Japan's government is examining a tax initiative that could reshape how companies manage non-core businesses, according to two people briefed on the matter. Under the plan being discussed, firms that sell non-core assets would be eligible to defer roughly 30% of corporate tax on the gains from those disposals indefinitely - but only if they reinvest the proceeds within several years into acquisitions that are aligned with their core operations and make a commitment to invest in those acquired businesses.
Proponents of the proposal argue it would remove a major disincentive that currently keeps non-core units tied to large conglomerates. Because gains from divestitures are taxed under current rules, companies often retain businesses that outside owners might be better positioned to manage and grow. By deferring the tax burden, the measure aims to make it easier for firms to shed non-core operations and redeploy capital toward growth areas.
The proposal is expected to be submitted as part of the tax reform requests due at the end of this month, with the finer points to be resolved before a final tax reform package for the next fiscal year is approved at year-end, one of the sources said. If enacted, the initiative could become one of Prime Minister Sanae Takaichi's most consequential efforts to advance corporate governance reform.
Officials modeling the measure drew parallels to a German tax reform enacted in the early 2000s that largely exempted corporations from taxes on gains from share disposals. That German change helped to weaken dense cross-shareholding structures and made it easier for firms to reshape business portfolios. Japanese policymakers are reportedly studying that precedent as they flesh out the proposal.
Supporters see the tax deferral as a tool to accelerate corporate restructuring and spur industry consolidation by encouraging companies to move capital into core activities. However, the measure would hinge on specific conditions - the reinvestment timeline, alignment with core operations, and commitments to invest in the acquired businesses - which will be detailed as the proposal progresses through the tax reform process.
What is known:
- The plan would defer roughly 30% of corporate tax on gains from sales of non-core businesses indefinitely, conditional on reinvestment within several years in core-aligned acquisitions and commitments to invest.
- The proposal is expected to be included in tax reform requests due at the end of the month and finalized in the tax package approved at year-end.
- Policymakers are using a German reform from the early 2000s as a model for this initiative.