PLC Global Finance update for December 2010: Japan

Practical Law UK Articles 1-504-2872 (Approx. 4 pages)

PLC Global Finance update for December 2010: Japan

by Atsumi & Sakai

Competition

Japan serious about promoting foreign investment into Japan

The Round-Table Conference for Promotion of Investment into Japan organised by the Ministry of Economy, Trade and Industry (METI) published its report regarding the Promotion Program for Investment into Japan (the PPIJ) on 29 November 2010.

The purpose of the PPIJ is to assure Japan's sustained growth to match the rapid growth of developing countries mainly in Asia. In order to carry out that purpose, the PPIJ suggests that Japan should share a mutual sense of crisis about the shrinking competitiveness of Japan as a business site and implement the following measures:

Attract investment from overseas strategically and intensively, and focus on developing Japan's competitive advantages to transform Japan into a business hub for Asia.
Make the business environment in Japan dramatically more attractive to foreign investors by:
- conforming corporate tax rates to international standards;
- expanding the tax convention network by entering into agreements such as Economic Partnership Agreements and Transpacific Partnerships;
- improving infrastructure particularly in relation to transportation & distribution systems; and
- relaxing the regulations applicable to the location of plants.

As for the first purpose above, the PPIJ proposes the creation of substantial incentives, such as preferential tax treatment and immigration procedures in relation to certain types of approved companies in relation to the setting up of Asian headquarters and R&D functions in Japan. In addition, a more specific program for the transformation of Japan into a hub in Asia will be published in the summer of 2011.

As for the second purpose shown above, the PPIJ makes a number of notable proposals in relation to reforms of the relevant systems:

As for reform of corporate taxes aiming at the international standard, the PPIJ has proposed that it be discussed by the government and this is currently occurring.
As for expansion of the tax convention network, the PPIJ proposes the dissolution of double taxation through the introduction of an arbitration system.
As for improvements to transportation & distribution systems and other infrastructures, the PPIJ makes three notable proposals as below.

Strategic open skies to facilitate international distribution

Japan should remove certain obstacles that add to the cost of using airports in Japan so that hub airports in Japan can play a role as cargo hubs for the airports of other countries.

Easing of various regulations related to charter flights

In order to enable Japan to enter into open skies agreements with various countries (recently Japan entered into a memorandum of understanding with the USA regarding an open skies agreement) various regulations regarding forwarder charter services should be eased.

Strengthening of international competitiveness of strategic seaports

Japan should streamline trade procedures to match those applied by other countries by abolishing "the rule of bonded installation", which requires installation of freight in a bonded area before export declaration, in order to decrease export-related costs and lead times.
Japan should lower port costs, which are more expensive than ports in other countries.
Japan should extend the operating hours of port gates.
Japan should lower costs by promoting the sharing of wharf facilities and workers among terminals.

As for relaxation of regulations regarding plant location, the PPJ suggests reform of environmental laws so as to prevent other countries from experiencing "carbon leakage".

Financial markets regulation

Japan's Financial Services Agency provides detailed rules on centralised clearance of OTC derivatives, consolidated-basis supervision of securities companies and other rules

On 22 October 2010, Japan's Financial Services Agency (the JFSA) published draft amendments to regulations made under the Financial Instruments and Exchange Act (FIEA) which seek to implement the aim of:

Centralising the clearance of OTC derivatives.
Securities companies being supervised on a consolidated basis.

The amendments were open to public comment (those comments are now being reviewed by the JFSA) and will come into effect on 1 April 2011.

With regards to centralising the clearance of OTC derivatives, the amendments provide that:

A domestic clearance institution is required to maintain minimum capital of one billion yen.
A foreign clearance institution needs to have three years of experience in providing clearance services in order to be authorised to provide clearance services, directly or in co-ordination with a domestic clearance institution, for Japanese financial institutions.

As regards consolidated-basis supervision of securities companies, the amendments provide that a securities company with total assets of one trillion yen shall be subject to consolidated-basis supervision; and sets out details of the items required to be reported and the forms to be used for reporting purposes.

Other amendments include:

Widening the scope of Investment Management Business (a type of Financial Instruments Business which requires the holding of a Financial Instruments Business license) to include the acceptance of funds which are then invested in foreign investment trusts.
Prohibitions on the solicitation of individuals to enter into OTC derivatives unless requested.
Expanding the scope of derivatives (which are subject to regulation under FIEA) to include derivatives where the underlying comprises real estate prices or indices based thereon provided by administrative bodies or municipal governments.

PLC Global Finance update for December 2010: Japan | Practical Law