Japan’s National Diet has passed tax reform legislation containing an income inclusion rule, largely in line with the OECD’s global anti-base-erosion (GLOBE) top-up taxation framework.

The House of Councillors, the upper house, approved the legislation 28 March after the Japanese Cabinet submitted the bill 3 February.

The Legislation as it relates to the IIR provides:

• The IIR is applied in principally the same way as the Model Rules – a constituent entity that is the ultimate parent entity of a group of multinational entities located in Japan that holds (directly or indirectly) an ownership interest in a low-taxed constituent entity at any time during the fiscal year must pay a tax equal to its allocable share of the top-up tax of that low-taxed constituent entity for the fiscal year.
• Computation of the Global Anti-Base Erosion (GloBE) income or loss, adjusted covered taxes, effective tax rate and top-up tax are also intended to be in line with the Model Rules.
• The IIR will apply to fiscal years beginning on or after 1 April 2024.

Legislation is being considered in Japan, to be included in tax reform for 2024 at the earliest, involving items that the OECD is expected to discuss in detail this year, such as the undertaxed profits rule (UTPR) and the qualified domestic minimum top-up tax (QDMTT).