Japanese income tax act

Article 1 This Act provides for taxpayers subject to income taxes, the scope of taxable income, the way of calculating the amount of income taxes, and the procedures for filing income tax returns, making income tax payments, and issuing income tax refunds, as well as making the necessary provisions for ensuring the proper performance of income tax payment obligations.

Article 2 In this Act, the meanings of the terms set forth in the following items are as prescribed in those items:

(iii) Resident:an individual domiciled in Japan or residing continuously in Japan for one year or more;

(iv) Non-Permanent Resident:a Resident who is without Japanese citizenship and who has been domiciled or resident in Japan for a total of no more than five of the past ten years;

(viii) Association or Foundation without Legal Personality:an association or foundation that is not a corporation and that provides for a representative or administrator;

(viii)-2 Shareholder, Member, or Other Investor:a shareholder, the member of a general partnership company, limited partnership company, or limited liability company, or any other investor in a corporation;

(viii)-3 Trust Subject to Corporate Taxation:a trust subject to corporation taxation as prescribed in Article 2, item (xxix)-2 (Definitions) of the Corporation Tax Act (Act No. 34 of 1965);

(ix) Public and Corporate Bond:a public bond or a corporate bond (including bonds that a corporation other than a company issues pursuant to a special law);

(x) Deposits and Savings:monetary deposits and savings (including anything that Cabinet Order specifies as equivalent thereto);

(xi) Jointly Managed Trust:a cash trust undertaken by a trust company (including a financial institution as prescribed in Article 1, paragraph (1) (Approval for Additional Business) of the Act on Engagement in Trust Business Activities by Financial Institutions (Act No. 43 of 1943) which is engaged in trust business as prescribed in that paragraph pursuant to that Act), with trust property from multiple settlors not acting in concert which the trust company manages jointly (other than an Investment Trust managed without instructions from the settlor prescribed in Article 2, paragraph (2) (Definitions) of the Act on Investment Trusts and Investment Corporations (Act No. 198 of 1951), a foreign investment trust equivalent thereto (meaning a foreign investment trust as prescribed in paragraph (22) of that Article; the same applies in item (xii)-2 and item (xiii)), and other trusts that Cabinet Order prescribes as having no small number of settlors, in actuality);

(xii) Loan Trust:a loan trust as prescribed in Article 2, paragraph (1) (Definitions) of the Loan Trust Act (Act No. 195 of 1952);

(xii)-2 Investment Trust:an investment trust or a foreign investment trust as prescribed in Article 2, paragraph (3) of the Act on Investment Trusts and Investment Corporations;

(xiii) Securities Investment Trust:a Securities Investment Trust as prescribed in Article 2, paragraph (4) of the Act on Investment Trusts and Investment Corporations, or a foreign investment trust equivalent thereto;

(xiv) Open-Ended Securities Investment Trust:a Securities Investment Trust that allows a person to place additional principal in trust;

(xv) Bond Investment Trust:a Securities Investment Trust whose trust property is used to invest in Public and Corporate Bonds but is not used to invest in shares (including units of investment prescribed in Article 2, paragraph (14) of the Act on Investment Trusts and Investment Corporations; the same applies in Article 24 (Dividend Income), Article 25 (Amounts Deemed to Constitute Dividends), Article 57-4, paragraph (3) (Special Provisions on Capital Gains Due to Share Exchange), Article 176, paragraph (1) and paragraph (2) (Special Provisions on Taxation of Interest and Similar Income from Trust Property), Article 224-3, paragraph (2), item (i) (Notice by Persons Receiving Consideration for a Share Transfer), and Article 225, paragraph (1), item (ii) (Payment Reports and Notice of Payment)) and is not used to invest in capital contributions;

(xv)-2 Bond-Based Investment Trust:an Investment Trust other than a Securities Investment Trust, which Cabinet Order prescribes as one with monies taken in as trust property which are used to invest in Public and Corporate Bonds or other such assets (meaning Public and Corporate Bonds, negotiable instruments, nominative monetary claims (meaning nominative claims whose objects are monetary payments), or other assets prescribed by Cabinet Order);

(xv)-3 Bond-Based Investment Trust Under Public Offering:a Bond-Based Investment Trust (but only one falling under the category of an Investment Trust as set forth in Article 2, item (xxix), (b)2. of the Corporation Tax Act) in whose establishment persons are solicited to subscribe for a beneficial interest through a public offering (meaning through a solicitation of offers to acquire as prescribed in Article 2, paragraph (3) (Definitions) of the Financial Instruments and Exchange Act (Act No. 25 of 1948) which is prescribed by Cabinet Order as falling under the case set forth in item (i) of that paragraph);

(xv)-4 Specified-Purpose Trust:a specified-purpose trust as prescribed in Article 2, paragraph (13) (Definitions) of the Act on Securitization of Assets (Act No. 105 of 1998);

(xv)-5 Specified Trust That Issues Beneficiary Certificates:a specified trust that issues beneficiary certificates as prescribed in Article 2, item (xxix), (c) of the Corporation Tax Act;

(xvi) Inventory:the commodities, finished products, half-finished products, products in progress, and raw materials of a business undertaking that is meant to generate business income, and any other asset (excluding Securities and forested land) that Cabinet Order prescribes should be considered inventory;

(xvii) Securities:securities as prescribed in Article 2, paragraph (1) of the Financial Instruments and Exchange Act and anything equivalent thereto that is prescribed by Cabinet Order;

(xviii) Fixed Asset:a piece of land (including any right on land), Depreciable Asset, telephone subscription right, or other asset (but not forested land) that is prescribed by Cabinet Order;

(xix) Depreciable Asset:a building, structure, piece of machinery, device, ship, vehicle or equipment, tool, apparatus or appliance, mining right, or anything else prescribed by Cabinet Order as an asset that should be depreciated, which generates real property income or miscellaneous income or which is used in business operations that are meant to generate real property income, business income, timber income, or miscellaneous income ;

(xx) Deferred Asset:an expenditure as prescribed by Cabinet Order which an individual makes in connection with business operations that are meant to generate real property income, business income, timber income, or miscellaneous income, and which will continue to have an effect one year or more after the day of the expenditure;

(xxi) Each Class of Income:interest income, dividend income, real property income, business income, salary income, retirement income, timber income, capital gains, occasional income, and miscellaneous income, as prescribed in Part II, Chapter II, Section 2, Subsection 1 (Classes of Income and Income in Each Class);

(xxii) Income in Each Class:the amounts of interest income, dividend income, real property income, business income, salary income, retirement income, timber income, capital gains, occasional income, and miscellaneous income, as prescribed in Part II, Chapter II, Section 2, Subsection 1;

(xxiii) Fluctuating Income:income arising from catching fish, income from royalties for a copyright, or any other income whose amount varies significantly from year to year which is prescribed by Cabinet Order;

(xxiv) Ad Hoc Income:income from a signing bonus that the taxpayer obtains on a one-time basis based on an agreement to provide services or any other income arising on an occasional or temporary basis which is prescribed by Cabinet Order;

(xxv) Net Loss:any part of the loss prescribed in Article 69, paragraph (1) (Aggregation of Profits and Losses) that is not fully offset when the provisions of that Article are applied;

(xxvi) Casualty Loss:any amount by which the total loss provided for in Article 72, paragraph (1) (Casualty Loss Deduction) exceeds the amount that is set forth in any of the items of that paragraph for the category of case set forth in the item;

(xxviii) Person with a Disability:a person that, at all times, lacks the ability to function on a rational basis due to a mental disability; a person who is blind; or any other person with a mental or physical disability for whom Cabinet Order provides;

(xxix) Person with a Particular Disability:a Person with a Disability who is mentally or physically disabled to a significant extent, and for whom Cabinet Order provides;

(a) a person who has not remarried following the death of the husband or after a divorce, or a person whose husband's whereabouts are unknown and who is provided for by Cabinet Order, if that person has a dependent or if the person has a relative as provided by Cabinet Order whose living expenses are paid from the same resources;

(b) a person other than as set forth in (a) who has not remarried following the death of the husband, or a person other than as set forth in (a) whose husband's whereabouts are unknown and who is provided for by Cabinet Order, if the person's gross income, retirement income, and timber income as prescribed in Article 22 (Tax Base) add up to a total (hereinafter referred to as the "total income" in this Article) of five million yen or less when calculated without applying the provisions of Article 70 (Deduction for Carryover of Net Loss) and Article 71 (Deduction for Carryover of Casualty Loss).

(xxxi) Widower:a person who has not remarried following the death of the wife or after a divorce, or a person whose wife's whereabouts are unknown and who is provided for by Cabinet Order, if the person has a relative as prescribed by Cabinet Order whose living expenses are paid from the same resources, and whose total income is five million yen or less;

(xxxii) Working Student: a person as follows earning business income, salary income, retirement income , or miscellaneous income from the person's own work (hereinafter referred to as "salary income, etc." in this item), whose total income is 650,000 yen or less, and whose total income other than the salary income, etc. is 100,000 yen or less:

(a) a student or child at a school prescribed in Article 1 (Scope of Schools) of the School Education Act (Act No. 26 of 1947);

(b) a student enrolled in a course of study prescribed by Cabinet Order at a vocational school prescribed in Article 124 (Vocational Schools) of the School Education Act or school for specialized education prescribed in Article 134, paragraph (1) (Schools for Specialized Education) of that Act which has been established by the national or local government, by a school corporation prescribed in Article 3 (Definitions) of the Private Schools Act (Act No. 270 of 1949), by a corporation incorporated pursuant to Article 64, paragraph (4) of that Act (Private Vocational Schools and Private Schools for Specialized Education), or by any other person prescribed by Cabinet Order as equivalent thereto;

(c) a person enrolled in a course of study prescribed by Cabinet Order and undergoing accredited vocational training as prescribed in Article 24, paragraph (3) (Accreditation of Vocational Training) of the Human Resources Development Promotion Act (Act No. 64 of 1969) which is provided by a vocational training corporation.

(xxxiii) Claimable Spouse:the spouse of a Resident whose living expenses are paid from the same resources as the Resident (other than a spouse falling under the category of a relative employed only by a blue-return filer as prescribed in Article 57, paragraph (1) (Special Provisions on Necessary Expenses If Relatives Work Exclusively for a Resident) who receives a salary as prescribed in that paragraph, and other than a spouse falling under the category of a relative employed only by the Resident prescribed in paragraph (3) of that Article) and whose total income is 380,000 yen or less;

(xxxiv) Dependent:the relative of a Resident (other than the Resident's spouse), a child placed with a foster parent as prescribed in Article 6-3, paragraph (1) (Definitions) of the Child Welfare Act (Act No. 164 of 1947) pursuant to Article 27, paragraph (1), item (iii) (Measures to Be Taken by Prefectures) of that Act, or an elderly person placed with a nursing care provider as prescribed in Article 11, paragraph (1), item (iii) (Measures to Be Taken by Municipalities) of the Act on Social Welfare Services for the Elderly (Act No. 133 of 1963) pursuant to that item, whose living expenses are paid from the same resources as the Resident (other than one falling under the category of a relative employed only by the blue-return filer as prescribed in Article 57, paragraph (1) who receives a salary as prescribed in that paragraph, and other than a person falling under the category of a relative employed only by the Resident as prescribed in paragraph (3) of that Article) and whose total income is 380,000 yen or less;

(xxxiv)-2 Specified Dependent:a Dependent who is 16 years of age or older and younger than 23 years of age;

(xxxv) Special Farming Income Earner:a person whose farming income (meaning income arising from a business involving the production or cultivation of rice, wheat, tobacco, fruits, vegetables, or flowers; the raising of silkworms; or any other business that Cabinet Order prescribes as being equivalent thereto; hereinafter the same applies in this item) in a given year accounts for over 70% of the person's gross income, and whose farming income arising on or after September 1 of that year exceeds 70% of the person's total farming income for the year;

(xxxvi) Tax Prepayment:an amount of income tax that must be paid pursuant Article 104, paragraph (1) (Making Tax Prepayments) or Article 107, paragraph (1) (Tax Prepayments by Special Farming Income Earners) (including as applied mutatis mutandis pursuant to Article 166 (Mutatis Mutandis Application to Nonresidents));

(xxxvii) Tax Return:a return form as under Part II, Chapter V, Section 2, Subsection 1 or Subsection 2 (Tax Returns) (including as applied mutatis mutandis pursuant to Article 166) (this includes a return filed after the deadline using such a return form);

(xxxviii) Return Filed After the Deadline:a return filed after the deadline as prescribed in Article 18, paragraph (2) (Returns Filed After the Deadline) of the Act on General Rules for National Taxes (Act No. 66 of 1962);

(xxxix) Amended Return:an amended return as prescribed in Article 19, paragraph (3) (Amended Returns) of the Act on General Rules for National Taxes;

(xl) Blue Return:a Tax Return filed with a blue-colored return form pursuant to the provisions of Article 143 (Blue Returns) and any related Amended Return (including as applied mutatis mutandis pursuant to Article 166);

(xli) Filing Deadline:the deadline for filing a return as under Article 120, paragraph (1) (Filing Income Tax Returns) (including as applied mutatis mutandis pursuant to Article 166); if the taxpayer dies partway through the year, the term refers to the deadline for filing a return under Article 125, paragraph (1) (Filing a Tax Return If the Taxpayer Has Died Partway Through the Year), and if the taxpayer will become Absent From Japan partway through the year, the term refers to the deadline for filing a return pursuant to Article 127, paragraph (1) (Filing a Tax Return If the Taxpayer Will Become Absent From Japan Partway Through the Year) (including as applied mutatis mutandis pursuant to Article 166);

(xlii) Absence From Japan:a Resident ceasing to be domiciled or reside in Japan without informing the relevant parties of a tax agent under Article 117, paragraph (2) (Tax Agents) of the Act on General Rules for National Taxes, or a Nonresident ceasing to reside in Japan without informing the relevant parties of a tax agent under that paragraph (for a Nonresident not domiciled in Japan and falling under a category of Nonresident set forth in Article 164, paragraph (1), item (i) through (iii) (How Nonresidents Are Taxed), the term refers to the Nonresident ceasing to fall under any category of Nonresident set forth in those items, and for a Nonresident not domiciled in Japan and falling under the category of Nonresident set forth in item (iv) of that paragraph, the term refers to the Nonresident discontinuing the business prescribed in Article 161, item (ii) (Compensation for the Provision of Personal Services) that the Nonresident conducts in Japan);

(xliii) Reassessment:a Reassessment pursuant to the provisions of Article 24 (Reassessment) or Article 26 (Further Reassessment) of the Act on General Rules for National Taxes;

(xliv) Tax-Office Decision:a tax-office decision as under Article 25 (Tax-Office Decisions) of the Act on General Rules for National Taxes, other than in a case as referred to in Article 19 (Validity of a Filing If the Designation of the Locality for Paying Taxes Is Cancelled);

(xlv) Withholding:the withholding and payment of income tax pursuant to the provisions of Part IV, Chapter I through Chapter VI (Withholding);

(xlvi) Punitive Tax:a punitive tax as prescribed in Article 2, item (iv) (Definitions) of the Act on General Rules for National Taxes;

(xlvii) Appropriation:appropriation under Article 57, paragraph (1) (Appropriation) of the Act on General Rules for National Taxes, except as set forth in Article 190 (Year-End Adjustment) and Article 191 (Refund of Amounts Overpaid).

