The ‘Outline of the 2021 Tax Reform Proposals’ (Proposal) which was agreed by the ruling coalition in December 2020 described that where the distribution ratio has ‘economic rationality’, etc. for the Carried Interest that the fund managers receive from the partnership whose business is transfer of shares, etc. in which the fund managers have an equity interest, the Carried Interest will not be subject to comprehensive taxation as consideration for the provision of services, but will be subject to separate taxation as a gain on transfer of shares, etc.

Corresponding to the Proposal, the FSA prepared the Notice, which describes the basic concept of the ‘economic rationality’ and the way of thinking about such concept based general cases under ‘Basic Circular on Income Tax Act’, and confirmed the views of the FSA in the Notice with the National Tax Agency (NTA). The NTA replied to the FSA that there was no objection to the Notice.

We have set out in this e-Tax News information about English webpage and English translation of the Notice of the tax treatment of Carried Interest.
 

KPMG Japan e-Tax News No.229