Recommendationsof theEU-Japan Business Round Table
to the Leaders of the European Union and Japan
Brussels, 28 April 2015

Working Party D
Financial Services, Accounting and Tax Issues

Working Party Leaders:

Mr.Jean LEMIERRE
Chairman
BNP Paribas

Mr.Tetsu OZAKI
Deputy President
Nomura Securities Co., Ltd.

Working Party D: Financial Services, Accounting and Tax
EU-Japan BRT 2015 Recommendations Report
Page 1 of 8

List of Abbreviations
Abbreviation
BEPS
APA
FTT
EIOPA

Meaning
Base erosion and profit shifting
Advance Pricing Agreement
Financial Transaction Tax
European Insurance and Occupational PensionsAuthority

Working Party D: Financial Services, Accounting and Tax
EU-Japan BRT 2015 Recommendations Report
Page 2 of 8Introduction
Japan and the EU are more than ever facing the need to restore sustainablegrowth. The leaders of the G20 have agreed on timely, full and consistent
implementation of financial regulation reforms to promote stability which
ultimately will contribute to growth. The financial sector and such global
efforts for the reform implementation are being monitored closely by theFinancial Stability Board to ensure international consistency.
It is essential that governments and global supervisory bodies take acoordinated approach to the implementation of regulations or measures, toidentify their full and cumulative implications on markets which havedifferent circumstances and practices, and to ensure consistency andefficiency. This is also applicable beyond financial regulations to tax
measures for example, as the common objective is to preserve efficient
resource allocation for companies operating globally as well as level playing
fields for all participants. Japan and the EU should unite their efforts to steer
through this challenging time and achieve recovery most effectively.
The above is reflected in our selection of Recommendations for thisWorking Party D document.

Working Party D: Financial Services, Accounting and Tax
EU-Japan BRT 2015 Recommendations Report
Page 3 of 8

Recommendations from both
European and Japanese industries

WP-D / # 01** / EJ to EJand Regulation

Recommendation regarding Financial Reform

The BRT requests that regulating bodies continue to address the impact ofreforms and new regulations on the real economy and take a co-ordinatedapproach to reduce extraterritorial impact of rules introduced in one
jurisdiction on other locations and to recognise substituted compliance.
<Recent Progress>
Numerous consultations are taking place. Notably, the International
Organization of Securities Commission Task Force on Cross-Border
Regulation has launched a consultation on regulatory tools and challenges
in November 2014 after extensive discussions with a variety of stakeholders.
The European Commission has adopted equivalence decisions for Japan
concerning the regulatory regimes of central counterparties in October 2014
and the banking supervisory and regulatory arrangements in December
2014. EIOPA finalised a report on the Solvency II equivalence assessmentof the Japanese reinsurance supervision in March 2015.
<Background>
Both the European and Japanese authorities have expressed theircommitment to implementing the measures designed to protect the real
economy and to ensure economic growth and stability of the financial
system. The authorities are pursuing regulatory dialogues and believeequivalence would serve to prevent double or overlapping requirements tooperators.

WP-D / # 02** / EJ to EJ Recommendation on BEPS Action Plan andOther Tax Issues
The BRT maintains the following recommendations.
Working Party D: Financial Services, Accounting and TaxEU-Japan BRT 2015 Recommendations Report
Page 4 of 8

BEPS (base erosion and profit shifting) Action Plan
The authorities should carefully consider the risks of excessive disclosure
requirements and anti-tax avoidance measures so as not to hamper
multinational enterprises’ business activities.
Furthermore, in order to realise fair taxation and to enhance direct
investment between the EU and Japan, the following measures should beadopted:
Tax Treaties
The EU Member States and Japan should modernise the tax treaties
between them and ensure, to the greatest possible extent, that dividend,royalty and interest payments are exempted from withholdings taxes andthat corresponding adjustments and arbitration in case of transfer pricing
taxation are provided.
Transfer Pricing
The BRT requests the harmonisation and simplification of documentary
requirements in transfer pricing taxation and the facilitation of the conclusionof bilateral and multilateral APAs (Advance Pricing Arrangements).
Participation Exemption
The BRT recommends further introduction of participation exemption thatwill exempt dividends and capital gains received from business investment
from further corporate taxation.
<Recent Progress>
The BRT understands the Commission Services are giving consideration toa balanced approach to disclosure between effective tax collection,transparency and legitimate business interest. The OECD released its firstrecommendations for a co-ordinated international approach to combat tax
avoidance by multinational enterprises in September 2014, causing someconcerns.
Some progress has been seen for the recommendation on themodernisation of tax treaties. No progress has been seen on transfer
pricing and participation exemptions.
<Background>
The BEPS Action Plan was proposed by the OECD and endorsed by G20Finance Ministers and Central Bank Governors in July 2013. The BRT
supports the idea of modernising international taxation rules that wouldWorking Party D: Financial Services, Accounting and Tax
EU-Japan BRT 2015 Recommendations Report
Page 5 of 8

