2023.11.06

2022 (Gyo-Hi) 228

Minshu Vol. 77, No. 8

(Civil Case)Judgment concerning the case in which the Court ruled that the determination by the court of prior instance that denied the applicability of Article 39-16 of the Order for Enforcement of the Act on Special Measures Concerning Taxation (prior to the amendment by Cabinet Order No. 114 of 2017) is illegal

Case seeking revocation of dispositions of reassessment of corporation tax, etc.

Judgment of the Second Petty Bench, partially quashed and decided by the Supreme Court, partially dismissed with prejudice on the merits

Tokyo High Court, Judgment of March 10, 2022

1. In the case where preferred equity securities issued by specified foreign subsidiaries, etc. related to a domestic corporation were redeemed before the end of the business year of the specified foreign subsidiaries, etc., and as a result, the issued shares, etc. of the specified foreign subsidiaries, etc. that remained as of the end of their business year were only the common shares held by the domestic corporation for which payment of dividend of surplus, etc. was not scheduled, given the circumstances described in the judgment, such as that there was room to take such measures as setting the last day of the business year of the specified foreign subsidiaries, etc. as the day preceding the day of redemption of the preferred equity securities, the determination by the court of prior instance that denied the applicability of Article 39-16, paragraph (1) of the Order for Enforcement of the Act on Special Measures Concerning Taxation (prior to the amendment by Cabinet Order No. 114 of 2017) is illegal due to the errors in the interpretation and application of Article 66-6, paragraph (1) of the Act on Special Measures Concerning Taxation (prior to the amendment by Act No. 4 of 2017).

2. A person who has filed a request for reassessment under Article 23, paragraph (1) of the Act on General Rules for National Taxes after a disposition of reassessment to increase the amount of tax was issued and has received a disposition of notice to the effect that there is no reason for reassessment has the benefit of an action to seek the revocation of the disposition of notice.

(There is a concurring opinion regarding 1.)

(Concerning 1) Article 66-6, paragraph (1) of the Act on Special Measures Concerning Taxation (prior to the amendment by Act No. 4 of 2017), Article 39-16, paragraph (1) of the Order for Enforcement of the Act on Special Measures Concerning Taxation (prior to the amendment by Cabinet Order No. 114 of 2017)

(Concerning 2) Article 9, paragraph (1) of the Administrative Case Litigation Act, Article 23, paragraphs (1) and (4) of the Act on General Rules for National Taxes

1. (1) Paragraphs 1 to 3 in the main text of the judgment in prior instance are quashed.

(2) The appeal to the court of second instance filed by the appellee of final appeal is dismissed.

(3) The claims filed by the appellee of final appeal through expansion in the prior instance are dismissed.

2. The incidental final appeal is dismissed.

3. The court costs for the prior instance and this instance shall be borne by the appellee of final appeal.

I. Outline of the case

1. The appellee of final appeal, which is a domestic corporation, filed returns for corporation tax and local corporation tax (hereinafter referred to as "corporation tax, etc.") for the business year or taxable business year from April 1, 2015, to March 31, 2016 (hereinafter collectively referred to as the "Business Year"). The administrative agency reaching the dispositions issued dispositions of reassessment to increase the amounts of corporation tax, etc. and dispositions of assessment and determination to impose penalty tax for understatement to the appellee, on the grounds such as that, under the provisions of Article 66-6, paragraph (1) of the Act on Special Measures Concerning Taxation (prior to the amendment by Act No. 4 of 2017; hereinafter referred to as the "Special Measures Act"), the amounts equivalent to the taxable amounts specified in 2. below regarding the appellee's subsidiaries established in the Cayman Islands, namely, MHBK Capital Investment (JPY) 4 Limited and MHCB Capital Investment (JPY) 4 Limited (hereinafter collectively referred to as the "Subsidiaries"), should be included in the amount of gross profits in the calculation of the amount of the appellee's income for the Business Year. In addition, the appellee filed requests for reassessment of corporation tax, etc. for the Business Year, but was given dispositions of notice by the administrative agency reaching the dispositions to the effect that there was no reason for reassessment (hereinafter referred to as the "Dispositions of Notice").

