Thursday, October 02, 2008
Repatriation in Nippon
A veritable mountain of overseas cash could be repatriated in short order given these proposed taxation changes. However, one should be very careful deriving this conclusion from the below news article as the Japanese Ministry of Finance understands recursive systems very well. In this case, repatriation will lead to massive purchases of Yen to benefit from lower taxation. The demand for Yen will likely crowd out the inflationary effect of lower taxes. I am sure the MoF will wish to study the trade-off effects prior to rubber-stamping this measure.
Japan prefers a weaker Yen in order to prop up their export markets, and despite attempting to engineer controlled inflation for a decade, domestic demand remains weak. The U.S. remains the consumption engine for the world.
TOKYO (Nikkei)--Prime Minister Taro Aso told lower house lawmakers Wednesday that his government will consider including incentives for Japanese companies to repatriate profits earned abroad in a tax reform package for fiscal 2009.
"There's a wide range of tax issues we need to tackle, starting with creating an environment conducive to overseas subsidiaries' profits flowing back to Japan," Aso said in response to a question posed by ruling Liberal Democratic Party Secretary-General Hiroyuki Hosoda.
Japanese firms are increasingly leaving their profits abroad, where tax rates are often lower than at home. The Ministry of Economy, Trade and Industry has proposed exempting domestic companies from taxes on dividends from overseas affiliates in which they hold stakes of 25% or more, arguing that doing so would help boost domestic investment.
On other tax matters, Aso reiterated support for tax cuts during the current fiscal year and said that breaks for energy-saving technologies and other incentives will be considered. He also said that increasing the consumption tax is "unavoidable" but added that "it would be difficult in the current economic situation."
Lawmakers will begin debating fiscal 2009 tax reforms later this year.
As for economic stimulus measures, the prime minister stressed the need to pass the fiscal 2008 supplementary budget as soon as possible.