Study based on a Consolidated Tax System adoption Survey of Companies listed on the Tokyo Stock Exchange

For companies listed on the First Section Market of the Tokyo Stock Exchange, we conducted a research for the tendency that companies adopt a consolidated income tax system introduced to Japan starting from a financial year ending on or after March 31, 2003. This article clarifies the current situation and problems on the basis of the result of the research which conducted questionnaire surveys of companies. Firstly, we inquired about the tendency of introducing the consolidated income tax, and approximately 40 percent of all the companies expected to introduce it. Secondly, because the income sum approach and profit and loss transfer approach of the consolidated income tax system were not sufficiently understood in 2002, it was solely focused to be used to offset the loss carried forward by a parent company and its subsidiary company against profit with a whole group. But it has also a positive meaning of making use tax deduction in proportion to the ratio of research expenses to sales or making use tax deduction to investment for information technology in the group companies in all in 2003. Thirdly, approximately 53 percent of the companies said that it was not desirable to adopt a market value basis for assets of their subsidiary companies when the consolidated income tax system was applied. Fourth, 81 percent of the companies complained that the loss carried forward by their subsidiary company before the financial year of the consolidated income tax system was not allowed to be taken over at all, which means that the economic single entity approach is stronger than the economic separate entity approach in Japan. Fifth, 60 percent of the companies said that it was not desirable that no general contribution with the consolidated group was qualifying for deduction. It means that they are worried that there will be a difficulty in calculating fair value