In this case, the appellee sues the appellant of final appeal to seek the revocation of part of the abovementioned dispositions of reassessment to increase the amounts of tax (as partially revoked by the dispositions of reassessment to decrease the amounts of tax referred to in 3. (3) B. below), the abovementioned dispositions of assessment and determination (as partially revoked by the decisions to change referred to in 3. (3) B. below), and the Dispositions of Notice.

2. The provisions of the related laws and regulations are as follows.

Article 66-6, paragraph (1) of the Special Measures Act (hereinafter referred to as the "Provision on Delegation to Cabinet Order") provides that where a specified foreign subsidiary, etc. of a domestic corporation set forth in the items of the same paragraph retains an eligible amount (an amount adjusted as prescribed on the basis of the base income amount) for each business year, an amount equivalent to the amount which is a part of the eligible amount and is calculated pursuant to the method specified by Cabinet Order as an amount corresponding to the number of shares, etc. of the specified foreign subsidiary, etc. held by the domestic corporation through direct and/or indirect ownership, while taking into consideration the contents of the claims (meaning a claim to demand dividend of surplus, etc., distribution of property and any other economic benefit; the same applies hereinafter) vested in such shares, etc. (meaning shares or capital contributions; the same applies hereinafter) (such part of the eligible amount is hereinafter referred to as the "taxable amount") is to be included in the amount of gross profits in the calculation of the amount of the domestic corporation's income.

Based on this provision, in the Order for Enforcement of the Act on Special Measures Concerning Taxation (prior to the amendment by Cabinet Order No. 114 of 2017), Article 39-16, paragraph (1) (hereinafter referred to as the "Provision in the Enforcement Order") provides that the amount calculated pursuant to the method specified by Cabinet Order as prescribed above is the amount calculated by multiplying the eligible amount of the relevant business year of the specified foreign subsidiary company, etc. by the ratio of the shares, etc. held in consideration of the claims regarding the specified foreign subsidiary company, etc. which are held by the domestic corporation as of the end of the relevant business year out of the issued shares, etc. of the specified foreign subsidiary company, etc. as of the end of the relevant business year (hereinafter referred to as the "ratio of shares, etc. held in consideration of the claims). The shares, etc. held in consideration of the claims mean the number or amount, etc. of shares, etc. of a foreign corporation directly held by a domestic corporation, and if the foreign corporation issues shares, etc. in which different claims are vested, the number or the amount, etc. calculated by multiplying the issued shares, etc. of the foreign corporation by the ratio of the amount of dividend of surplus, etc. that the domestic corporation can receive based on the claims out of the total amount (paragraph (2), item (i) of the same Article).

3. The outline of the facts lawfully determined by the court of prior instance is as follows.

(1) Fund procurement by the appellee

a. The Subsidiaries are foreign corporations established in 2008 based on the laws of the Cayman Islands, and they are specified foreign subsidiaries, etc. of the appellee (former trade name: Mizuho Corporate Bank, Ltd.; this bank, and Mizuho Bank, Ltd., which was taken over by the former through an absorption-type merger, are hereinafter collectively referred to as the "appellee").

Mizuho Capital Investment (JPY) 4 Limited (hereinafter referred to as "MCI") is a foreign corporation established in 2008 based on the laws of the Cayman Islands, and all of the common shares it issued were held by Mizuho Financial Group, Inc.

b. On December 29, 2008, MCI issued 3,550 units of preferred equity securities at a face value of 100 million yen (hereinafter referred to as "MCI preferred equity securities") and sold them to investors. On the same day, the Subsidiaries issued a total of 3,550 units of preferred equity securities at a face value of 100 million yen (hereinafter referred to as the "Preferred Equity Securities"), and MCI purchased all of the Preferred Equity Securities, using the funds procured by issuing MCI preferred equity securities. In principle, holders of the Preferred Equity Securities had the right to receive dividends in preference to common shareholders but had no voting right.

