66. Revision to Deemed Dividend Calculation in 2022 Tax Reform in Japan みなし配当の計算の見直し（2022年度税制改正大綱）

みなし配当の計算の見直し（2022年度税制改正大綱）について英語でまとめました。

The below provides an overview of a revision in the 2022 tax reform in Japan to the calculation of a deemed dividend resulting from return of capital. 

See this post for more about Japanese tax and accounting.

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In the 2022 tax reform, Japan has proposed to limit the maximum reduction in paid in capital ("PIC") for tax purposes ("Tax PIC") if a distribution is made out of both earnings and capital to the decrease in APIC for accounting purposes ("Accounting APIC") due to the distribution. This is intended to prevent the portion of the distribution paid out of earnings from being treated as return of capital where the payer has negative retained earnings for tax purposes ("Tax RE) immediately before the distribution.

The amount of a deemed dividend related to return of capital ("ROC") will be calculated as follows: 

Deemed dividend = Distributed amount – Tax PIC attributable to ROC

Tax PIC attributable to ROC

= Tax PIC before ROC x Decrease in APIC due to ROC / (Accounting PIC + Accounting RE*) x Ownership %
* The sum of Accounting PIC and Accounting RE is the book value of net assets.

Notes (Source: National Tax Agency)

• Japan has two types of PIC, i.e., Tax PIC (or "shihonkin tou no gaku") and Accounting PIC, and these two could be different.
• Japan has two types of retained earnings ("RE"), i.e., Tax RE and Accounting RE, and these two could be different.   

To see the structural comparison between owner's equity for Japanese accounting/tax purposes and that for US GAAP purposes, read this post. 

Original Japanese (Source: FY 2022 Tax Reform Proposals):

資本の払戻しに係るみなし配当の額の計算の基礎となる払戻等対応資本金額等及び資本金等の額の計算の基礎となる減資資本金額は、その資本の払戻しにより減少した資本剰余金の額を限度とする。

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