(xlviii) (Refund) Interest:interest on refunds as prescribed in Article 58, paragraph (1) (Interest on Refunds) of the Act on General Rules for National Taxes.

Article 3 (1) A national public officer or local public officer (other than one without Japanese citizenship and any person prescribed by Cabinet Order) is deemed to be domiciled in Japan even during a period in which such a public officer is not domiciled in Japan, and the provisions of this Act (other than Article 10 (Nontaxability of Interest Income from Small Amounts of Deposits Held by Persons with Disabilities and Other Eligible Persons), Article 15 (Locality for Paying Taxes), and Article 16 (Special Provisions on the Locality for Paying Taxes)) apply thereto.

(2) Beyond what is prescribed in the preceding paragraph, Cabinet Order provides for the necessary particulars concerning the classification of Residents and Nonresidents and for the reaching of a determination as to whether an individual is domiciled in Japan.

(i) the Nonresident has domestic source income as prescribed in Article 161 (Domestic Source Income) (referred to as "domestic source income" in the following item) (other than in a case as set forth in that item);

(ii) the Nonresident receives, in Japan, payments constituting the taxable income of a domestic corporation (meaning any interest and similar income, dividends and similar income, compensation for periodic deposits, finance charges, profits, margin profits, distributions of profits, or monetary awards as set forth in the items of Article 174 (Tax Base for a Domestic Corporation's Income Taxes); hereinafter the same applies in this Article) which is attributable to the trust property of a Trust Subject to Corporate Taxation for which the Nonresident has undertaken to act as trustee, or receives payments constituting the taxable income of a foreign corporation which is attributable to such trust property (meaning any domestic source income as set forth in Article 161, item (i)-2 through (vii) and item (ix) through (xii); hereinafter the same applies in this Article).

(3) A Domestic Corporation is liable to pay income taxes pursuant to this Act if it receives, in Japan, payments constituting the taxable income of a domestic corporation, or if it receives payments constituting the taxable income of a foreign corporation which is attributable to the trust property of a Trust Subject to Corporate Taxation for which it has undertaken to act as trustee.

(4) A Foreign Corporation is liable to pay income taxes pursuant to this Act if it receives payments constituting the taxable income of a foreign corporation, or if it receives, in Japan, payments constituting the taxable income of a domestic corporation which is attributable to the trust property of a Trust Subject to Corporate Taxation for which it has undertaken to act as trustee.

Article 6-2 (1) The trustee of a Trust Subject to Corporate Taxation is deemed to be one person in respect of trust assets and other holdings of the Trust Subject to Corporate Taxation (meaning trust property assets and liabilities as well as proceeds and expenses attributable to trust property; hereinafter the same applies in this Chapter) and a different person in respect of personal assets and other holdings (meaning assets and liabilities, as well as proceeds and expenses, which are other than the trust assets and other holdings of a Trust Subject to Corporate Taxation; the same applies in the following Article), and the provisions of this Act (other than the preceding Chapter (Tax Payment Obligations), Chapter V (Locality for Paying Taxes), and Part VI (Penal Provisions); the same applies in the following Article) apply.

(2) In a case as referred to in the preceding paragraph, trust assets and other holdings of a Trust Subject to Corporate Taxation and the trustee's personal assets and other holdings are separately attributed to each of the persons deemed to be different from one another pursuant to the provisions of that paragraph.

Article 6-3 When the provisions of this Act are applied to a trust corporation (meaning a corporation that is the trustee of a Trust Subject to Corporate Taxation (or the individual who is the trustee of such a trust, if such is the case) to which the provisions of this Act apply because the trust assets and other holdings of the Trust Subject to Corporate Taxation are attributed to that corporation pursuant to the provisions of the preceding Article; hereinafter the same applies in this Article), or to the settlor or beneficiary of a Trust Subject to Corporate Taxation, they apply as follows:

(i) if a business office or other office or a place of business equivalent thereto (referred to as a "business office" in the following item) with which the Trust Subject to Corporate Taxation is entrusted is located in Japan, the trust corporation handling the Trust Subject to Corporate Taxation is a Domestic Corporation;

(ii) if a business office with which the Trust Subject to Corporate Taxation is entrusted is not located in Japan, the trust corporation handling the Trust Subject to Corporate Taxation is a Foreign Corporation;

(iv) a beneficial interest in a Trust Subject to Corporate Taxation (but not a beneficial interest in any Bond-Based Investment Trust other than a Bond-Based Investment Trust Under Public Offering, and not a company bond-type beneficial interest (meaning a beneficial interest in a Specified-Purpose Trust under a contract with conditions as set forth in Article 230, paragraph (1), item (iv) of the Act on Securitization of Assets (Specified-Purpose Trust Contracts), due to which the amount of money fixed in advance as prescribed in that item is distributed; the same applies in Article 14, paragraph (1) (Attribution of Interest and Similar Income from Bearer Public and Corporate Bonds); Article 24, paragraph (1) (Dividend Income); Article 176, paragraph (1) and paragraph (2) (Special Provisions on Taxation of Interest and Similar Income from Trust Property); and Article 225, paragraph (1) (Payment Reports)) is deemed to be a share or capital contribution, and a beneficiary of the Trust Subject to Corporate Taxation is included among the Shareholders, Members, and Other Investors thereof. Be that as it may, shares or capital contributions to a corporation that is the trustee of a Trust Subject to Corporate Taxation are deemed not to be shares or capital contributions in a trust corporation handling a Trust Subject to Corporate Taxation, and the Shareholders, Members, and Other Investors of the corporation that is the trustee are not Shareholders, Members, or Other Investors of the trust corporation;

(v) if a Trust Subject to Corporate Taxation is terminated or if a Trust Subject to Corporate Taxation (but only one as set forth in Article 2, item (xxix)-2, (b) (Definitions) of the Corporation Tax Act) has come to have a beneficiary as prescribed in Article 13, paragraph (1) (Attribution of Trust Property Assets and Liabilities and of Proceeds and Expenses Attributable to Trust Property) (or a person deemed to be a beneficiary as prescribed in paragraph (1) of that Article pursuant to the provisions of paragraph (2) of that Article; referred to as a "beneficiary or deemed beneficiary" in the following item and item (vii)) (unless the trust falls under a category of trust set forth in Article 2, item (xxix)-2, (a) or (c) of that Act), the trust corporation handling the Trust Subject to Corporate Taxation is deemed to have been dissolved;

(vi) when the settlor of a Trust Subject to Corporate Taxation (other than a trust as set forth in Article 2, item (xxix)-2, (b) of the Corporation Tax Act; hereinafter the same applies in this item) places the assets thereof in trust, or if a trust with a beneficiary or deemed beneficiary that is deemed to hold trust property assets and liabilities pursuant to the provisions of Article 13, paragraph (1) comes to fall under the category of a Trust Subject to Corporate Taxation, a capital contribution is deemed to have been made to the trust corporation handling the Trust Subject to Corporate Taxation;

(vii) when the settlor of a Trust Subject to Corporate Taxation (but only a trust as set forth in Article 2, item (xxix)-2, (b) of the Corporation Tax Act; hereinafter the same applies in this item) places the assets thereof in trust, or if a trust with a beneficiary or deemed beneficiary that, pursuant to the provisions of Article 13, paragraph (1), is deemed to have assets and liabilities constituting trust property comes to fall under the category of a Trust Subject to Corporate Taxation, the assets are deemed to have devolved to the trust corporation handling the Trust Subject to Corporate Taxation by way of a gift;

(viii) a distribution of proceeds from a Trust Subject to Corporate Taxation is deemed to be a dividend of surplus that causes no decrease in capital surplus, and a return of the principal of a Trust Subject to Corporate Taxation is deemed to be a dividend of surplus that does cause a decrease in capital surplus;

(ix) beyond what is prescribed the preceding items, Cabinet Order provides for the necessary particulars concerning the application of this Act to trust corporations and to the settlors and beneficiaries of Trusts Subject to Corporate Taxation.

Article 7 (1) Income taxes are imposed on the income that each of the following items prescribes for the category of person set forth in the item:

(ii) a Non-Permanent Resident:domestic source income as prescribed in Article 161 (Domestic Source Income) (hereinafter referred to as "domestic source income" in this Article), and any other income paid in Japan or remitted to Japan from abroad;

(iii) a Nonresident:domestic source income as set forth in each of the items of Article 164, paragraph (1) and paragraph (2) (How Nonresidents Are Taxed) for the category of Nonresident set forth in the relevant item of Article 164, paragraph (1);

(iv) a Domestic Corporation:interest and similar income, dividends and similar income, compensation for periodic deposits, finance charges, profits, margin profits, distributions of profits, and monetary awards set forth in the items of Article 174 (Tax Base for a Domestic Corporation's Income Taxes), which it is paid in Japan;

(v) a Foreign Corporation:domestic source income as set forth in Article 161, item (i)-2 through (vii) and item (ix) through (xii) (this excludes any domestic source income as set forth in Article 161, item (i)-2 of a Foreign Corporation as set forth in Article 141, item (iv) of the Corporation Tax Act (Foreign Corporations Without a Permanent Establishment in Japan).

(2) Cabinet Order provides for the necessary particulars concerning the scope of income set forth in item (ii) of the preceding paragraph.

Article 8 If, in the relevant year, an individual falls under two or more of the categories of "Resident other than a Non-Permanent Resident", "Non-Permanent Resident", and any one class of "Nonresident as set forth in an item of Article 164, paragraph (1)" (How Nonresidents Are Taxed), income taxes are imposed separately for each period in that year during which the individual is a Resident other than a Non-Permanent Resident, Non-Permanent Resident, or any one class of Nonresident as set forth in an item of Article 164, paragraph (1), on the income set forth in paragraph (1), item (i) through (iii) of the preceding Article which arises during that period.

(ii) interest on Deposits and Savings (other than as provided in the preceding item) as provided by Cabinet Order which have been deposited by a child or student at an elementary school, junior high school, high school, or school for secondary education as prescribed in Article 1 (Scope of Schools) of the School Education Act, or in the elementary, junior high, or high school section of a school for special needs education as prescribed in Article 76 (Sections of Schools for Special Needs Education) of that Act, as instructed by the school principal; and distributions of proceeds from a Jointly Managed Trust as provided by Cabinet Order into which such a child or student has placed assets as instructed by the school principal;

(a) a supplementary retirement package as prescribed in the Public Officers Pension Act (Act No. 48 of 1923) (which includes any ordinary retirement package paid together with a supplementary retirement package) or an invalidity grant or any other equivalent benefit as prescribed by Cabinet Order that the taxpayer receives for an injury incurred or illness contracted in the course of public duty or on the job;

(b) a public retirement package or pension that the bereaved family receives (but only one paid based on the employment of the deceased);

(c) benefits that a person receives based on a mutual aid system provided for by Cabinet Order which a local government implements for persons with mental or physical disabilities pursuant to the provisions of Prefectural Ordinance.