On the same day, the Subsidiaries lent money to the appellee in the form of a subordinated loan (hereinafter referred to as the "Subordinated Loan"), using the funds procured by issuing the Preferred Equity Securities. The period of accrual of interest on the Subordinated Loan was to end on the day preceding the day of payment of dividends on the Preferred Equity Securities and MCI preferred equity securities. Almost all of the interest on the Subordinated Loan was supposed to be appropriated for paying dividends on the Preferred Equity Securities, and it was not scheduled that any profit would be retained in the Subsidiaries or that any dividends would be paid for common shares issued by the Subsidiaries.

(2) Redemption of the Preferred Equity Securities, etc.

On June 30, 2015, the Subsidiaries received the full repayment of the Subordinated Loan from the appellee, and using the repaid amount, they redeemed the Preferred Equity Securities by remitting to MCI the equity investment and dividends related to the Preferred Equity Securities. As a result, the issued shares, etc. of the Subsidiaries that remained as of the end of their business year from December 30, 2014, to December 3, 2015 (hereinafter referred to as the "Subsidiaries' Business Year") were only the common shares held by the appellee.

(3) Process of taxation, etc.

a. The appellee filed returns for corporation tax, etc. for the Business Year, based on the understanding that the ratio of the shares, etc. held in consideration of the claims regarding the Subsidiaries which were held by the appellee out of the issues shares, etc. of the Subsidiaries as of the end of the Subsidiaries' Business Year (hereinafter referred to as the "Ratio of the Shares, etc. Held in Consideration of the Claims") was 0% and therefore that the taxable amount for the Subsidiaries' Business Year was 0 yen.

b. As of November 7, 2017, regarding the appellee, the administrative agency reaching the dispositions issued dispositions of reassessment to increase the amounts of corporation tax, etc. and dispositions of assessment and determination to impose penalty tax for understatement, on the grounds such as that the Ratio of the Shares, etc. Held in Consideration of the Claims was 100% and therefore the whole of the eligible amount regarding the Subsidiaries should be the taxable amount. Subsequently, as of July 29, 2019, regarding the appellee, the administrative agency reaching the dispositions issued dispositions of reassessment to decrease the amounts of corporation tax, etc. and decisions to change penalty tax for understatement (hereinafter the abovementioned dispositions of reassessment to increase the amounts of corporation tax, etc. as partially revoked by the abovementioned dispositions of reassessment to decrease the amounts of corporation tax, etc. are referred to as the "Dispositions of Reassessment to Increase the Amounts of Tax," and these dispositions and the abovementioned dispositions of assessment and determination as partially revoked by the abovementioned decisions to change are collectively referred to as the "Dispositions of Reassessment to Increase the Amounts of Tax, etc.").

c. Due to the abovementioned dispositions of reassessment to decrease the amounts of corporation tax, etc., as of January 27, 2021, after the conclusion of oral arguments in the first instance of this case, the appellee filed requests under the provisions of Article 23, paragraph (1), item (i) of the Act on General Rules for National Taxes to the effect that the amounts of corporation tax, etc. based on the Dispositions of Reassessment to Increase the Amounts of Tax should be reassessed to be below the amounts stated in the returns because the appellee overstated the amounts of payable corporation tax, etc. as a result of miscalculating the tax credits for corporation tax, etc. in the returns filed as mentioned in A. above (hereinafter referred to the "Requests for Reassessment"). As of April 26, 2021, the appellee was given dispositions of notice by the administrative agency reaching the dispositions to the effect that there was no reason for reassessment (the Dispositions of Notice).

d. In the first instance of this case, the appellee sought the revocation of the portions of the Dispositions of Reassessment to Increase the Amounts of Tax which exceed the amounts stated in the returns and of the abovementioned dispositions of assessment and determination (as partially revoked by the decisions to change referred to in B. above). In the prior instance, the appellee expanded its original claims for the revocation of the Dispositions of Reassessment to Increase the Amounts of Tax, to seek the revocation of the portions which exceed the amounts stated in the Requests for Reassessment, and additionally filed an action to seek the revocation of the Dispositions of Notice.

