Changes To Permanent Establishment Allocations

Under the most recent tax reform, approved by the Diet in March, Japan has changed its general tax rules applicable to a foreign corporation having a permanent establishment in Japan ("FCPE"). Under the current Japanese domestic tax law, which adopts the "force of attraction" principle, all income arising from sources within Japan is fully taxable regardless of whether such income is attributable to the FCPE. Under the revised Japanese domestic tax law (the "New Domestic Rules"), (i) income attributable to an FCPE will be taxable regardless of the source; and (ii) income attributed to an FCPE will be calculated in line with the Authorized OECD Approach (the "AOA"). Please note that the concept of an FCPE under the Japanese domestic tax law will remain unchanged. FCPEs are generally divided into the following three categories: (i) a branch, or any other fixed place where business in Japan is conducted; (ii) a construction site or installation project; and (iii) an agent