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1. Accounting (Recoverability of Deferred Tax Assets)

Regarding tax effect accounting, The Business Accounting Council announced the Tax Effect Accounting in October 1998. And the Japanese Institute of Certified Public Accountants (“JICPA”) announced related accounting and audit practices’ guidance. Of these, the guidance on the Recoverability of Deferred Tax Assets were recently revised as specified in the Auditing Standard Board Report No. 66 of the JICPA: The Audit Treatment of Judgments with Regard to Recoverability of Deferred Tax Assets.
As a result, the Practical Solution on the Recoverability of Deferred Tax Assets were released.

The main revisions in it were:
(1)A change in classification of a company.
(2)A change of treatment for each classification.

This new guidance will apply from business years starting on or after April 1st, 2016.It is permissible to apply them to business years ending on or after March 31st, 2016.
They are to be treated as changes in accounting policy.

2. Tax(Outline of the 2016 Tax Reform Proposals – Documentation of transfer pricing taxation No.2)

The outline of the 2016 Tax Reform was announced last December, and businesses will newly be obligated to prepare Country by Country Reports and a Master File based on the BEPS project recommendations of the OECD.

In the meantime, the existing Transfer Pricing Documentation (Local file) was also developed by these revisions and the entries which are required to be filed with the local file of the BEPS project are also required. In addition, businesses will be obligated to complete the contemporaneous documentation which has not been required for Japan’s transfer pricing taxation in the past. This is a system requiring the preparation of the local file by the due date of final corporate tax return for each business year. This information must be retained for seven years. If the original documentation is prepared in Japan, its original should be stored in Japan.

If the original one is prepared abroad, a copy should be stored in Japan. Cases are excluded where the total transaction amount with a foreign affiliated company in previous year (in the case where there is not previous year, the current year hereinafter) is less than 5 billion yen and the cases where the total transaction amount of intangible assets with a foreign affiliated company is less than 300 million yen, however, are excluded.

Furthermore, tax will be estimated by the tax authority in cases when the Contemporaneous Documentation and the Local file are not filed within the period required by tax inspectors. This provision will apply from April 1st, 2017.

3. Labor Management(Revisions to the upper limit of Standard Monthly Remuneration and accumulated Standard Bonus Amount for Health Insurance (effective April 2016))

It has been announced that the upper limit of the Standard Monthly Remuneration for Health and Long-term care insurance will be raised from the current JPY1,210,000 (Grade 47) to JPY1,390,000 (Grade 50). The Standard Monthly Remuneration is the basis for determining the amount of insurance premiums. Due to this revision, Health and Long-term care insurance premiums will be increased for those who earn a monthly remuneration of JPY1,235,000 or more.

Also, the upper limit of the Standard Bonus Amount will be raised from the current JPY5,400,000 to JPY5,730,000. This applies if the accumulated total of the Standard Bonus Amount from April to March the following year exceeds JPY5,400,000. These revisions will come into effect from April 2016.

4. This Week’s Words of Wisdom

“Humans want to think the cause of being inferior to other people is due to misfortune, not a lack of competence.”(Plutarch)

There are many people who think that fortune has favored others over them when they envy the success of others. However, I believe that it is impossible to have continued success without competence and effort even if some have succeeded initially by good fortune.

The referring page is Nagamine & Mishima JC Accounting K.K.

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