or payables were created, or (ii) the method of translation based on the exchange rate at the end of each fiscal year. The default translation method for short-term receivable/payable is (ii) while that for long-term receivable/payable is (i). If a company wishes to select a non-default translation method, the company is required to submit a report on the selected method of translation to the tax authorities by the due date of the first relevant corporation tax return. If a company wishes to change the method, an application is required to be filed for approval by the chief of the tax office prior to the commencement date of the fiscal year in which the change is to be effected. If a company has a forward contract on receivables and payables in foreign currencies at the end of a fiscal year, the Yen amount fixed under such forward contract is generally used for translation purposes instead of the Yen amount translated at historical exchange rates or the spot rates at the end of the year. If this is the case, exchange gains and losses caused by application of a forward exchange rate are generally dealt with as follows: -
If a forward contract is concluded before a transaction, the difference between the forward rate and the spot rate at the 28