(iv) money and valuables that are found to be necessary for travel under ordinary circumstances, which are provided so as to cover the travel expenses that are necessary if a person with salary income travels to a location away from the workplace in order to perform the duties thereof; if such a person changes residences due to a transfer of workplace; or if a person hired or separated from employment, or the surviving family of a person separated from employment at death, changes residences due to that employment event;

(v) that which Cabinet Order prescribes, in respect of any commutation allowance (or anything similar thereto) that a person with salary income who commutes to work (hereinafter referred to as a "commuter" in this item) receives, in addition to ordinary pay, to cover the expenses that the commuter pays to use the transportation facilities or transportation equipment necessary for the commute, as the part of such a commutation allowance that the average commuter is found to need under ordinary circumstances;

(vi) anything other than money that a person with salary income receives from the employer (including any economic benefit) which Cabinet Order prescribes as being indispensable due to the nature of the person's duties;

(vii) any service allowance (or any similar special allowance) provided for by Cabinet Order which a Resident working outside Japan is to receive for work in addition to ordinary pay when working in Japan;

(viii) salary, compensation, wages, annual allowances, bonuses, and any other pay of a similar nature that a person as prescribed by Cabinet Order who works for a foreign government, for the local government of a foreign state, or for an international organization as prescribed by Cabinet Order, and who satisfies the requirements prescribed by Cabinet Order receives for work (pay received by a person working for a foreign government or for the local government of a foreign state is only nontaxable if the foreign state refrains from imposing any taxes equivalent to income taxes on the pay received by a Japanese national or local public officer who works in that state and satisfies requirements equivalent to the aforementioned requirements prescribed by Cabinet Order);

(ix) income arising from a transfer of ownership in furniture, household appliances, clothes, and other assets prescribed by Cabinet Order that the person in question or the spouse or other relatives thereof use in day-to-day life;

(x) income arising from a transfer of assets based on compulsory realization proceedings as prescribed in Article 2, item (x) (Definitions) of the Act on General Rules for National Taxes and other income specified by Cabinet Order as being similar thereto (other than income falling under the provisions of Article 33, paragraph (2), item (i) (Income Not Included as Capital Gains)), if the taxpayer is facing extreme difficulty in performing on obligations due to a loss of financial resources;

(xi) any part of a distribution of proceeds from an Open-Ended Securities Investment Trust which Cabinet Order prescribes as corresponding to a return of trust-property principal;

(xii) benefits that a person receives pursuant to the provisions of Article 4, paragraph (1) (Daily Expenses of the Inner Court) and Article 6, paragraph (1) (Expenses of the Imperial Family) of the Imperial Household Finance Act (Act No. 4 of 1947);

(a) a pension as under Article 3, paragraph (1) (Pension) of the Cultural Merit Pension Act (Act No. 125 of 1951);

(b) money and valuables which are issued by the Japan Academy as an Imperial Prize or Japan Academy Award;

(c) money and valuables which are issued by the Japan Art Academy as an Imperial Prize or Japan Art Academy Award;

(d) money and valuables designated by the Minister of Finance, which are granted as an award for significant academic or artistic contributions or as an incentive to encourage academic research of significant value (other than pay or anything else in the nature of consideration), and which are issued by the national or local government or by a body or fund designated by the Minister of Finance;

(f) anything issued by a foreign state, international organization, or international body, or by a foreign body or fund designated by the Minister of Finance, which is similar to a pension, money, or valuables set forth in (a) through (e) (other than pay or anything else in the nature of consideration), and which is as designated by the Minister of Finance.

(xiv) money and valuables with which a person is provided to cover school expenses (other than pay or anything else in the nature of consideration), and money and valuables with which persons with a duty to support one another provide one another in order to fulfill their duty of support;

(xv) income acquired by way of hereditary succession, legacy, or inter vivos gift (this includes income deemed to have been acquired by way of hereditary succession, legacy, or inter vivos gift pursuant to the provisions of the Inheritance Tax Act (Act No. 73 of 1950));

(xvi) insurance benefits and compensation for damages paid based on a casualty insurance contract (or anything similar thereto) which a person acquires because of mental or physical damage incurred or because of damage to property incurred as a result of unforeseen circumstances, or any other insurance benefit or compensation for damages specified by Cabinet Order;

(xvii) money, objects, and any other financial benefits that a candidate for election to public office acquires as a gift from an election campaign corporation in connection with an election to which the Election to Public Office Act (Act No. 100 of 1950) is applicable, which have been reported as under Article 189 of that Act (Submission of Reports on Revenue and Expenditures for Election Campaigns).

(Nontaxability of Interest Income from Small Amounts of Deposits Held by Persons with Disabilities and Other Eligible Persons)

Article 10 (1) If an individual domiciled in Japan who has been issued a proof of physical disability passbook as prescribed in Article 15, paragraph (4) (Issuance of Proof of Physical Disability Passbooks) of the Act on the Welfare of Persons with Physical Disabilities (Act No. 283 of 1949); a wife domiciled in Japan who is eligible for the basic survivors' pension as prescribed in Article 37-2, paragraph (1) (Scope of Surviving Family) of the National Pension Act (Act No. 141 of 1959); a wife domiciled in Japan as prescribed in Article 49, paragraph (1) (Conditions for Receiving Widow's Pension) of that Act who is eligible for a widow's pension as prescribed in that paragraph; or any other person that Cabinet Order prescribes as being equivalent to such an eligible person (hereinafter referred to as a "person with a disability or other eligible person" in this Article) places money into Deposits or Savings (other than Deposits or Savings falling under the provisions of paragraph (1), item (i) or item (ii) of the preceding Article (Nontaxable Income) and other Deposits and Savings prescribed by Cabinet Order; hereinafter the same applies in this Article), places assets into a Jointly Managed Trust (other than one falling under the provisions of paragraph (1), item (i) or item (ii) of the preceding Article and other than a trust as prescribed by Cabinet Order; hereinafter the same applies in this Article) or Bond-Based Investment Trust Under Public Offering (but only an Investment Trust managed without instructions from the settlor as prescribed in Article 2, paragraph (2) (Definitions) of the Act on Investment Trusts and Investment Corporations, and other than a trust as prescribed by Cabinet Order; hereinafter referred to as a "specific form of bond-based investment trust under public offering" in this Article), or purchases Securities (limited to Public and Corporate Bonds and beneficial interests as prescribed by Cabinet Order in Investment Trusts (other than Investment Trusts managed without instructions from the settlor as prescribed in Article 2, paragraph (2) of the Act on Investment Trusts and Investment Corporations) and Specified-Purpose Trusts), at the business office or other office of a financial institution or other person that accepts Deposits or Savings or undertakes to act as the trustee of a trust, the business office or office of a financial instruments business operator, the business office or office of a registered financial institution as provided by Cabinet Order, or any other place equivalent to the business office or office of such a person (hereinafter referred to as a "the business office of a financial institution or other such place" in this Article) (hereinafter such an action by a person with a disability or other eligible person is referred to in this Article as a "deposit, placement into trust, or purchase"), and the person with a disability or other eligible person submits a paper document at the time of the deposit, placement into trust, or purchase pursuant to Cabinet Order, indicating that the person seeks to apply the provisions of this paragraph to the Deposits or Savings, Jointly Managed Trust, specific form of bond-based investment trust under public offering, or Securities; giving the person's name, date of birth, and domicile; indicating the person to be a person with a disability or other eligible person; and giving any other necessary information (hereinafter such a paper document is referred to as an "application to exempt savings from taxation" in this Article), no income taxes are imposed on what each of the following items prescribes, but only in the case set forth in the item in question:

(i) if, throughout the period for calculating the interest on the Deposits or Savings, the sum of the principal of Deposits and Savings and the principal of any other Deposits and Savings that the person has deposited at the business office of the financial institution or other such place and in respect of which such person has submitted an application to exempt savings from taxation does not exceed the maximum limitation set forth in paragraph (3), item (iii) which appears in the statement of tax-exempt savings prescribed in that paragraph that the person submits via the business office of the financial institution or other such place (on and after any day on which the person submits a statement as referred to in paragraph (4), this means the maximum limitation after the change):interest on the Deposits and Savings during that period of calculation;

(ii) if, throughout the period for calculating distributions of proceeds from the Jointly Managed Trust or specific form of bond-based investment trust under public offering (hereinafter referred to as a "jointly managed or similar type of trust" in this item), the sum of the principal of the jointly managed or similar type of trust and the principal of any other jointly managed or similar types of trusts into which the person places assets at the business office of the financial institution or other such place and submits an application to exempt savings from taxation with respect to does not exceed the maximum limitation set forth in paragraph (3), item (iii) which appears in the statement of tax-exempt savings prescribed in that paragraph that the person submits via the business office of the financial institution or other such place (if the jointly managed or similar type of trust is a Loan Trust or a specific form of bond-based investment trust under public offering, this only applies if the jointly managed or similar type of trust is managed by way of entries or records in a transfer account book provided for in the Act on the Book-Entry Transfer of Bonds and Shares (Act No. 75 of 2001) or by any other method prescribed by Cabinet Order):distributions of proceeds from the jointly managed or similar type of trust during that period of calculation;

(iii) if, throughout the period for calculating the interest, distributions of proceeds, or dividends of surplus (meaning dividends of surplus as prescribed in Article 24, paragraph (1) (Dividend Income); hereinafter the same applies in this item), the Securities are managed by way of entries or records in a transfer account book provided for in the Act on the Book-Entry Transfer of Bonds and Shares or by any other method prescribed by Cabinet Order (if Securities are purchased partway through the period of calculation, this means throughout the period from the day of the purchase to the final day of the period of calculation; hereinafter the same applies in this item), and if, throughout the period of calculation, the sum of the face values of the Securities or the amount prescribed by Cabinet Order as being equivalent thereto (hereinafter referred to as the "face value or equivalent amount" in this Article) and the face values and equivalent amounts of other Securities that the person purchases at the business office of the financial institution or other such place and submits an application to exempt savings from taxation with respect to does not exceed the maximum limitation set forth in paragraph (3), item (iii) which appears in the statement of tax-exempt savings prescribed in that paragraph that the person submits via the business office of the financial institution or other such place:interest, distributions of proceeds, and dividends of surplus from the Securities during that period of calculation.

(2) An application to exempt savings from taxation may be submitted only to the business office of the financial institution or other such place through which a person has submitted a statement of tax-exempt savings as prescribed in the following paragraph, and upon submitting the application, the person must present the documents prescribed in paragraph (5) to the director of the business office of the financial institution or other such place.

(3) The provisions of paragraph (1) apply only if an individual submits a paper-based statement giving the following information (hereinafter referred to as a "statement of tax-exempt savings" in this Article) by the day of the deposit, placement into trust, or purchase, as regards the Deposits or Savings, Jointly Managed Trust, specific form of bond-based investment trust under public offering, or Securities to which the person seeks to apply the provisions of that paragraph for the first time, to the competent district tax office director for the individual's domicile, via the business office of the financial institution or other such place where the person makes the deposit, placement into trust, or purchase:

(i) the name, date of birth, and domicile of the submitter; an indication that the submitter falls under the category of a person with a disability or other eligible person; and the name and location of the business office of the financial institution or other such place;

(ii) whether the submitter seeks to apply the provisions of paragraph (1) to Deposits or Savings, to a Jointly Managed Trust, to a specific form of bond-based investment trust under public offering, or to Securities;

(iii) the maximum limitation for the current balance of the Deposits or Savings, Jointly Managed Trust, specific form of bond-based investment trust under public offering, or Securities (for Securities, this means the current balance of Securities calculated based on their face value or equivalent amount) to which the submitter seeks to apply the provisions of paragraph (1) as regards the submitter's deposits, placements into trust, or purchases at the business office of the financial institution or other such place;

(iv) the name of any other business office of a financial institution or other such place via which the person has already submitted a statement of tax-exempt savings, and the maximum limitation as referred to in the preceding item which has been given in any such statement (if the person has submitted a statement as under the following paragraph, this means the maximum limitation after the change).

(4) If an individual who has submitted a statement of tax-exempt savings seeks to change the maximum limitation set forth in item (iii) of the preceding paragraph that has been given in the statement (if the person has already submitted a statement as under this paragraph, this means the maximum limitation which is given in that statement as after the change), the individual must submit a paper-based statement indicating this; indicating the sum of the maximum limitation set forth in item (iii) of the preceding paragraph and the maximum limitation set forth in item (iv) of that paragraph after the change; and giving any other necessary information, to the competent district tax office director for the individual's domicile, via the business office of the financial institution or other such place through which the individual has submitted the statement of tax-exempt savings, pursuant to Cabinet Order.

(5) Before submitting a statement of tax-exempt savings or a statement as set forth in the preceding paragraph, the individual submitting it must present the director of the business office of the financial institution or other such place prescribed in paragraph (3) or the preceding paragraph with the proof of physical disability passbook issued thereto pursuant to Article 15, paragraph (4) (Issuance of Proof of Physical Disability Passbooks) of the Act on the Welfare of People with Disabilities, basic survivors' pension certificate set forth in Article 15, item (iii) of the National Pension Act, or other documents specified by Cabinet Order; notify the director of the individual's name, date of birth, and domicile and that the individual is a person with a disability or other eligible person; and obtain a seal of verification indicating confirmation of the information of which the individual has notified the director on the statement of tax-exempt savings or the statement referred to in the preceding paragraph, pursuant to Cabinet Order.

(6) In a case referred to in paragraph (3) or paragraph (4), once the statement of tax-exempt savings or the statement referred to in the relevant paragraph has been submitted to the district tax office director prescribed in those provisions, it is deemed to have been submitted on the day that it was accepted at the business office of the financial institution or other such place prescribed in those provisions.

(7) An individual as prescribed in paragraph (1) may not submit a statement falling under a category of statement of tax-exempt savings or statement as referred to in paragraph (4) which is as follows, and the director of the business office of a financial institution or other such place prescribed in paragraph (3) or paragraph (4) may not accept such a statement nor may the director accept any further statement of tax-exempt savings submitted by an individual from whom the director has already accepted a statement of tax-exempt savings (other than as prescribed by Cabinet Order):

(i) a statement of tax-exempt savings or statement as referred to in paragraph (4) that gives a maximum limitation as set forth in paragraph (3), item (iii) (for a statement as referred to in paragraph (4), this means the maximum limitation as set forth in that item as after the change) that exceeds three million yen, or a statement of tax-exempt savings or a statement as referred to in paragraph (4) that gives a sum for that maximum limitation and the maximum limitations as set forth in paragraph (3), item (iv) that exceeds three million yen;

(ii) a statement of tax-exempt savings or a statement as referred to in paragraph (4) without a seal of verification indicating the confirmation as under paragraph (5).

(8) Beyond what is prescribed in paragraph (2) through the preceding paragraph, Cabinet Order provides for the way of calculating the principal and face value or equivalent amount set forth in paragraph (1); the particulars of the submission, keeping on file, and management of applications to exempt savings from taxation; the particulars of the submission of statements of tax-exempt savings; the particulars of reporting if there has been a change in the information that an individual submitting a statement of tax-exempt savings has given in the statement or if the individual seeks to stop being subject to the provisions of that paragraph after having submitted a statement; and other necessary particulars concerning the application of that paragraph.

