5 June, 2015
Cabinet Office
Office for the Promotion of Regional Revitalization
In charge of Proposals for the National Strategic Zone
Dear sir/madam,
We are pleased, once again, to include the IBA Japan response to the ‘Tokku’ request. We attach in
the template two specific regulations that we believe should be repealed: the foreign bank agency
business regime and the ban on information sharing under the Firewalls regime. We outline thespecific regulations and also attach supplementary papers to back up our position.
We also believe there are a range of other regulations that we believe should be reconsidered. We
have outlined these in more generic terms below.
Labour Market Issues:
There are a range of labour market and tax regulations that affect firms’ abilities to recruit a rangeof staff and also for firms to grow their business in Japan.
The current tax system incentivises people (often women) not to work or to work only for a small
number of hours part time as the tax allowance system makes it a rational economic decision. We
would encourage a change to this situation that would incentivise people (especially women) who
would like to work for longer hours. This would expand the pool of labour available and would befirmly in line with the government’s ‘womanomics’ agenda.
The experiences of foreign firms (and also domestic companies) is that the legal framework verymuch favours individual workers in any dispute with their employer. Whilst we are very much infavour of the protection of rights of employees the framework appears to be tilted against theemployer. When an international firm is thinking about where to place additional jobs and capital
they often feel disincentivised from placing this additional labour in Japan because of what
appears to be a greater long-term labour market liability. International firms also note some of theissues associated with overtime requirements for professional staff are burdensome andsignificantly different to other countries.
Tax issues:
There are several tax issues the solution of which we believe would help promote Tokyo as afinancial centre and incentivise the economy.
Currently financial institutions sometimes book repos involving Japanese Government Bonds inother countries for a range of reasons. But there are changes in the wider environment including
the lower rating of Japanese Sovereign debt which means firms may have to pay a premium (e.g. inthe UK) for booking JGBs in other countries. Even if they want to book JGBs in Japan to avoid
this premium, with-holding tax would be levied in Japan on repos booked between a financial
institution in Japan and a non-financial institution overseas. We believe the Japanese tax systemshould incentivise the use of JGBs for cross-border repo transactions by exempting overseas
non-financial institution counterparties to repo transactions booked in Japan from with-holdingtax; this would help promote the internationalisation of the Yen and JGBs.
The recent change to inheritance tax in Japan which broadened the scope of tax liability to cover asignificantly broader range of non-resident and non-Japanese heirs of non-Japanese decedents is
disincentivising non-Japanese nationals from moving to Japan and incentivising some
non-Japanese nationals to leave Japan. These skilled workers could and, in some cases have played
important roles in promoting Tokyo as financial centre and the vitalisation of the Japaneseeconomy. An inheritance tax regime that is out of line with the experiences of skilled workers intheir home countries and also in neighbouring and competing countries to Japan is likely to
discourage the further internationalisation of the Japanese economy. We would urge a
consideration and re-evaluation of the current regime to make sure the tax regime matches theaspirations of the government’s growth agenda.
IBA Japan is a strong supporter of the vitalisation of the Japanese economy and the promotion ofTokyo as a financial centre. We believe the regulatory reforms we have outlined will help to
encourage this vitalisation. If you have any queries about any of the attached, please do nothesitate to contact me or my colleagues.
Yours sincerelyPaul Hunter
Secretary General