II. Concerning the reasons for a petition for acceptance of final appeal stated by the counsel for final appeal, MUKASA Keiji, et al.

1. Under the abovementioned facts of the case, the court of prior instance ruled that the Ratio of the Shares, etc. Held in Consideration of the Claims would be 100% under the Provision in the Enforcement Order, and upheld the appellee's claims for the revocation of the Dispositions of Reassessment to Increase the Amounts of Tax, etc., by stating that there is no taxable amount in the eligible amount for the Subsidiaries' Business Year. The court of prior instance determined as summarized below.

As it was not assumed that the appellee would receive any dividend of surplus, etc. from the Subsidiaries, there is no circumstance that forms the basis for rationality of taxation on aggregated income under so-called anti-tax haven rules, which state that a domestic corporation has controlling power over its foreign subsidiary that enables it to receive dividend of surplus, etc. from the subsidiary's profit. Moreover, with regard to the tax procedures for the Subsidiaries' Business Year, the purpose of tax avoidance cannot be found, nor can any circumstance be found for objectively evaluating that tax avoidance is taking place. Accordingly, literal application of the Provision in the Enforcement Order to this case would be contrary to the purpose of the Provision on Delegation to Cabinet Order and the basic objectives of the anti-tax haven rules, and hence, the Provision in the Enforcement Order cannot be applied to this case to that extent.

2. However, the abovementioned determination by the court of prior instance cannot be affirmed, for the following reasons.

(1) In this case, an issue arises as to whether it goes beyond the scope of delegation under the Provision on Delegation to Cabinet Order to apply the Provision in the Enforcement Order under the abovementioned facts of the case. Before making a determination on this issue, the Court first examines whether the content of the Provision in the Enforcement Order generally conforms to the purpose of the Provision on Delegation to Cabinet Order.

The Provision on Delegation to Cabinet Order provides for taxation on income that is attributed to a specified foreign subsidiary, etc. under private law, by aggregating it into the amount of gross profits of a domestic corporation related to the specified foreign subsidiary, etc. The purpose of this provision may be to prevent a situation where a domestic corporation intends to avoid tax burden in Japan by establishing a subsidiary in a country or region that imposes no or extremely low tax burden on a corporation's income and carrying out economic activities via such subsidiary and having it earn income, with the aim of ensuring substantial equity in tax burden while securing clarity of the tax requirements and stability in tax enforcement.

The Provision on Delegation to Cabinet Order further provides that the taxable amount should be calculated as an amount corresponding to the number of shares, etc. of a specified foreign subsidiary, etc. held by a domestic corporation through direct and/or indirect ownership, while taking into consideration the contents of the claims vested in such shares, etc. This provision is interpreted as intending to cope with tax avoidance committed by making the ratio of dividend of surplus, etc. receivable based on the claims larger than the shareholding ratio in order to produce a gap between them.

It is considered that the reason the Provision on Delegation to Cabinet Order delegates authority to Cabinet Order to specify a method for calculating the taxable amount is that in the course of achieving the purpose described above, matters such as the base point in time for calculating the taxable amount while taking into consideration the content of the claims vested in the shares, etc. are singularly technical and detailed matters. Consequently, it is appropriate to conclude that such matters should be left to the Cabinet's discretion regarding making specialized and technical decisions.

The Provision in the Enforcement Order, which has been established through the delegation based on such purpose, specifies the base point in time regarding the Ratio of the Shares, etc. Held in Consideration of the Claims, by which the eligible amount should be multiplied, as the end of the business year of a specified foreign subsidiary, etc. Given that the Provision on Delegation to Cabinet Order emphasizes securing of clarity of the tax requirements and stability in tax enforcement and that the end of a business year is a clear and unambiguous point in time, it is reasonable to set the base point in time in the manner above regardless of individual and specific circumstances. The Provision in the Enforcement Order that specifies the base point in time as such cannot be regarded as obstructing the purpose of the Provision on Delegation to Cabinet Order.

Accordingly, it can be said that the content of the Provision in the Enforcement Order generally conforms to the purpose of the Provision on Delegation to Cabinet Order.