Article 11 (1) Income taxes are not imposed on interest and similar income, dividends and similar income, compensation for periodic deposits, finance charges, profits, margin profits, and distributions of proceeds set forth in the items of Article 174 (Tax Base for a Domestic Corporation's Income Taxes) paid to a Domestic Corporation as set forth in Appended Table I (as regards interest, distributions of proceeds, or dividends of surplus prescribed in Article 24, paragraph (1) (Dividend Income) (hereinafter referred to as "interest and similar income" in this Article) from Public and Corporate Bonds or from any beneficial interest in a Loan Trust, Bond Investment Trust, or Specified-Purpose Trust as provided by Cabinet Order (hereinafter referred to as a "public and corporate bond or similar interest" in this Article), the non-imposition of income taxes is limited to the part of such interest and similar income which is equivalent to the amount of monies calculated pursuant to Cabinet Order as coming from a period during which the Domestic Corporation continuously held the public and corporate bond or similar interest).

(2) Income taxes are not imposed on income arising from the property of a charitable trust as prescribed in Article 1 (Charitable Trusts) of the Charitable Trust Act (Act No. 62 of 1922) or a participant protection trust as prescribed in Article 2, paragraph (11) (Definitions) of the Act on the Book-Entry Transfer of Bonds and Shares (as regards that which arises due to interest and similar income from a public and corporate bond or similar interest, the non-imposition of income taxes is limited to the part thereof which is equivalent to the amount of monies calculated pursuant to Cabinet Order as coming from a period during which the public and corporate bond or similar interest was continuously a part of the property of the charitable trust or participant protection trust).

(3) The part of the provisions of the preceding two paragraphs that relates to interest and similar income from a public and corporate bond or similar interest applies only if a Domestic Corporation or the trustee of a charitable trust or participant protection trust as prescribed in these provisions manages the public and corporate bond or similar interest through entries or records in a transfer account book as prescribed in the Act on the Book-Entry Transfer of Bonds and Shares or by other means prescribed by Cabinet Order, and has submitted a statement to the district tax office director indicating its intention to seek the application of these provisions to interest or similar income from the public and corporate bond or similar interest and giving other information provided for by Ministry of Finance Order via the person paying the interest or similar income on the public and corporate bond or similar interest.

Article 12 If the person to whom proceeds arising from assets or business seem to be legally attributed is the holder of those proceeds in name alone and has no enjoyment thereof, but someone other than that person does have enjoyment of those proceeds, the proceeds are to be attributed to the person with actual enjoyment thereof, and the provisions of this Act apply.

(Attribution of Trust Property Assets and Liabilities and of Proceeds and Expenses Attributable to Trust Property)

Article 13 (1) The beneficiary of a trust (but only one who actually has rights as a beneficiary) is deemed to be the one holding the trust property's assets and liabilities; the proceeds and expenses attributable to the trust property are deemed to be the proceeds and expenses of the beneficiary; and the provisions of this Act apply; provided, however, that this does not apply to the trust property assets and liabilities of a group investment trust, retirement pension trust, or Trust Subject to Corporate Taxation, nor does it apply to proceeds and expenses attributable to the trust property thereof.

(2) A person who actually has the authority to make changes to a trust (other than what Cabinet Order prescribes as the authority to make minor changes) and who is meant to benefit from the trust property (other than a beneficiary) is deemed to be a beneficiary as prescribed in the preceding paragraph, and the provisions of that paragraph apply.

(3) In paragraph (1), the meaning of a term as set forth in one of the following items is as prescribed in the item:

(i) group investment trust:a Jointly Managed Trust, Investment Trust (but only a trust as set forth in Article 2, item (xxix), (b) (Definitions) of the Corporation Tax Act), or Specified Trust That Issues Beneficiary Certificates;

(ii) retirement pension trust:a trust under an employees' pension fund agreement, investment contract for defined-benefit pension assets, investment contract for defined-benefit pension fund assets, investment contract for defined-contribution pension assets, benefit contract for worker asset-building, or benefit contract for a worker asset-building fund as prescribed in Article 84, paragraph (1) (Calculation of the Amount of Retirement Pension Funds) of the Corporation Tax Act; under a contract as prescribed in Article 128, paragraph (3) (Business of the Fund) or Article 137-15, paragraph (4) (Business of the Association) of the National Pension Act which is concluded by the National Pension Fund or the National Pension Fund Association; or under any similar contract involving a retirement pension which is prescribed by Cabinet Order.

(4) Cabinet Order provides for the application of the provisions of paragraph (1) if there are two or more beneficiaries, for the reaching of a determination as to whether someone falls under the category of a person who is meant to benefit from trust property as prescribed in paragraph (2), and for other necessary particulars concerning the application of paragraph (1) and paragraph (2).

Article 17 The locality in which a person paying a salary or other wage as prescribed in Article 28, paragraph (1) (Salary Income), or a person making any other payment as prescribed in Part IV, Chapter I through Chapter VI (Withholding) is to pay over the income taxes that the person is required to Withhold from those payments is the locality of that person's office or place of business or any other equivalent place that handles those payments as of the payment date; provided, however, that the locality in which such a person is required to Withhold from interest on Public and Corporate Bonds, dividends of surplus as prescribed in Article 24, paragraph (1) (Dividend Income) which are paid by a Domestic Corporation (or by a trust corporation that is deemed to be a Domestic Corporation pursuant to the provisions of Article 6-3, item (i) (Application of This Act to Trust Corporations) as prescribed in that Article), or any other payment prescribed by Cabinet Order is the locality of the head office or principal office of the person paying the salary or other wage or any other place provided for by Cabinet Order.

(2) Notwithstanding the provisions of the preceding Article, if the locality for paying over taxes as under the preceding Article is found to be inappropriate as the locality for the person to pay over the income taxes referred to in that Article in view of clerical considerations attending payment by the person paying the salary or other wage as prescribed in that Article or other circumstances, the regional commissioner for the locality in which the person is to pay over the taxes may designate the locality for the person to pay over the income taxes.

Article 21 (1) The income taxes imposed on a Resident are calculated based on the following order of calculations:

(i) the Resident's income is classified, pursuant to the provisions of Section 2 of the following Chapter (Calculating Income in Each Class), into the categories of interest income, dividend income, real property income, business income, salary income, retirement income, timber income, capital gains, occasional income, and miscellaneous income, and the amounts of income in each category are calculated separately;

(ii) the Resident's gross income, retirement income, and timber income as prescribed in the following Article are calculated based on the amounts of income referred to in the preceding item, pursuant to the provisions of the following Article and Section 3 of the following Chapter (Aggregation of Profits and Losses and Deductions for Carryover of Losses);

(iii) the basic personal exemption and other deductions are taken, pursuant to the provisions of Section 4 of the following Chapter (Deductions from Income), from the Resident's gross income, retirement income, or timber income as referred to in the preceding item, to calculate the Resident's taxable gross income, taxable retirement income, or taxable timber income as prescribed in Article 89, paragraph (2) (Tax Rates);

(iv) the Resident's income taxes are calculated pursuant to Chapter III, Section 1 (Tax Rates) based on the Resident's taxable gross income, taxable retirement income, or taxable timber income as referred to in the preceding item;

(v) if the Resident is taking a dividend tax credit or a foreign tax credit pursuant to Chapter III, Section 2 (Tax Credits), the Resident's income taxes are the amount that remains after any such credit is applied against the equivalent of what the preceding item refers to as the Resident's income taxes.

(2) In the case referred to in the preceding paragraph, if the Resident falls under the provisions of Chapter IV (Special Provisions on Calculating the Amount of Taxes), the income taxes imposed on the Resident are as prescribed in that Chapter.

Article 22 (1) The tax base for the income taxes imposed on a Resident is the Resident's gross income, retirement income, and timber income.

(2) Gross income is the sum total of the following amounts as calculated pursuant to the provisions of the following Section (Calculating Income in Each Class) (or the sum of the amounts arrived at through the application of the provisions of Article 70, paragraph (1) or paragraph (2) (Deduction for Carryover of Net Loss) or Article 71, paragraph (1) (Deduction for Carryover of Casualty Loss), if those provisions apply):

(i) the total of a Resident's interest income, dividend income, real property income, business income, salary income, capital gains (but only the part constituting income set forth in Article 33 paragraph (3), item (i) (Calculating the Amount of Capital Gains)), and miscellaneous income (or the amount arrived at through the application of Article 69 (Aggregation of Profits and Losses), if those provisions apply);

(ii) an amount that represents half of the sum total of capital gains (but only the part constituting income set forth in Article 33, paragraph (3), item (ii)) plus occasional income (or the amount arrived at through the application of Article 69, if those provisions apply).

(3) Retirement income and timber income are calculated separately pursuant to the provisions of the following Section (or are arrived at through the application of Article 69 through Article 71, if those provisions apply).

Article 23 (1) Interest income means income from interest on Public and Corporate Bonds and Deposits and Savings (other than coupon-only book-entry government bonds as prescribed in Article 90, paragraph (3) (Definitions) of the Act on the Book-Entry Transfer of Bonds and Shares (but only those for which the separate trading of principal and interest prescribed in paragraph (1) of that Article has been undertaken pursuant to Ministry of Finance Order), and from distributions of the proceeds of a Jointly Managed Trust, Bond Investment Trust, or Bond-Based Investment Trust Under Public Offering (hereinafter referred to as "interest and similar income" in this Article).

Article 24 (1) Dividend income means income from dividends of surplus (these are limited to dividends from shares or capital contributions (including any beneficial interest in a Bond Investment Trust other than a Bond-Based Investment Trust Under Public Offering, and including a company bond-type beneficial interest; the same applies in the following Article), and exclude any dividends that result from a decrease in capital surplus or that are based on a split (meaning a company split by split-off as prescribed in Article 2, item (xii)-9 of the Corporation Tax Act, and including the split of a Trust Subject to Corporate Taxation; hereinafter the same applies in this paragraph and the following Article)), dividends of profits (these include distributions of monies as prescribed in Article 115, paragraph (1) (Interim Dividends) of the Act on Securitization of Assets, and exclude dividends based on a split-off), distributions of surplus (but only those related to capital contributions), and interest on funds (meaning interest on funds as prescribed in Article 55, paragraph (1) (Restrictions on Payment of Interest on Funds) of the Insurance Business Act (Act No. 105 of 1995)), as well as distributions of proceeds from an Investment Trust (other than a Bond Investment Trust or Bond-Based Investment Trust Under Public Offering) or Specified Trust That Issues Beneficiary Certificates (hereinafter referred to as "dividends and similar income" in this Article), which the taxpayer receives from a corporation (other than a corporation in the public interest, etc. as prescribed in Article 2, item (vi) (Definitions) of the Corporation Tax Act or an Association or Foundation without Legal Personality).

(2) Dividend income is the amount of revenue arising from dividends and similar income for the year; provided, however, that if there is any interest paid in the year on a debt that the taxpayer needed to incur in order to acquire shares or other principal that is meant to generate dividend income (other than any interest on a debt that the taxpayer needed to incur in order to acquire Securities which have generated business income or miscellaneous income; hereinafter the same applies in this paragraph), the dividend income is the amount of revenue arising from dividends and similar income in the year, less the total amount calculated pursuant to Cabinet Order as the part of the interest payable on the debt in the period during which the taxpayer held the principal in that year.

Article 25 (1) If monies or any other assets are issued to the Shareholder, Member, or Other Investor in a corporation (other than a corporation in the public interest, etc. as prescribed in Article 2, item (vi) (Definitions) of the Corporation Tax Act or an Association or Foundation without Legal Personality; hereinafter the same applies in this paragraph) due to any of the following circumstances involving the corporation, and the sum total of the monies and the value of assets other than monies exceeds the part of the corporation's amount of stated capital, etc. as prescribed in item (xvi) of that Article, or the part of the corporation's amount of consolidated individual stated capital, etc. as prescribed in item (xvii)-2 of that Article, which comes from the shares in or capital contributions to the corporation upon which the issuance of the monies and assets is founded, for the purpose of applying the provisions of this Act, the part of the monies or other assets in excess is deemed to be a dividend of surplus, dividend of profits, or distribution of surplus as prescribed in paragraph (1) of the preceding Article:

(i) the merger of the corporation (this includes a merger of trusts which involves a Trust Subject to Corporate Taxation but excludes a qualified merger as prescribed in Article 2, item (xii)-8 of the Corporation Tax Act);

(ii) a split-off from the corporation (other than a qualified company split by split-off as prescribed in Article 2, item (xii)-12 of the Corporation Tax Act);

(iii) redemption of the corporation's stated capital (meaning the issuance of dividends of surplus in connection with shares (but only if this causes a decrease in capital surplus) other than due to a split-off) or the distribution of residual assets due to the dissolution of the corporation;

(iv) the corporation's acquisition of treasury shares or capital contributions to itself (other than acquisition through a purchase on a market operated by a financial instruments exchange as prescribed in Article 2, paragraph (16) (Definitions) of the Financial Instruments and Exchange Act or any other type of acquisition which is provided for by Cabinet Order, and other than acquisition of shares or capital contributions set forth in Article 57-4, paragraph (3), item (i) through (iii) (Special Provisions on Capital Gains Due to Share Exchange) in a case falling under the category of case prescribed in that paragraph);

(v) cancellation of capital contributions to the corporation (other than the cancellation of acquired capital contributions), refunding of capital contributions to the corporation, refunding of equity due to a member's or other contributor's withdrawal from the corporation, or extinguishment of shares in or capital contributions to the corporation without the corporation's acquiring them;

(vi) entity conversion by the corporation (but only one on the occasion of which assets other than shares in or capital contributions to the corporation undergoing the entity conversion are issued).

(2) Cabinet Order prescribes the way of calculating the amount of stated capital, etc. coming from shares and capital contributions as prescribed in the preceding paragraph and provides for other necessary particulars concerning the application of that paragraph.

