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PLC Global Finance update for August 2010: Japan
Practical Law UK Articles 2-503-1726 (Approx. 3 pages)
PLC Global Finance update for August 2010: Japan
by Atsumi & Partners
| Published on 31 Aug 2010 • Japan |
The Japan update for August 2010 for the PLC Global Finance multi-jurisdictional monthly e-mail.
Financial markets regulation
Restrictions on short selling and purchase of stocks in Japan
On 26 July 2010, the Financial Services Agency of Japan (FSAJ) decided to extend temporary measures regarding restrictions on short selling and purchases of own stocks by listed companies.
The regulatory measures on short selling of stocks
Currently, the following regulatory measures on short selling of stocks in listed companies apply in Japan:
- The uptick rule which prohibits short selling at prices no higher than the latest market price.
- The obligation of traders' to verify and/or flag suspected short sales.
- The obligation of the exchange's to make daily announcements regarding the aggregate price of short sales with a breakdown by sector.
The temporary measures on short selling of stocks
In addition to the above, the Lehman shock caused the FSAJ to implement the following temporary measures which were intended to be effective until 31 July 2010:
- A prohibition on naked short selling (in which stocks are not held at the time of sale).
- A requirement on holders of short positions of a certain level or more (generally, 0.25% or more of outstanding issued stocks) to report to exchanges through securities companies.
The temporary measures on purchase of own stocks by listed companies
Restrictions on the purchase of own stocks by listed companies were temporarily relaxed during the period from 14 October 2008 to 31 July 2010, as follows:
- The upper limit on the daily purchase volume was raised from 25% to 100% of average daily trading volume during the four weeks immediately preceding the repurchase.
- Companies were required to repurchase their own stocks during hours other than the 30 minutes immediately before the close of trading. This restriction has been lifted.
The FSAJ decided to further extend these temporary measures until 31 October 2010. This extension is expected to stabilise the capital markets in Japan.
Tax
Supreme Court of Japan decision regarding double taxation of insurance payments
A judgment delivered by the Supreme Court of Japan on 6 July 2010, regarding dual taxation on payouts under life insurance policies (where the payout is made in annual instalments rather than in a lump sum), is likely to have a substantial influence on the way insurance companies structure payouts under policies they offer.
In a recent decision of the third branch of the Supreme Court, it was held that taxation of inheritance tax imposed on the lump sum paid under a life insurance policy at the time of the insured person's death and income tax on the annual payments made to the relevant beneficiary under the policy was double taxation, and therefore in breach of Japanese tax laws. In the relevant case, the plaintiff widow received a life insurance payout in instalments and was taxed inheritance tax at the time of death and income tax on the first instalment payment. The plaintiff asserted that this was in breach of Japanese tax laws which provides that "the nation does not impose income tax on inheritance tax", and the court decided in favour of her.
The decision may have application to other similar types of insurance such as personal pension insurance and educational insurance or any other type on insurance where the payout may be paid by instalments.
In light of the Supreme Court's decision, the Ministry of Finance and the National Tax Agency have started to investigate the need to refund taxpayers for double taxation. It has been estimated that at least 200,000 such cases may exist and that approximately thirty billion yen will need to be refunded. On the other hand, the impact of the decision on other types of insurance is not entirely clear. As such, many insurance companies in Japan are reassessing the way they structure payouts to beneficiaries and the information they need to disclose to policyholders regarding tax risks.