(2) On the premise of what is stated above, the Court next examines whether it goes beyond the scope of delegation under the Provision on Delegation to Cabinet Order to apply the Provision in the Enforcement Order under the abovementioned facts of the case.

If the Provision in the Enforcement Order is applied under the abovementioned facts of the case, despite the fact that the profits earned by the Subsidiaries in the Subsidiaries' Business Year were distributed only as dividends on the Preferred Equity Securities, the Ratio of the Shares, etc. Held in Consideration of the Claims would be 100% due to the redemption of the Preferred Equity Securities before the end of that business year, in which case the appellee would be subject to taxation on aggregated income.

However, as mentioned above, as long as it is reasonable for the Provision in the Enforcement Order to set the base point in time regardless of individual and specific circumstances, a consequence such as that above cannot immediately be the reason to consider that it goes beyond the scope of delegation under the Provision on Delegation to Cabinet Order to apply the Provision in the Enforcement Order under the abovementioned facts of the case. It should naturally be assumed that changes in the shareholder composition during the business year of a specified foreign subsidiary, etc. would cause the shareholding ratio, etc. to vary between the time of payment of dividend of surplus, etc. and the end of the business year. In addition, since the dividend of surplus, etc. that a domestic corporation receives from its foreign subsidiary is, in principle, not included in the amount of gross profits in the calculation of the amount of income of the domestic corporation (Article 23-2, paragraph (1), etc. of the Corporation Tax Act prior to the amendment by Act No. 9 of 2015), the Provision on Delegation to Cabinet Order cannot be interpreted as addressing the issue of deferment in taxation on the dividend of surplus, etc. received by a domestic corporation due to the dividend of surplus, etc. being retained by a specified foreign subsidiary, etc. Therefore, it cannot be said that a situation that is not assumed under the Provision on Delegation to Cabinet Order would occur even if the Provision in the Enforcement Order is applied without taking into consideration any individual and specific circumstances regarding dividend of surplus, etc. under the abovementioned facts of the case. Furthermore, under the abovementioned facts of the case, there was room to make the eligible amount of the Subsidiaries 0 yen by taking such measures as setting the last day of the business year of the specified foreign subsidiaries, etc. as the day preceding the day of redemption of the Preferred Equity Securities. Thus, it also cannot be said that the application of the Provision in the Enforcement Order would cause the appellee to suffer any unavoidable disadvantage.

Accordingly, it should be said that it does not go beyond the scope of delegation under the Provision on Delegation to Cabinet Order to apply the Provision in the Enforcement Order under the abovementioned facts of the case.

(3) Consequently, the determination by the court of prior instance is illegal in that it denied the applicability of the Provision in the Enforcement Order under the abovementioned facts of the case, due to the errors in the interpretation and application of the Provision on Delegation to Cabinet Order.

3. According to the above, the abovementioned determination by the court of prior instance contains a violation of law or regulation that has clearly influenced the judgment. The counsel's arguments are well-grounded as they allege this point, and the part of the judgment in prior instance which is against the appellant should inevitably be quashed. Under the abovementioned facts of the case, there are no illegal points to be found in the Dispositions of Reassessment to Increase the Amounts of Tax, etc., and hence these dispositions, etc. should be judged to be legal. It follows that the appellee's claims filed in the first instance are groundless, and therefore the judgment in first instance that dismissed these claims is justifiable and the appeal to the court of second instance filed by the appellee should be dismissed. In addition, the claims filed by the appellee through expansion of its original claims in this instance are also groundless and therefore should be dismissed.

III. Concerning the reasons for a petition for acceptance of incidental final appeal stated by the counsel for incidental final appeal, TOJI Yoshihiro, et al.

1. Under the abovementioned facts of the case, the court of prior instance ruled that since the appellee is able to seek the revocation of the portions which exceed the amounts stated in the Requests for Reassessment as part of its claims for the revocation of the Dispositions of Reassessment to Increase the Amounts of Tax, the appellee has no benefit in seeking the revocation of the Dispositions of Notice redundantly. Ruling as such, the court of prior instance found the part of the action by which the appellee seeks the revocation of the Dispositions of Notice is unlawful and dismissed it.

