Japan Legal Update | Vol. 32

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Tax

Outline of Japan's 2018 Tax Reform Proposal (International Taxation)

On December 22, 2017, the Japanese Cabinet approved the 2018 Tax Reform Proposal. With respect to international taxation, the following are two key amendments to provisions concerning permanent establishments ("PEs"):

1. The definition of "PE" will be revised to prevent companies from artificially avoiding being treated as having a PE. For example, under the revised definition, a person who habitually plays the principal role leading to the conclusion of contracts in Japan on behalf of a foreign enterprise, and who satisfies certain other requirements, will be treated as a PE for that foreign enterprise, even if the person is not authorized to conclude contracts in Japan. In addition, places of business used solely for such activities as storage, display, and delivery will not constitute PEs as long as such activities are "of a preparatory or