Article 26 (1) Real property income means income arising from renting out real property, a right on real property, a vessel, or an aircraft (hereinafter referred to as "real estate and other such property" in this paragraph) (this includes establishing a superficies right or farming right or doing something else that gives another person the use of real estate or other such property) (other than anything falling under the category of business income or capital gains).

(2) Real property income is gross revenues constituting real property income in the relevant year, less necessary expenses.

Article 27 (1) Business income means income arising from commercial farming, fishing, manufacturing, wholesale activities, retail sales, the service industry, or any other commercial activity prescribed by Cabinet Order (other than anything falling under the category of timber income or capital gains).

(2) Business income is gross revenues constituting business income in the relevant year, less necessary expenses.

Article 28 (1) Salary income means income from pay, compensation, wages, annual allowances, bonuses, or salary of a similar nature (hereinafter referred to as a "salary or other wage" in this Article).

(2) Salary income is the amount remaining after the salary income deduction is applied against revenue from a taxpayer's salary and other wages in the relevant year.

(3) The salary income deduction prescribed in the preceding paragraph is the amount that each of the following items prescribes for the category of case set forth in the item:

(i) if the taxpayer's revenue as prescribed in the preceding paragraph is 1,800,000 yen or less:40% of the taxpayer's revenue (or 650,000 yen, if 40% of the taxpayer's revenue is less than 650,000 yen);

(ii) if the taxpayer's revenue as prescribed in the preceding paragraph is over 1,800,000 yen but not more than 3,600,000 yen:the sum total of 720,000 yen plus 30% of the difference arrived when 1,800,000 yen is deducted from the taxpayer's revenue;

(iii) if the taxpayer's revenue as prescribed in the preceding paragraph is over 3,600,000 yen but not more than 6,600,000 yen:the sum total of 1,260,000 yen plus 20% of the difference arrived at when 3,600,000 yen is deducted from the taxpayer's revenue;

(iv) if the taxpayer's revenue as prescribed in the preceding paragraph is over 6,600,000 yen but not more than 10,000,000 yen:the sum total of 1,860,000 yen plus 10% of the difference arrived at when 6,600,000 yen is deducted from the taxpayer's revenue;

(v) if the taxpayer's revenue as prescribed in the preceding paragraph is over 10,000,000 yen:the sum total of 2,200,000 yen plus 5% of the difference arrived at when 10,000,000 yen is deducted from the taxpayer's revenue.

(4) Notwithstanding the provisions of the preceding two paragraphs, if the taxpayer's revenue from salary and other wages in the year is less than 6,600,000 yen, that revenue is taken to be the "amount of salary and other wages" to which Appended Table V refers, and the taxpayer's salary income arising from salary and other wages is equivalent to the amount that, using the Table, a person finds to be the "amount of salary and other wages after the salary income deduction" that the Table gives for the taxpayer's salary and other wages.

Article 30 (1) Retirement income means income arising from severance pay, a lump-sum early retirement package, other compensation received on a one-time basis due to separation from employment, and compensation of a similar nature (hereinafter referred to as "severance pay and other such compensation" in this Article).

(2) Retirement income is equivalent to 50% of the amount remaining after the retirement income deduction is applied against revenue from severance pay and other such compensation in the year.

(3) The retirement income deduction prescribed in the preceding paragraph is the amount that is set forth in each of the following items for the category of case set forth in the item:

(i) if the taxpayer has 20 or fewer years of service as prescribed by Cabinet Order (hereinafter referred to as "years of service" in this paragraph):the amount calculated as 400,000 yen times the taxpayer's years of service;

(ii) if the taxpayer has over 20 years of service:the sum total calculated when 20 years are subtracted from the taxpayer's years of service, the difference is multiplied by 700,000 yen, and 8,000,000 yen is added to the product thereof.

(4) Notwithstanding the provisions of the preceding paragraph, if circumstances fall under one of the cases set forth in the following items, the retirement income deduction provided for in paragraph (2) is the amount set forth in the relevant item:

(i) a case as prescribed by Cabinet Order, in which the taxpayer has been paid other severance pay or other such compensation in or before the previous year:the amount calculated pursuant to the preceding paragraph, less the amount that is calculated for the other severance pay and other such compensation when the provisions of the preceding paragraph are applied pursuant to Cabinet Order;

(ii) a case in which the amount calculated pursuant to the provisions of the preceding paragraph and the preceding item is less than 800,000 yen (other than in a case falling under the following item):800,000 yen;

(iii) a case as prescribed by Cabinet Order in which the taxpayer is found to have left employment as a direct result becoming a Person with a Disability:the amount calculated pursuant to the provisions of the preceding paragraph and item (i) (or 800,000 yen, if the amount so calculated is less than 800,000 yen), plus 1,000,000 yen.

Article 31 For the purpose of applying this Act, the following lump-sum payments are deemed to constitute severance pay and other such compensation as prescribed in paragraph (1) of the preceding Article:

(i) a lump-sum payment based on the National Pension Act, Employee Pension Insurance Act (Act No. 115 of 1954) (other than the provisions of Chapter IX (Employee Pension Funds and the Pension Fund Association)), National Public Service Personnel Mutual Aid Associations Act (Act No. 128 of 1958), Local Public Service Personnel Mutual Aid Associations Act (Act No. 152 of 1962), Private School Personnel Mutual Aid Associations Act (Act No. 245 of 1953), or Act on the Farmers' Pension Fund, IAA (Act No. 127 of 2002), or any other lump-sum or one-time payment provided for by Cabinet Order which is based on a system similar to the social insurance or mutual aid systems under these Acts (including any similar payment; the same applies in item (iii));

(ii) a lump-sum payment based on Chapter IX of the Employees' Pension Insurance Act, which is paid due to a member as prescribed in Article 122 (Members) of that Act leaving employment, or a lump-sum payment based on the provisions of the Coal Mining Pension Fund Act (Act No. 135 of 1967) which is paid due to a pit worker as prescribed in Article 16, paragraph (1) (Payment for Pit Workers) of that Act or surface worker as prescribed in Article 18, paragraph (1) (Payment for Surface Workers) of that Act leaving employment;

(iii) a lump-sum payment that the taxpayer receives based on the Fixed-Benefit Corporate Pension Act (Act No. 50 of 2001), and which is paid due to a member as prescribed in Article 25, paragraph (1) (Members) of that Act leaving employment (if any part of installment deposits contributed based on bylaws regarding fixed-benefit corporate pensions as prescribed in Article 3, paragraph (1) (Implementation of Fixed-Benefit Corporate Pensions) of that Act constitute an amount borne by the member, the application of this paragraph is limited to the part of the lump-sum payment that is equivalent to the amount of that lump-sum payment less the amount borne by the member) or any other lump-sum payment prescribed by Cabinet Order as being similar thereto.

Article 32 (1) Timber income means income arising from the felling of trees in forested land or a transfer of forested land.

(2) Income arising from the felling of trees in forested land or a transfer of forested land within five years after the date of its acquisition is not included in timber income.

(3) Timber income is the amount arrived at when the special timber income deduction is applied against the amount remaining after necessary expenses are deducted from gross revenue constituting timber income in the relevant year.

(4) The special timber income deduction provided for in the preceding paragraph is 500,000 yen (or the remaining amount provided for in that paragraph, if this is less than 500,000 yen).

Article 33 (1) Capital gains means income arising from a transfer of assets (including the establishment of a superficies right or a right of lease to allow another person to own a building or structure, or an act provided for by Cabinet Order which gives another person long-term use of a piece of land pursuant to a contract; hereinafter the same applies in this Article).

(i) income arising from a transfer of Inventory (including anything that Cabinet Order prescribes as assets equivalent thereto) or from a person's continuous transfer of other assets on a commercial basis;

(ii) income arising from the felling of trees in forested land or a transfer of forested land, beyond that which falls under the preceding item.

(3) Capital gains is the amount arrived at by first treating each of the following items separately as regards the income set forth therein and calculating the sum total of the acquisition costs of assets generating the income set forth in the item plus the cost to transfer those assets, subtracting this sum from gross revenues constituting the income set forth in that item in the year, adding together the net balances from those calculations (or, if gross revenues constituting the income set forth in either one of the following items alone is less than the sum total of the acquisition costs of the assets generating that income and the cost to transfer those assets, offsetting the net balance calculated for the income set forth in the other item by an amount equivalent to the negative balance; hereinafter such an amount is referred to as "net gain" in this Article), then applying the special capital gains deduction against the net gain:

(i) income arising from a transfer of assets (other than a transfer falling under the provisions of the preceding paragraph; the same applies in the following item) that was made within five years after the date of the acquisition thereof (other than income prescribed by Cabinet Order);

(4) The special capital gain deduction provided for in the preceding paragraph is 500,000 yen (or the net gain, if this is less than 500,000 yen).

(5) When a special capital gain deduction as prescribed in paragraph (3) is applied against a net gain pursuant to the provisions of that paragraph, the deduction is first applied against the part of the net gain that comes from income set forth in item (i) of that paragraph.

Article 34 (1) Occasional income means income outside of interest income, dividend income, real property income, business income, salary income, retirement income, timber income, and capital gains; which does not constitute income from one-time payments arising from continuous activities undertaken on a commercial basis; and which does not have the nature of compensation for work or other services or for the transfer of assets.

(2) Occasional income is the amount arrived at when the amounts expended to gain the revenue arising from occasional income for the year are added together (but only amounts that were directly needed to bring about the undertaking of acts that generated the revenue or to provoke the occurrence of causes that generated the revenue), the sum total thereof is deducted from gross revenues constituting occasional income in the relevant year, and the special occasional income deduction is applied against the net balance.

(3) The special occasional income deduction provided for in the preceding paragraph is 500,000 yen (or the net balance provided for in that paragraph, if this is less than 500,000 yen).

Article 35 (1) Miscellaneous income means income not falling under the category of interest income, dividend income, real property income, business income, salary income, retirement income, timber income, capital gains, or occasional income.

(i) the amount remaining after the public pension deduction is applied against the revenue from public pensions and retirement packages in the year;

(ii) the amount arrived at when the necessary expenses are deducted from gross revenues constituting miscellaneous income in the relevant year (other than income from public pensions and retirement packages).

(i) pensions based on the provisions of the Acts prescribed in Article 31, item (i) and item (ii) (Lump-Sum Payments Deemed to Constitute Severance Pay and Other Such Compensation) and pensions as prescribed by Cabinet Order which are based on the system prescribed in item (i) of that Article (including any similar payments; the same applies in item (iii));

(ii) public retirement packages (other than lump-sum early retirement packages) and pensions based on past service which are paid by a former employer;

(iii) pensions received based on the provisions of the Fixed-Benefit Corporate Pension Act (if any part of installment deposits contributed based on bylaws provided for in Article 31, item (iii) constitutes an amount borne by the member prescribed in Article 25, paragraph (1) (Members) of that Act (including a person who was formerly a member as prescribed in that paragraph) to whom the pension is paid, this is limited to the part of the pension received based on the provisions of the Fixed-Benefit Corporate Pension Act which constitutes the amount of that pension less the part of the amount borne by the member which is calculated pursuant to Cabinet Order as being part of the amount of pension so received) and other pensions that Cabinet Order prescribes as being similar thereto.

(4) The public pension deduction prescribed in paragraph (2) is the sum of the amounts set forth in the following items; provided, however, that if that sum is less than 700,000 yen, the public pension deduction is 700,000 yen:

(ii) the amount that is set forth in each of the following sub-items for the category of case set forth in the sub-item, as it applies to the amount remaining after the amount set forth in the preceding item is deducted against the taxpayer's revenue from a public pension in the year:

(b) if the remaining amount is over 3,600,000 yen but not more than 7,200,000 yen:the sum total of 900,000 yen and 15% of the difference arrived at when 3,600,000 yen is deducted from remaining amount;

(c) if the remaining amount is over 7,200,000 yen:the sum total of 1,440,000 yen and 5% of the difference arrived at when 7,200,000 yen is deducted from remaining amount.

Article 36 (1) Except as provided otherwise, an amount is to be treated as part of the revenue that is used to calculate the Income in Each Class for the year or is to be included in the gross revenue that is used to calculate the same, if it is to be ascribed to revenues during the year (and the value of anything other than monies, rights, or any other economic benefit is to be treated as such or included therein, if it is ascribed to revenues during the year).

(2) The value of a thing other than monies, rights, or any other economic benefit as referred to in the preceding paragraph is its value at the time the thing or rights are acquired or at the time the benefit is enjoyed.

(3) Notwithstanding the provisions of paragraph (1), an amount is to be treated as a part of the amount of revenue that is used to calculate the interest income or dividend income for the year from interest on a bearer Public and Corporate Bond; dividend of surplus from a bearer share or similar interest (meaning a dividend of surplus as prescribed in Article 24, paragraph (1) (Dividend Income)); or distribution of proceeds linked to a bearer beneficiary certificate from a Loan Trust, Investment Trust, or Specified Trust That Issues Beneficiary Certificates, if the taxpayer is paid that amount during the year.

Article 37 (1) Except as provided otherwise, the amounts that are to be included in the necessary expenses that are used to calculate the real property income, business income, or miscellaneous income for the year (other than any business income or miscellaneous income arising from the felling of trees in forested land or the transfer of forested land, and other than miscellaneous income arising from a public pension or retirement package as prescribed in Article 35, paragraph (3) (Definition of Public Pensions and Retirement Packages)) are the costs of goods sold to generate the gross revenue in that income type or other expenses directly necessary to the taxpayer's acquisition of gross revenue in that income type, as well as sales expenses, general administrative expenses, and other expenses for business operations in the year that are meant to generate that type of income (excluding any expense, other than a depreciation allowance, for which the taxpayer's liability does not become fixed during that year).

