The ruling coalition (the Liberal Democratic Party and New Komeito) agreed on an outline of the 2009 tax reform proposals (“Proposal”) on December 12, 2008. We have set out below the main points of the outline. The details of the Proposals will come out in the bills amending the tax laws and the cabinet orders and ministerial orders, which will be issued next year. Please note that the final tax reform could differ from the Proposals detailed in this newsletter depending on the results of discussions in the Diet.

Outline of the 2009 Tax Reform Proposals

I. International Taxation

1. Introduction of the Foreign Dividend Exclusion (FDE) System

2. Foreign Tax Credits (FTC)

3. Tax Haven Rules (Japanese CFC Rules)

4. Foreign Partners of Investment Funds

5. Redemption Income of Original Issued Discount (OID) Bonds (Waribikisai)

II. Corporate Taxpayers

1. Favorable Tax Treatment for Small and Medium-sized Companies

2. Valuation Methods for Inventory

3. Tokutei Mokuteki Kaisha (TMK)

III. Individual Taxpayers

1. Special Tax Credits for Housing Loans

2. Deduction for Life Insurance Premiums

3. Contributions to Defined Contribution Pension Plans (401K Plans)

IV. Taxation of Stock Investment Income

1. Temporary Reliefs for Investment Income on Listed Shares

2. Introduction of the Tax Exemption System for Small Investments in Listed Shares

V. Taxation of Sales of Real Property

1. Introduction of Special Deduction for Long-Term Capital Gains

2. Capital Gains Rollover

3. Special Surtax on Capital Gains from Sales of Land

4. Registration Tax/Real Estate Acquisition Tax

VI. Inheritance Tax Reduction -to Promote Succession of Small and Medium-Sized Businesses

Download Newsletter - Japanese - http://www.kpmg.or.jp/resources/newsletter/tax/taxnl200812_j.pdf

Download Newsletter - English - http://www.kpmg.or.jp/resources/newsletter/tax/taxnl200812_e.pdf