2. However, the determination by the court of prior instance mentioned above cannot be affirmed, for the following reasons.

(1) A disposition of notice to the effect that there is no reason for reassessment in response to a request for reassessment filed under Article 23, paragraph (1) of the Act on General Rules for National Taxes after the issuance of a disposition of reassessment to increase the amount of tax is issued after reinvestigation of the amount of tax temporarily determined by the disposition of reassessment to increase the amount of tax, after taking into account the reasons for the request for reassessment, in order to notify the taxpayer of the fact that there are no reasons to decrease the amount of tax after the issuance of the disposition of reassessment to increase the amount of tax (paragraphs (1) and (4) of the same Article). In that case, it is clear that the disposition of notice is a new disposition issued separately from the disposition of reassessment to increase the amount of tax, and it cannot be said that the disposition of notice is absorbed into, or its content is substantially included in, the disposition of reassessment to increase the amount of tax. As long as the person who filed the request for reassessment would be able to regain the possibility to receive a disposition of reassessment to decrease the amount of tax if the disposition of notice is revoked, it should be said that such person has a benefit of an action to seek the revocation of the disposition of notice.

If the request for reassessment is filed after the disposition of reassessment to increase the amount of tax was issued, as happened in this case, even if the amount of tax stated in the request for reassessment falls below the amount of tax stated in the return, the taxpayer, in an action to seek the revocation of the disposition of reassessment to increase the amount of tax, is able to seek the revocation of the portion of the disposition of reassessment to increase the amount of tax which exceeds the amount of tax stated in the request for reassessment. However, this does not immediately negate the benefit of an action to seek the revocation of the disposition of notice.

Consequently, it is appropriate to consider that the person who has filed a request for reassessment under Article 23, paragraph (1) of the Act on General Rules for National Taxes after a disposition of reassessment to increase the amount of tax was issued and has received a disposition of notice to the effect that there is no reason for reassessment has the benefit of an action to seek the revocation of the disposition of notice.

(2) According to the explanation given above, it can be said that the appellee has the benefit of an action to seek the revocation of the Dispositions of Notice, and therefore the determination by the court of prior instance that is contrary to the above must be said to be illegal due to the errors in the interpretation and application of laws and regulations.

However, as mentioned in II. above, the Dispositions of Reassessment to Increase the Amounts of Tax are legal, and as there is no dispute in this case regarding any grounds for illegality specific to the Dispositions of Notice, no reason can be found to determine that the Dispositions of Notice are illegal. Thus, the claims for the revocation of the Dispositions of Notice are groundless and should be dismissed, but due to the principle of prohibition of modifying the judgment in prior instance in a manner disadvantageous to the appealing party, there is no choice but to only dismiss the incidental final appeal. The illegality in the judgment in prior instance mentioned above does not affect the conclusion.

For the reasons stated above, the Court unanimously decides as set forth in the main text of the judgment. There is a concurring opinion stated by Justice KUSANO Koichi.

The concurring opinion by Justice KUSANO Koichi is as follows.

I agree with the court opinion, but I would like to provide a supplementary explanation below on Section II of the court opinion, from a different point of view.

1. Generally, the tax laws of Japan consist of an accumulation of articles that are so meticulous and rational as to be rare in the world, and I presume that those involved in the research and practice of tax laws would agree that this has been the foundation of public trust in the tax system and international competitiveness of Japanese companies.

However, looking into the Provision in the Enforcement Order established based on the Provision on Delegation to Cabinet Order, it is difficult to deny that the Provision in the Enforcement Order can be deemed to be somewhat less sophisticated, for the following reasons regarding a foreign corporation subject to these provisions.