(2) Except as provided otherwise, the amounts that are to be included in the necessary expenses that are used to calculate business income, timber income, or miscellaneous income are planting expenses, acquisition costs, maintenance expenses, felling expenses, and any other expenses needed to cultivate or transfer forested land (excluding any expense, other than a depreciation allowance, for which the taxpayer's liability does not become fixed during that year).

Article 38 (1) Except as provided otherwise, the asset acquisition costs that are deducted to calculate capital gains are the sum total of the amount needed to acquire the assets plus the amounts of equipment expenses and improvement expenses.

(2) If an asset generating capital gains is a house or other asset that depreciates due to use or with the passage of time, the asset acquisition costs provided for in the preceding paragraph are the amount arrived at when the sum total of the amounts set forth in each of the following items for the category of period between the acquisition date and the transfer date which is set forth in the item is deducted from an amount equal to the sum total provided for in the preceding paragraph:

(i) any period during which the assets are used in business operations that are meant to generate real property income, business income, timber income, or miscellaneous income:the cumulative amount of the depreciation allowances for those assets which, pursuant to the provisions of Article 49, paragraph (1) (Calculating Depreciation Allowances for Depreciable Assets; Depreciation Methods), are included in necessary expenses that are used to calculate the real property income, business income, timber income, or miscellaneous income for each of the years that contain days within that period;

(ii) any period other than as set forth in the preceding item:the amount of depreciation in those assets during that period, as calculated pursuant to Cabinet Order and in accordance with the provisions of Article 49, paragraph (1).

Article 39 If a Resident uses Inventory (including anything that Cabinet Order prescribes to be an equivalent asset) to benefit the household, or fells trees in forested land and uses them to benefit the household, an amount equal to the value of those assets at the time of use is included in the gross revenue that is used to calculate the Resident's business income, timber income, or miscellaneous income for the year in which the date of use falls.

Article 40 (1) If Inventory owned by a Resident (including forested land generating business income or anything that Cabinet Order prescribes as an asset equivalent to Inventory; hereinafter the same applies in this Article) has devolved due to circumstances as set forth in one of the following items, an amount equal to what is set forth in the applicable item is included in the gross revenue that is used to calculate the Resident's business income or miscellaneous income for the year in which the day that the circumstances occur falls:

(i) an inter vivos gift (other than a gift to an heir that becomes effective on the death of a donor leaving an estate) or legacy (other than a universal legacy and other than a particular legacy left to an heir):the value of the Inventory at the time of the inter vivos gift or legacy;

(ii) a transfer for consideration at a conspicuously low value:the part of the difference between the amount of consideration and the value of the Inventory at the time of the transfer which is found, in essence, to have been given as a gift.

(2) Calculation of business income, timber income, capital gains, or miscellaneous income if a Resident transfers Inventory acquired through an inter vivos gift, legacy, or transfer as set forth in the items of the preceding paragraph is as follows:

(i) Inventory acquired through an inter vivos gift or legacy as set forth in item (i) of the preceding paragraph is deemed to have been acquired for the amount set forth in that item;

(ii) Inventory acquired through a transfer as set forth in item (ii) of the preceding paragraph is deemed to have been acquired for the sum total of the consideration for the transfer and the amount set forth in that item.

Article 41 (1) If a Resident engaged in agriculture harvests crops (but only rice, barley, wheat, or a crop prescribed by Cabinet Order), an amount equal to the value of the crops at the time of the harvest (hereinafter referred to as the "value of the harvest" in this Article) is included in the gross revenue that is used to calculate the Resident's business income for the year in which the date of the harvest falls.

(2) The Resident is deemed to acquire a crop as referred to in the preceding paragraph for the value of the harvest at the time prescribed in that paragraph.

Article 42 (1) If, in any year, a Resident is issued a national or local government subsidy or benefit or anything that Cabinet Order prescribes as being equivalent thereto (hereinafter referred to as a "government subsidy or its equivalent" in this Article and the following Article) which is meant to be allocated to acquiring or improving Fixed Assets (including forested land; hereinafter the same applies in this Article and the following Article), and the Resident uses the government subsidy or its equivalent to acquire or improve Fixed Assets that year in line with the purpose for which it is issued, an amount equal to the part of the government subsidy or its equivalent that the Resident allocates to acquiring or improving the Fixed Assets is not included in the gross revenue that is used to calculate that Resident's Income in Each Class, but only if the final decision that the Resident need not return the government subsidy or its equivalent is reached by December 31 of the relevant year (or by the time of the Resident's death or the start of the Resident's Absence From Japan, if the Resident dies or becomes Absent From Japan partway through the year after the acquisition or improvement).

(2) If, in any year, a Resident is issued Fixed Assets in lieu of a government subsidy or its equivalent, an amount equal to the value of those Fixed Assets is not included in the gross revenue that is used to calculate that Resident's Income in Each Class.

(3) The provisions of the preceding two paragraphs apply only if the Tax Return indicates recourse to the application of those provisions, indicates the amount that is not being included in gross revenue pursuant to those provisions, and gives the information prescribed by Ministry of Finance Order.

(4) Even if no Tax Return is filed or if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district tax office director may apply the provisions of paragraph (1) or paragraph (2) on finding there to be unavoidable circumstances for the Resident's failure to file the Tax Return or fill it out in that manner.

(5) Cabinet Order provides for the necessary particulars concerning the calculation of the depreciation allowance provided for in Article 49, paragraph (1) (Calculating Depreciation Allowances for Depreciable Assets; Depreciation Methods) for Fixed Assets that a Resident subject to the provisions of paragraph (1) or paragraph (2) uses a government subsidy or its equivalent to acquire or improve or for Fixed Assets as prescribed in that paragraph that such a Resident acquires; and provides for the necessary particulars concerning the calculation of business income, timber income, capital gains, or miscellaneous income in the event that such a Resident transfers those Fixed Assets.

Article 43 (1) If, in any year, a Resident is issued a government subsidy or its equivalent that is meant to be allocated to acquiring or improving Fixed Assets, and the final decision that the Resident need not return the government subsidy or its equivalent has not been reached by December 31 of the relevant year (or by the time of the Resident's death or the start of the Resident's Absence From Japan, if the Resident dies or becomes Absent From Japan partway through the year), an amount equal to the government subsidy or its equivalent is not included in the gross revenue that is used to calculate that Resident's Income in Each Class for the year.

(2) If the final decision is reached that a Resident subject to the provisions of the preceding paragraph need not return the whole or a part of the government subsidy or its equivalent referred to in that paragraph which the Resident has been issued, an amount equal to the part of the government subsidy or its equivalent which is subject to the final decision, less the part that Cabinet Order prescribes out of the amount allocated to acquiring or improving Fixed Assets in line with the purpose for which the government subsidy or its equivalent has been issued, is included in the gross revenue that is used to calculate that Resident's Income in Each Class for the year in which the date of the final decision falls.

(3) If it is determined that a Resident subject to the provisions of the preceding paragraph needs to return the whole or a part of the government subsidy or its equivalent referred to in that paragraph which the Resident has been issued, an amount equal to the part of the government subsidy or its equivalent that is subject to the final decision is not included in the necessary expenses or amounts expended that are used to calculate that Resident's Income in Each Class for the year in which the date of the determination falls.

(4) The provisions of paragraph (1) apply only if a Tax Return indicates recourse to the application of the provisions of that paragraph, indicates the amount that is not being included in gross revenue pursuant to that paragraph, and gives the information prescribed by Ministry of Finance Order.

(5) Even if no Tax Return is filed or if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district tax office director may apply the provisions of paragraph (1) on finding there to be unavoidable circumstances for the Resident's failure to file the Tax Return or fill it out in that manner.

(6) Cabinet Order provides for the necessary particulars concerning the calculation of a depreciation allowance as prescribed in Article 49, paragraph (1) (Calculating Depreciation Allowances for Depreciable Assets; Depreciation Methods) for Fixed Assets that a Resident subject to the provisions of paragraph (1) uses a government subsidy or its equivalent to acquire or improve; and provides for the necessary particulars concerning the calculation of business income, timber income, capital gains, or miscellaneous income in the event that such a Resident transfers those Fixed Assets.

Article 44 If a Resident is issued a national or local government subsidy that is meant to cover the expenses of an administratively necessary relocation, reconstruction, or removal of the Resident's assets or any other similar action (other than the improvement of a Fixed Asset or an action as prescribed by Cabinet Order; hereinafter referred to as the "relocation, reconstruction, or removal" of assets in this paragraph), or is issued an amount of money that is meant to cover the expenses of a relocation, reconstruction, or removal of the Resident's assets due to an expropriation under the Land Expropriation Act (Act No. 219 of 1951) or the occurrence of any other compelling reason prescribed by Cabinet Order, and the Resident allocates the money issued thereto to cover the relocation, reconstruction, or removal of assets for which it has been issued, the amount allocated to cover those expenses is not included in the gross revenue that is used to calculate that Resident's Income in Each Class; provided, however, that this does not apply to an amount equal to the part of the monies allocated to cover expenses which is included in the necessary expenses that are used to calculate the Income in Each Class or the part of the monies so allocated which is found to have been a necessary transfer expense.

Article 44-2 If a reduction is made to the amount of foreign income taxes as prescribed in Article 95, paragraph (1) (Foreign Tax Credit) which is used as the basis for calculating the amount to be credited pursuant to the provisions of Article 95, paragraphs (1) through (3) in any of the seven years beginning in the year after that in which a Resident is subject to the provisions of those paragraphs, the amount that Cabinet Order prescribes as corresponding to the part of the reduction to foreign income taxes which is pertinent to the application of the foreign tax credit under that Article in the year in which the date of the decision to reduce those taxes falls is not included in gross revenue that is used to calculate the Resident's real property income, business income, timber income, occasional income, or miscellaneous income for the year. In such a case, the amount arrived at when the amount specified by that Cabinet Order is deducted from the amount of the reduction is included in the gross revenue that is used to calculate the Resident's miscellaneous income for the year.

Article 45 (1) The expenses set forth as follows which a Resident expends or pays to the government are not included in the necessary expenses that are used to calculate the Resident's real property income, business income, timber income, or miscellaneous income:

(ii) income taxes (other than what Cabinet Order prescribes as the tax levied as interest under Article 131, paragraph (3) (Tax Levied as Interest for Postponing Payment of Taxes That Are to Be Paid Upon Filing) or Article 136 (Tax Levied as Interest for Deferring Payment of Income Taxes on Assets Transferred on a Deferred-Payment Basis) which is paid by a Resident engaged in a business undertaking that is meant to generate real property income, business income, or timber income, in an amount that corresponds to the Resident's income taxes for income from such a business undertaking);

(iii) any tax on delinquency, additional tax for underreporting, additional tax for failure to file, additional tax for non-payment, or compounded additional tax, and any tax for omission or failure under the provisions of the Stamp Tax Act (Act No. 23 of 1967), levied against national taxes other than income taxes;

(iv) prefectural inhabitants' tax and municipal inhabitants' tax (including Tokyo inhabitants' tax and special ward inhabitants' tax) under the Local Tax Act (Act No. 226 of 1950);

(v) delinquency charges, additional charges for underreporting, additional charges for failure to file, or compounded additional charges under the Local Tax Act;

(vi) a criminal or petty fine (including anything equivalent to a criminal or petty fine under an administrative notification and anything equivalent to a criminal or petty fine imposed by a foreign state or a local government thereof) or a non-criminal fine;

(viii) a surcharge or delinquency charge under the Act for Emergency Measures to Stabilize the Lives of the People (Act No. 121 of 1973);

(ix) a surcharge or delinquency charge under the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade (Act No. 54 of 1947) (including any similar surcharge or delinquency charge that a foreign state, a local government thereof, or an international organization orders the Resident to pay);

(x) a surcharge or delinquency charge under Chapter VI-2 (Surcharges) of the Financial Instruments and Exchange Act;

(xi) a surcharge or delinquency charge under the Certified Public Accountant Act (Act No. 103 of 1948).

(2) A bribe as prescribed in Article 198 (Bribes) of the Penal Code (Act No. 45 of 1907), monies as prescribed in Article 18, paragraph (1) (Prohibition on Supplying Foreign Public Officials with Illicit Gains) of the Unfair Competition Prevention Act (Act No. 47 of 1993), or other monies in the nature of a gain paid by a Resident, and the value of any article other than monies or of any right or economic benefit that a Resident supplies (and any additional expenses needed to provide them), is not included in the necessary expenses that are used to calculate the Resident's real property income, business income, timber income, or miscellaneous income.

(3) An outlay as set forth in items (ii) through (vii) of paragraph (1), any monies prescribed in the preceding paragraph, and the value of any article other than monies or of any right or other economic benefit prescribed in that paragraph is not included in the amounts expended that are used to calculate the occasional income of a Resident as referred to in paragraph (1) or the preceding paragraph.

Article 46 If a Resident has recourse to the application of the provisions of Article 95, paragraph (1) (Foreign Tax Credit) or Article 138, paragraph (1) (Refunding Tax Withheld) as regards credit-eligible foreign income taxes as prescribed in Article 95, paragraph (1), the credit-eligible foreign income taxes are not included in the necessary expenses or amounts expended that are used to calculate the Resident's real property income, business income, timber income, miscellaneous income, or occasional income.

Article 47 (1) In the calculation of the amount that, pursuant to the provisions of Article 37, paragraph (1) (Necessary Expenses), is included, in association with an item of Inventory that a Resident holds, in the necessary expenses that are used to calculate a Resident's business income, the value of an item of Inventory held by the Resident on December 31 of the relevant year (or by the time of the Resident's death or the start of the Resident's Absence From Japan, if the Resident dies or becomes Absent From Japan partway through the year; the same applies in the following Article through Article 50) which is used as the basis for that calculation is the amount of money assessed based on the valuation method that the Resident has selected for Inventory (or based on the valuation method prescribed by Cabinet Order, if the Resident does not select a valuation method or if the value of the item of Inventory is not assessed based on the selected valuation method).

