December 19, 2007
Financial Services Agency

FSA welcomes the proposed exemption of independent agents from agent-PE

On December 19, the Ministry of Finance announced that in the proposed tax amendment for FY2008, it would introduce a provision that would exempt ''independent agents'' from those agents treated as permanent establishment (agent-PE) in domestic law (presumably related to Article 290 of the Cabinet Order for implementing the Income Tax Act and Article 186 of the Cabinet Order for implementing the Corporation Tax Act).

Under the new PE provision, irrespective of the availability of an applicable tax treaty, a non-resident or a foreign corporation will not be deemed to have a PE in Japan solely because of the fact that the said person or corporation carries out business in Japan through an independent agent acting in the ordinary course of business.

The FSA welcomes this decision as an important step to enhance the competitiveness of Japanese financial markets. On this basis, the FSA will continue to hold discussions with the Ministry of Finance's Tax Bureau and the National Tax Agency to clarify the scope of this new exemption, especially the meaning of being ''independent,'' with a view to minimizing the ''PE risk'' of offshore investment funds.