(1) Where a foreign corporation paid dividend of surplus, etc. (hereinafter simply referred to as "dividend" in this concurring opinion) with the base date set as a day that is not the end of its business year, and a shareholder of the foreign corporation that received the payment of dividend (hereinafter referred to as the "receiving shareholder") is no longer the foreign corporation's shareholder as of the end of the business year that arrives immediately after the payment of dividend (hereinafter referred to as the "most recent business year end"): [i] if the foreign corporation is a specified foreign subsidiary, etc. as of the base date and the receiving shareholder is a domestic corporation related to the specified foreign subsidiary, etc. (hereinafter referred to as the "specified parent company" in this concurring opinion), although it is reasonable in light of the actual economic conditions to impose tax on aggregated income of the specified parent company by including the amount of current net profit that was used as the financial sources for the payment of the dividend (hereinafter referred to as the "amount used as the financial sources for dividend"), but a situation would arise where tax cannot be imposed on aggregated income (such a situation is hereinafter referred to as "undertaxation" in this concurring opinion); [ii] on the other hand, if the foreign corporation is a specified foreign subsidiary, etc. in the most recent business year end, but the receiving shareholder has no capital relationship with the specified parent company, it is not reasonable in light of the actual economic conditions to impose tax on aggregated income of the specified parent company by including the amount used as the financial sources for dividend, but a situation would arise where tax would be imposed on aggregated income (such a situation is hereinafter referred to as "overtaxation" in this concurring opinion).

(2) If the term "business year" is defined in the following manner in the course of establishing a provision in Cabinet Order based on the Provision on Delegation to Cabinet Order, both undertaxation and overtaxation can be avoided: if a specified foreign subsidiary, etc. pays dividend with the base date set as a day other than the last day of the period that serves as the unit for calculating its property as well as its profits and losses (hereinafter referred to as the "accounting period"), the period from the start of the accounting period until the base date for payment of dividend is to be regarded as a single business year, and the period from the day following the base date until the last day of the accounting period is to be regarded as the following business year (if payment of dividend is made several times during one accounting period with the base date set as a day other than the last day of the accounting period, the period from the day following the base date of each payment of dividend until the base date of the next payment of dividend is to be regarded as a single business year).

2. However, even by taking into account the facts mentioned above, the determination in the court opinion that the content of the Provision in the Enforcement Order generally conforms to the purpose of the Provision on Delegation to Cabinet Order (see II. 2(1)) cannot be overturned. I would like to explain the reasons for this view, dividing them into the reason that applies to the so-called anti-tax haven rules in general ((1) below) and the reason specific to the Provision in the Enforcement Order ((2) below).

(1) The anti-tax haven rules are considered to be tax-related rules created for the purpose of avoiding, to the extent possible, a situation where, with regard to Japanese companies that engage in international activities while regarding the reduction of tax burden as one of their positive behavioral principles, the amount of tax that Japan can impose on them would be less than it should be. These companies conduct transactions that are complicated, diverse and variable, and for this reason, (it may be possible as an idealistic theory but) it is practically difficult to expect to establish a tax system that could bring about a rational outcome (an outcome that results in neither undertaxation nor overtaxation) for any situation that may arise. In addition, it cannot be denied that the excessive pursuit of a sophisticated system may be undesirable from the perspective of realizing efficient and fair tax collection procedures.

(2) The general theory mentioned in (1) above is explained in detail below from the perspective of the relationship with the Provision in the Enforcement Order. Under the Provision in the Enforcement Order, the taxable amount is to be calculated using the ratio of ratio of shares, etc. held in consideration of the claims regarding a specified parent company as of the end of the business year of a specified foreign subsidiary, etc. This calculation method is sufficiently rational based on the premise of the typical practice of payment of dividend, i.e., a specified foreign subsidiary, etc. pays dividend with the base date set as the last day of its accounting period, and it is also compatible with the purpose of simplifying the tax system that is intended to realize the purpose of the Provision on Delegation to Cabinet Order. It is true that the Provision in the Enforcement Order involves a sort of problem in that it could cause overtaxation regarding a specified foreign subsidiary, etc. that has paid dividend with the base date set as a day other than the last day of its accounting period (including a foreign corporation that has become a specified foreign subsidiary, etc. by the most recent business year end after the day of payment of dividend; the same applies hereinafter). However, when to pay dividend or when to end a business year is to be a matter that can be determined substantially based on a decision by a controlling shareholder as of the time when a specified foreign company, etc. decides payment of dividend. Therefore, the occurrence of overtaxation can almost always be avoided based on the decision of a controlling shareholder at the time of the decision to pay dividend by a specified foreign subsidiary, etc. if the controlling shareholder and a person who would suffer disadvantage due to overtaxation are the same, or based on an agreement between a controlling shareholder and a person who would suffer disadvantage if they are different (it is unlikely that the parties concerned would act to avoid undertaxation in the first place, but this point does not affect the determination on this case).