(2) a Cabinet Order provides for the types of selectable valuation methods referred to in the preceding paragraph, the way of selecting a valuation method, and other necessary particulars concerning the valuation of Inventory.

Article 48 (1) In the calculation of the amount that, pursuant to the provisions of Article 37, paragraph (1) (Necessary Expenses), is included, in association with a Security that a Resident holds, in the necessary expenses that are used to calculate the Resident's business income, the value of a Security held by the Resident on December 31 of the relevant year which is used as the basis for that calculation is the amount of money assessed based on the valuation method that the Resident has selected for Securities (or based on the valuation method prescribed by Cabinet Order, if the Resident does not select a valuation method or if the value of the Security is not assessed based on the selected valuation method).

(2) Cabinet Order provides for the types of the selectable valuation methods referred to in the preceding paragraph, the way of selecting a valuation method, and other necessary particulars concerning the valuation of Securities.

(3) The amount that, pursuant to the provisions of Article 37, paragraph (1), is included, in association with a Security of the same class that the Resident acquires on two or more occasions, in the necessary expenses that are used to calculate the amount of a Resident's miscellaneous income, or that, pursuant to the provisions of Article 38, paragraph (1) (Acquisition Costs Deducted to Calculate Capital Gains) is included, in association with such a Security, in the acquisition costs that are used to calculate the Resident's capital gains, is the value assessed pursuant to Cabinet Order and in accordance with the provisions of paragraph (1), based on the amount needed to acquire the Security on each occasion.

Article 49 (1) The amount that, pursuant to the provisions of Article 37 (Necessary Expenses), is included in the necessary expenses that are used to calculate a Resident's real property income, business income, timber income, or miscellaneous income, as the depreciation allowance for a Depreciable Asset held by a Resident on December 31 of the relevant year is the amount calculated pursuant to Cabinet Order based on the depreciation method that the Resident has selected for Depreciable Assets from among the depreciation methods prescribed by Cabinet Order by date of acquisition and asset category (or based on the depreciation method prescribed by Cabinet Order, if the Resident does not select a depreciation method).

(2) Cabinet Order establishes special provisions on the selectable depreciation methods referred to in the preceding paragraph and provides for the way of selecting a depreciation method, the acquisition costs of Depreciable Assets that is to be used as the basis of the calculation of the depreciation allowance, and other particulars that need to be prescribed concerning the depreciation of Depreciable Assets.

Article 50 (1) The amount that, pursuant to the provisions of Article 37 (Necessary Expenses), is included in the necessary expenses that are used to calculate a Resident's real property income, business income, timber income, or miscellaneous income, as the depreciation allowance for a Deferred Asset that a Resident possesses on December 31 of the relevant year is the amount calculated pursuant to Cabinet Order on the basis of the period during which the expenses for the Deferred Assets continue to affect the calculation.

(2) Beyond what is provided for in the preceding paragraph, Cabinet Order provides for the necessary particulars concerning the depreciation of Deferred Assets.

Article 51 (1) A loss incurred due to circumstances such as the demolition, removal, or destruction (including a decrease in value due to damage) of a Fixed Asset, or of any other equivalent asset as provided by Cabinet Order, which is used in a business run by a Resident that is meant to generate real property income, business income, or timber income (other than any part of the loss covered by insurance benefits, compensation for damage, or anything similar to these, and excluding loss due to or related to the transfer of an asset) is included in the necessary expenses that are used to calculate the Resident's real property income, business income, or timber income for the year in which the day of the loss falls.

(2) A loss incurred in the course of business due to accounts receivable, loans, advance payments, or bad debt claims equivalent to these, or due to other circumstances as provided by Cabinet Order, in a business run by a Resident which is meant to generate real property income, business income, or timber income is included in the necessary expenses that are used to calculate the Resident's real property income, business income, or timber income for the year in which the day of the loss falls.

(3) A loss due to Disaster, robbery, or misappropriation involving forested land owned by a Resident (other than any part of the loss covered by insurance benefits, compensation for damage, or anything similar to these) is included in the necessary expenses that are used to calculate the Resident's business income or timber income for the year in which the day of the loss falls.

(4) A loss involving assets (other than forested land and assets prescribed in Article 62, paragraph (1) (Loss of Assets Not Ordinarily Necessary in Everyday Life, Due to Disaster)) used in the business operations of a Resident which are meant to generate real property income or miscellaneous income or are the basis of such income (other than any part of the loss covered by insurance benefits, compensation for damage, or anything similar to these; other than any loss due to or related to the transfer of an asset; and other than any loss prescribed in paragraph (1) or paragraph (2) or Article 72, paragraph (1) (Casualty Loss Deduction)) is included in the necessary expenses that are used to calculate the Resident's real property income or miscellaneous income for the year in which the day of the loss falls, up to the amount of the real property income or miscellaneous income for the year (meaning the amount of real property income or miscellaneous income for the year as calculated without applying the provisions of this paragraph).

(5) Cabinet Order provides for the necessary particulars concerning the calculation of the loss prescribed in paragraph (1) and the preceding two paragraphs.

Article 52 (1) If a Resident running a business that is meant to generate real property income, business income, or timber income has accounts receivable, lendings, advance payments, or equivalent monetary claims arising in the course of business (hereinafter referred to as "lendings and other claims" in this paragraph) that become subject to a grace period on repayment or to repayment in installments due to a decision confirming a reorganization plan under the Corporate Reorganization Act (Act No. 154 of 2002), or in any other cases provided for by Cabinet Order, any amount that the Resident transfers into the reserve account for bad debts in each year (other than a year in which the day of a complete business transfer or discontinuation falls; the same applies in the following paragraph) as the expected amount ascribable to the part of the loss on a lending or other claim which is expected to come from a bad debt or other equivalent circumstances (this includes any other lendings or other claims made to or held against the debtor associated with the lending or other claim in question; hereinafter referred to as an "individually assessed lending or other claim" in this paragraph and the following paragraph) is included in the necessary expenses that are used to calculate the Resident's real property income, business income, or timber income for the year, up to the amount calculated pursuant to Cabinet Order based on the part of the amount transferred for the individually assessed lending or other claim which, as of December 31 of the relevant year (or as of the time of the Resident's death, if the Resident dies partway through the year; the same applies in the following paragraph), there is found to be little prospect of collecting or having repaid; provided, however, that this does not apply if the Resident dies and the heir does not take over the business.

(2) The amount that a Blue-Return-filing Resident running a business that is meant to generate business income transfers into the reserve account for bad debts in any year as the expected amount of losses due to bad debts in accounts receivable, lendings, and equivalent monetary claims arising in the course of business (other than individually assessed lendings and other claims; hereinafter referred to as "collectively assessed loans" in this paragraph) is included in the necessary expenses that are used to calculate the Resident's business income for the year, up to the amount calculated pursuant to Cabinet Order based on the amount of collectively assessed loans that the Resident holds as of December 31 of the relevant year; provided, however, this does not apply if the Resident dies and the heir does not take over the business, and does not apply in any other case as prescribed by Cabinet Order.

(3) The part of a reserve account for bad debts which is included in the necessary expenses that are used to calculate the real property income, business income, or timber income for the year in which that amount is transferred into the account pursuant to the provisions of the preceding two paragraphs is included in the gross revenue that is used to calculate the real property income, business income, or timber income for the year following that in which the amount is transferred into the account.

(4) The provisions of paragraph (1) and paragraph (2) apply only if a Tax Return gives the details of the inclusion of the amount transferred into the reserve account for bad debts in necessary expenses.

(5) Even if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district tax office director may apply the provisions of paragraph (1) or paragraph (2) on finding there to be unavoidable circumstances for the Resident's failure to fill out the Tax Return in that manner.

(6) Cabinet Order provides for the necessary particulars concerning the handling, in the event of the death of a Resident as prescribed in paragraph (1) or paragraph (2), of any amount of a reserve account for bad debts that has been included in the necessary expenses that are used to calculate the real property income, business income, or timber income for the year in which the date of the Resident's death falls.

Article 53 (1) If a Blue-Return-filing Resident running a publishing business or any other business provided for by Cabinet Order has entered into a continuously operative special contract applicable to the majority of the Inventory that the Resident sells in its business, under which the Resident is to buy back Inventory sold for its value as of the time of the sale, or if such a Resident has entered into any other special contract as prescribed by Cabinet Order, the amount that the Resident transfers into the reserve account for losses on returned goods in each year (other than a year in which the Resident transfers or discontinues all of such business) as the estimated amount of losses attributable to buy backs under the special contract applicable to that Inventory is included in the necessary expenses that are used to calculate the Resident's business income for the year, up to the amount calculated pursuant to Cabinet Order based on the actual data from recent years on buy backs under the special contract applicable to that Inventory; provided, however, that this does not apply if the Resident dies and the heir does not take over the business, and does not apply in any other case as provided by Cabinet Order.

(2) The part of a reserve account for losses on returned goods which is included in the necessary expenses that are used to calculate business income for the year in which that amount is transferred into the account pursuant to the provisions of the preceding paragraph is included in the gross revenue that is used to calculate business income for the year following that in which the amount is transferred into the account.

(3) The provisions of paragraph (1) apply only if a Tax Return gives the details of the inclusion of the amount transferred into the reserve account for losses on returned goods in necessary expenses.

(4) Even if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district tax office director may apply the provisions of paragraph (1) on finding there to be unavoidable circumstances for the Resident's failure to fill out the Tax Return in that manner.

(5) Cabinet Order provides for the necessary particulars concerning the handling, in the event of the death of a Resident as prescribed in paragraph (1), of any amount of reserves for loss on returned goods that has been included in the necessary expenses that are used to calculate business income for the year in which the date of the Resident's death falls.

Article 54 (1) If a Blue-Return-filing Resident running a business that is meant to generate business income has established rules for severance packages as prescribed by Cabinet Order, the amount that the Resident transfers to the severance package reserves account in any year to cover severance packages that are paid to employees of the business (other than a spouse or other relative whose living expenses are paid from the same resources as the Resident; hereinafter the same applies in this Article) upon their separation from employment is included in the necessary expenses that are used to calculate the Resident's business income for the year, up to the amount calculated pursuant to Cabinet Order based on the amount of any increase that is found to have arisen in the year in the estimated amount that the Resident would have to pay in severance packages if all employees of the business that the Resident employs as of December 31 of that year (or as of the time of Resident's death, if the Resident dies partway through the year) were to resign of their own accord.

(2) A Resident holding monies under a severance package reserves account (but only amounts of monies included in the necessary expenses that are used to calculate business income for the year in which that amount is transferred into the account pursuant to the provisions of the preceding paragraph; this excludes any monies that it has already been established must be withdrawn pursuant to the provisions of this paragraph; hereinafter the same applies in this Article) must withdraw the monies under the severance package reserves account if an employee as referred to in the preceding paragraph separates from employment, if approval to file a Blue Return is rescinded, or in any other case prescribed by Cabinet Order.

(3) An amount of monies under a severance package reserves account which it has been established must be withdrawn pursuant to the provisions of the preceding paragraph is included in the gross revenue that is used to calculate the amount of business income for the year in which the day it was established that the amount was to have been withdrawn falls; and any amount of monies under a severance package reserves account which is withdrawn even though it does not fall under the provisions of that paragraph is included in the gross revenue that is used to calculate business income for the year in which the day it is withdrawn falls.

(4) The provisions of paragraph (1) apply only if a Tax Return gives the details of the inclusion of the amount transferred into the severance package reserves account in necessary expenses.

(5) Even if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district tax office director may apply the provisions of paragraph (1) on finding there to be unavoidable circumstances for the Resident's failure to fill out the Tax Return in that manner.

(6) Beyond what is prescribed in paragraph (2) to the preceding paragraph, Cabinet Order provides for the handling of amounts of monies under severance package reserves accounts following the death of the Resident holding them and for other necessary particulars concerning the application of the provisions of paragraph (1).

(Special Provisions on Necessary Expenses If Relatives Receive Consideration from a Resident's Business)

Article 56 If, due to reasons such as being employed in a business run by a Resident which is meant to generate real property income, business income, or timber income, the spouse or any other relative whose living expenses are paid from the same resources as a Resident is paid a consideration by that business, an amount equal to that consideration is not to be included in the necessary expenses that are used to calculate the real property income, business income, or timber income from the Resident's business, and any amount that is to be included in the necessary expenses that are used to calculate the relative's Income in Each Class from that consideration is included in the necessary expenses that are used to calculate the real property income, business income, or timber income from the Resident's business. In such a case, the amount of the consideration paid to the relative and amounts to be included in the necessary expenses that are used to calculate the relative's Income in Each Class from consideration are deemed not to be a part of the calculation of the relative's Income in Each Class.

Article 57 (1) Notwithstanding the provisions of the preceding Article, if the spouse or other relative (other than one under 15 years of age) whose living expenses are paid from the same resources as a Resident that the director of the district tax office has approved to file a Blue Return, who works exclusively in a business as prescribed in the preceding Article which is run by the Resident (hereinafter referred to as a "relative employed only by a blue-return filer" in this Article) is paid a salary by the business of up to the amount stipulated in the document referred to in the following paragraph and in the way that is stipulated in that document, the part of the salary that, in light of the period, nature, and extent of the relative's service; the type and size of the business; salaries ordinarily paid in the same type and similar size of business; and any other circumstances provided for by Cabinet Order, is found to be appropriate as consideration for the relative's work, is included in the necessary expenses that are used to calculate the real property income, business income, or timber income from the Resident's business for the year in which the salary is paid, and is treated as the annual revenue constituting salary income of the relative employed only by the blue-return filer.

