2007 Tax Reforms Relating To Corporate Reorganization

On December 14, 2006, a summary paper of the tax reform for the 2007 fiscal year (the “Summary Paper”) was released by the Japanese government. A draft bill of the tax reform was submitted to the Diet for approval in February, 2007.

Among the proposed tax reforms, an amendment to the tax qualified corporate reorganization rule is likely to draw attention of both Japanese and non-Japanese corporate investors.

New Corporation Law rules relating to corporate reorganizations will become effective on May 1, 2007. These rules will allow more flexibility for corporations carrying out merger and acquisition transactions and will enable foreign investors to acquire a Japanese target via the so-called "triangular merger". According to the Summary Paper, it is proposed that a corporate reorganization solely for shares of the parent corporation (domestic or foreign) of the Japanese acquiring corporation, will be treated as tax qualified to the extent that (1) the parent directly owns and will