3. It is an undeniable fact that overtaxation has actually occurred with regard to the profits of the Subsidiaries for the Subsidiaries' Business Year (see II. 2 (2) of the court opinion), and this situation could not have occurred in 2018, when the series of procedures, that is, the establishment of the Subsidiaries, the issuance of the Preferred Equity Securities, and the lending of money in the form of the Subordinated Loan (hereinafter referred to as the "Fund Procurement Procedures" in this concurring opinion), were conducted (under Article 39-16, paragraph (1) of the Act on Special Measures Concerning Taxation effective as of that time, an amount paid by a specified foreign subsidiary, etc. as dividend to its shareholders was not included in the amount of eligible retained income referred to in that paragraph and there was no room for that amount to be the basis of taxation on aggregated income). However, even taking into account this point, the determination in the court opinion that it does not go beyond the scope of delegation under the Provision on Delegation to Cabinet Order to apply the Provision in the Enforcement Order under the abovementioned facts of the case (see II. 2 (2)) cannot be overturned. The reasons for this view are as follows (the statements in (1) and (2) below are only intended to give sufficient reasoning in line with this case, and they do not imply that in a case where some of the following circumstances are lacking, it will naturally lead to the conclusion that it goes beyond the scope of delegation under the Provision on Delegation to Cabinet Order to apply the Provision in the Enforcement Order under the facts of such case).

(1) It is presumed that the appellee planned and executed the Fund Procurement Procedures with the intention of procuring funds for its equity capital from the international financial market while enjoying the effect of including interest payment in deductible expenses. In order for one of Japan's leading financial institutions, like the appellee, to plan the Fund Procurement Procedures, it would naturally need to research and study the tax systems of the related countries and understand their details as a prerequisite. Hence, the appellee was in the position to be expected to sufficiently investigate Japan's anti-tax haven rules, and (because it is a well-known fact that the anti-tax haven rules are frequently revised), investigate the details of the latest anti-tax haven rules as necessary even after implementing the Fund Procurement Procedures, and make reasonable changes to the rights and obligations under the Companies Act and the contract law that have been generated through the Fund Procurement Procedures, thereby continuing to pay attention so that there would be no unexpected disadvantage under tax law.

(2) The reason why there is room for overtaxation on the profits of the Subsidiaries is that, due to the amendment of the relevant provisions in 2009 along with the introduction of a system generally called exclusion from gross profits of dividends received from foreign subsidiaries, it was no longer possible to deduct dividends paid by specified foreign subsidiaries to their shareholders from the amount that serves as the basis for taxation on aggregated income (eligible amount). There were more than six years between the time when the law for this amendment came into effect and June 30, 2015, when the Preferred Equity Securities were redeemed. Moreover, since the redemption of the Preferred Equity Securities was made based on the discretionary decisions of the Subsidiaries (substantially they can be regarded as the decisions of the appellee), the appellee, in making the redemption, could have avoided taxation on aggregated income easily, without spending much expense for transactions, by considering the tax effect that would be brought about by the voluntary redemption and taking such measures as setting the last day of the business year of the specified foreign subsidiaries, etc. as the day preceding the day of redemption of the Preferred Equity Securities (see II. 2 (2) of the court opinion).

4. For the reasons stated above, I totally agree with the conclusion and reasoning of the court opinion.

Justice KUSANO Koichi

Justice MIURA Mamoru

Justice OKAMURA Kazumi

Justice OJIMA Akira