(2) A Resident seeking to apply the provisions of the preceding paragraph to income taxes in and after the current year must submit a document to the competent district tax office director for the locality in which the Resident pays taxes, giving the names of relatives employed only by the blue-return filer, the details of their duties, the amounts of their salaries, the pay periods for those salaries, and the information prescribed by Ministry of Finance Order, no later than March 15 of the relevant year (or within two months from the day on which the Resident starts a business as referred to in that paragraph, if this is on or after January 16 of that year).

(3) If a Resident (other than one as prescribed in paragraph (1)) has a spouse or other relative whose living expenses are paid from the same resources as the Resident (excluding a relative under 15 years of age) and who works exclusively in a business as prescribed in the preceding Article which is run by the Resident (hereinafter referred to as a "relative employed only by the Resident" in this Article), whichever is the lower of the following amounts is deemed to constitute the necessary expenses for each relative employed only by the Resident which are used to calculate the real property income, business income, or timber income from that business of the Resident for the year:

(i) the amount prescribed in each of the following clauses for the category of relative employed only by the Resident set forth in the clause:

(ii) the amount calculated by dividing the real property income, business income, or timber income from that business for the year (meaning the amount calculated without applying the provisions of this paragraph) by one more than the number of relatives employed only by the Resident in that business.

(4) If the provisions of the preceding paragraph are applied, the amount deemed to be the necessary expenses for each of the relatives employed only by the Resident pursuant to the provisions of that paragraph is deemed to be the revenue constituting salary income of each of the relatives employed only by the Resident which is used to calculate their Income in Each Class for the year.

(5) The provisions of paragraph (3) do not apply unless a Tax Return indicates recourse to the application of the provisions of that paragraph and gives information about the amounts that are deemed to be necessary expenses pursuant to the provisions of that paragraph.

(6) Even if no Tax Return is filed or if a Tax Return is filed that is not filled out as referred to in the preceding paragraph, the district tax office director may apply the provisions of paragraph (3) on finding there to be unavoidable circumstances for the Resident's failure to file the Tax Return or fill it out in that manner.

(7) In a case as referred to in paragraph (1) or paragraph (3), whether a relative as prescribed in those provisions is under 15 years of age is determined by the relative's age as of December 31 of the relevant year (or as of the time of the Resident's death or the start of the Resident's Absence From Japan, if the Resident prescribed in these provisions dies or becomes Absent From Japan partway through the year); provided, however, that if such a relative has already died as of that point in time, whether that relative was under 15 years of age is determined by the relative's age as of the time of death.

(8) Cabinet Order prescribes procedures for if the details of the requirements for a relative employed only by a blue-return filer or relative employed only by a Resident change and for if information that has been given in the document referred to in paragraph (2) changes, and provides for other necessary particulars concerning the application of the provisions of paragraph (1) and paragraph (3).

Article 57-2 (1) Notwithstanding the provisions of Article 28, paragraph (2) and paragraph (4), if a Resident has specific expenses in any year and the sum of the specific expenses for the year exceeds the salary income deduction prescribed in Article 28, paragraph (3) (Salary Income), the salary income prescribed in paragraph (2) of that Article for the year may be taken to be the amount arrived at when the amount by which such expenses exceed the deduction is deducted from the remaining amount that is referred to in paragraph (2) of that Article.

(2) The specific expenses prescribed in the preceding paragraph means the following expenses of a Resident (this excludes any part of a Resident's expenses which are covered by a person related to the Resident who pays the Resident a salary or other wage as prescribed in Article 28, paragraph (1) (hereinafter referred to as the "person paying the salary or other wage"), if income taxes are not imposed on the part so covered):

(i) that which Cabinet Order prescribes, in respect of any expenses that the Resident incurs to use the transportation facilities or transportation equipment necessary for a commute via routes and means of transportation that the person paying the salary or other wage attests to, pursuant to Ministry of Finance Order, as being the most economical and reasonable in light of the fare, commute time, distance of the commute, and any other circumstances of the Resident's commute, as the part of such expenses that the average commuter is found to need under ordinary circumstances;

(ii) what is prescribed by Cabinet Order as the expenses that are found to be necessary under ordinary circumstances for a change of residence that the person paying a salary or other wage attests to, pursuant to Ministry of Finance Order, as being connected with a transfer of workplace;

(iii) expenses for undergoing training that the person paying the salary or other wage attests to, pursuant to Ministry of Finance Order, as being something that the Resident undergoes so as to learn a skill or acquire knowledge that is directly necessary to the performance of the Resident's duties (other than training to acquire a professional qualification);

(iv) expenses for acquiring a professional qualification (other than as an attorney, certified public accountant, or tax accountant, or any other qualification with respect to which laws and orders prescribe that only a person so qualified may engage in a specific professional practice) which the person paying the salary or other wage attests to, pursuant to Ministry of Finance Order, as being directly necessary to the performance of the Resident's duties;

(v) expenses prescribed by Cabinet Order which are necessary for travel under ordinary circumstances between the Resident's workplace or residence and the place where the spouse or other family member of the Resident resides, in circumstances that the person paying the salary or other wage attests to, pursuant to Ministry of Finance Order, as falling under a case in which a transfer of workplace has caused the Resident to live constantly apart from the spouse thereof whose living expenses are paid from the same resources as the Resident, or as falling under circumstances that Cabinet Order prescribes as being equivalent thereto.

(3) The provisions of paragraph (1) apply only if a Tax Return indicates recourse to the application of the provisions of that paragraph and gives the sum of the amount of specific expenses prescribed in that paragraph, and is accompanied by a detailed statement of the specific expenses set forth in each of the items of the preceding paragraph and the certifying documents prescribed in those items.

(4) When filing a Tax Return indicating recourse to the application of the provisions of paragraph (1), the filer must include with the Tax Return a document prescribed by Cabinet Order as evidencing the fact that the Resident has incurred the specific expenses prescribed in that paragraph and the amount spent, or must present such a document at the time of filing the Tax Return.

(5) Beyond what is prescribed in the preceding paragraphs, Cabinet Order provides for the details of the scope of specific expenses prescribed in paragraph (2) and for other necessary particulars concerning the application of the provisions of paragraph (1).

Article 57-3 (1) If a Resident makes a transaction in a foreign currency (meaning that the Resident sells or purchases assets, provides services, borrows or lends monies, or conducts any other transaction involving payment in a foreign currency; hereinafter the same applies in this Article), the yen equivalent of that transaction (meaning the amount arrived at when the amount of the foreign-currency-denominated transaction is converted into a Japanese-currency-denominated amount; the same applies in the following paragraph) is the amount arrived at when the amount of the transaction is converted into yen based on the foreign exchange rate as of the time of the foreign-currency transaction, and this is used to calculate the Resident's Income in Each Class for the year.

(2) If a Resident conducting business that is meant to generate real property income, business income, timber income, or miscellaneous income fixes the yen equivalent of assets acquired or liabilities incurred through a transaction in a foreign currency based on a foreign exchange futures contract or similar contract (meaning what is provided for by Ministry of Finance Order as a contract that fixes the yen equivalent of assets acquired or liabilities incurred through a transaction in a foreign currency; hereinafter the same applies in this paragraph) and enters an indication of this, pursuant to Ministry of Finance Order, in the books and documents connected with the Resident's business or in any other document prescribed by Ministry of Finance Order, as on the day that the foreign exchange futures contract or similar contract is concluded, the yen equivalent of the assets or liabilities is treated as the amount arrived at via the conversion into yen pursuant to the preceding paragraph, and this is used to calculate the Resident's real property income, business income, timber income, or miscellaneous income for each year.

(3) Beyond what is prescribed in the preceding paragraph, Cabinet Order establishes special provisions on the conversion of transactions in a foreign currency and provides for other necessary particulars concerning the application of the provisions of the preceding two paragraphs.

Subsection 5 Special Provisions on Calculation of Gross Revenue, Necessary Expenses, and Acquisition Costs Associated with Transfers of Assets

Article 57-4 (1) If, in any year, due to a share exchange implemented by a corporation issuing shares that a Resident holds (hereinafter referred to as "old shares" in this paragraph) (such a share exchange is limited to one in which the shareholders of the corporation are not issued assets other than either shares (including capital contributions; hereinafter the same applies in this paragraph) in a wholly owning parent corporation resulting from a share exchange which is as prescribed in Article 2, item (xii)-6-4 (Definitions) of the Corporation Tax Act (hereinafter referred to as a "wholly owning parent corporation resulting from a share exchange" in this paragraph) or shares in a corporation that is related to the wholly owning parent corporation resulting from the share exchange in a way that Cabinet Order prescribes as constituting a relationship whereby it holds all the issued shares or capital contributions in the wholly owning parent corporation resulting from the share exchange (other than the treasury shares that the wholly owning parent corporation resulting from the share exchange holds itself) (monies and other assets issued to the shareholders as dividends of surplus and monies and other assets issued to any shareholder dissenting from the share exchange as a consideration based on an exercise of appraisal rights are not considered to be assets other than such shares)), the Resident transfers old shares to the wholly owning parent corporation resulting from the share exchange and is issued shares therein, for the purpose of applying Article 27 (Business Income), Article 33 (Capital Gains), and Article 35 (Miscellaneous Income), the transfer of the old shares is deemed not to have taken place.

(2) If, in any year, due to a share transfer implemented by a corporation issuing shares that a Resident holds (hereinafter referred to as "old shares" in this paragraph) (such a share transfer is limited to one in which the shareholders of the corporation are not issued assets other than shares in a wholly owning parent corporation resulting from a share transfer as prescribed in Article 2, item (xii)-7 of the Corporation Tax Act (hereinafter referred to as a "wholly owning parent corporation resulting from a share transfer" in this paragraph) (monies and other assets issued to any shareholder dissenting from the share transfer as a consideration based on an exercise of appraisal rights are not considered to be assets other than such shares)), the Resident transfers old shares to the wholly owning parent corporation resulting from the share transfer and is issued shares therein, for the purpose of applying Article 27, Article 33, and Article 35, the transfer of the old shares is deemed not to have taken place.

(3) If, in any year, a Resident transfers Securities as set forth in one of the following items due to the cause prescribed in the item, and is issued shares (including capital contributions; hereinafter the same applies in this paragraph) or share options in the corporation making the acquisition provided for in that item due to that cause (unless the value of the shares or share options issued thereto is found not to be close to the value of the transferred Securities), for the purpose of applying Article 27, Article 33, and Article 35, the transfer of the Securities is deemed not to have taken place:

(i) shares with a put option (meaning shares with a feature that a corporation provides for with respect to all or some of the shares it issues, entitling a Shareholder, Member, or Other Investor to demand that the corporation acquire those shares):the exercise of the put option associated with those shares, if only shares in the acquiring corporation are issued as the consideration for the acquisition;

(ii) shares subject to call (meaning shares with a feature that a corporation provides for with respect to all or some of the shares it issues, entitling the corporation to acquire those shares conditional upon the occurrence of certain causes (hereinafter referred to as the "grounds to acquire" in this item)):the occurrence of the grounds to acquire shares subject to call, if only shares in the acquiring corporation are issued to the Shareholders, Members, and Other Investors whose shares it acquires, as the consideration for the acquisition (if all classes of shares subject to the acquisition are acquired, this includes if only shares and share options in the acquiring corporation are issued to the Shareholders, Members, and Other Investors whose shares it acquires, as the consideration for the acquisition);

(iii) shares subject to class-wide call (meaning shares in a class which the issuing corporation indicates it will acquire all of through a resolution at a shareholders meeting or any equivalent mechanism (hereinafter referred to as the "resolution to acquire" in this item)):a resolution to acquire the shares subject to class-wide call, if no assets other than shares in the acquiring corporation (including share options in the acquiring corporation which are issued along with such shares) are issued to the Shareholders, Members, and Other Investors whose shares it acquires, as the consideration for the acquisition (monies and other assets issued based on a petition for the court to determine an acquisition price are not considered to be assets other than such shares);

(iv) bonds with embedded share options:the exercise of the share options embedded into those bonds, if shares in the acquiring corporation are issued as the consideration for the acquisition;

(v) share options subject to call (meaning any share options that the corporation issuing them has indicated it is entitled to acquire conditional upon the occurrence of certain causes (hereinafter referred to as the "grounds to acquire" in this item); this excludes share options issued to the issuee under particularly favorable conditions or at a particularly favorable price, and any other share options as provided by Cabinet Order):the occurrence of grounds to acquire, if only shares in the acquiring corporation are issued to the share option holders whose the share options it acquires, as the consideration for the acquisition;

(vi) bonds with embedded share options subject to call (meaning any share options that the corporation issuing them has indicated it is entitled to acquire conditional upon the occurrence of certain causes (hereinafter referred to as "grounds to acquire" in this item)):the occurrence of grounds to acquire, if only shares in the acquiring corporation are issued to the share option holders whose share options it acquires, as the consideration for the acquisition.

(4) Cabinet Order prescribes the calculation of the acquisition costs for Securities that a Resident acquires subject to the application of the preceding three paragraphs and provides for other necessary particulars concerning the application of the preceding three paragraphs.

Article 58 (1) If, in any year, a Resident exchanges a Fixed Asset that the Resident has held for at least one year and which is as set forth in one of the following items, for a Fixed Asset held by another person for at least one year which is as set forth in the item (other than one that the other person is found to have acquired solely for the purpose of the exchange) and uses the asset as set forth in the item which the Resident acquires in the exchange (hereinafter referred to as the "acquired asset" in this Article) for the same purpose as that for which the asset as set forth in the item which the Resident has transferred in the exchange (hereinafter referred to as the "transferred asset" in this Article) was used immediately prior to the transfer, for the purpose of applying Article 33 (Capital Gains), the transferred asset (other than a part thereof that is equivalent to the value of any monies or other assets acquired along with the acquired assets) is deemed not to have been transferred:

(i) land (or a superficies right or right of lease that allows for ownership of a building or structure, or a right connected with the cultivation of farmland as prescribed in Article 2, paragraph (1) (Definitions) of the Agricultural Land Act (Act No. 229 of 1952);