include non-OECD countries to cope with the globalisation and digitalisationof economy. However, the BRT is concerned that the requirement ofBEPS Action Plan for multinational enterprises to disclose information on
their global allocation of income, economic activity and country-by-country
taxes paid to all relevant governments would lead to an increase ofadministrative burden on enterprises and of a risk of double taxation. TheBRT recommends that the introduction of excessive disclosure and anti-tax
avoidance rules should be avoided so that legitimate business activities
would not be hampered.
In order to enhance direct investment between the EU and Japan,
measures to reward for taking risks associated with cross-border investment
are essential. In particular, the measures to avoid double taxation of thesame profit should be regarded as sine qua non.
While there is a convergence of policies on transfer pricing taxation amongmajor countries according to the OECD Guidelines, companies find it costly
and complicated to comply with the transfer pricing requirements of variouscountries.
In addition, compliance costs associated with the transfer pricing taxation
requirements are potentially very high. Although APAs are increasingly
used in the EU Member States as well as in Japan, the conditions differ
country by country and companies have to satisfy the requirements of eachcountry. An EU-Japan transaction often involves three countries or more.
For such businesses, multiple APAs are necessary to obtain sufficientassurance. However, multiple APAs are still its infancy even within the EU
and the implications for costs and managerial resources are often
prohibitive.
Participation exemption, by which dividends and capital gains received frombusiness investment above certain holding threshold are exempted fromfurther corporate taxation, is one measure to encourage mutual direct
investment.

WP-D / # 03** / EJ to E Recommendation on Financial Transaction
Tax
The BRT maintains its serious concern over the EC’s proposed financialtransaction tax (FTT), particularly with respect to its wider application. Ifimposed, the FTT will result in reduced volume of financial transactions anddecreased liquidity, significantly increase funding costs and impair legitimate
Working Party D: Financial Services, Accounting and Tax
EU-Japan BRT 2015 Recommendations Report
Page 6 of 8

hedging activities by parties such as business corporations. The decreased
liquidity in secondary markets is also likely to cause impacts on primarymarkets eventually.
Impact on liquidity, funding costs and hedging costs should be carefully
considered in the ongoing discussion on scope of transaction, place to taxand tax rate in one harmonised tax regime so as to develop and integrate
capital markets in EU.

< Background >The EC announced proposals in September 2011 to impose a Financial
Transaction Tax on financial instruments between financial institutions whenat least one party to the transaction is located in the EU but it has concluded
since that a common FTT system could not be attained within a reasonableamount of time by the EU as a whole. On 14 February 2013, the EC has
adopted a proposal for a Council Directive implementing enhanced
cooperation between 11 Member States in the area of financial transaction
tax. Despite some delays in the process, 2016 is maintained as the startyear.

WP-D / # 04** / EJ to J
Recommendation on Japanese Fiscal
Soundness
The BRT urges the Japanese Government devise a detailed roadmap
towards its goal of primary-balance surplus by fiscal 2020.
<Background>Fiscal soundness is a fundamental issue for regaining trust in the Japanese
economy. Primary-balance deficit risks leading to jump in interest rate andabrupt retrenchment in budget, and resulting in serious impact to theJapanese economy. Reforms of Japan’s social security and taxation
systems are keys for both economic growth and the realisation of fiscalsoundness.

WP-D / # 05* / EJ to J
Recommendation on Japanese Tax system
Attracting and encouraging foreign direct investment to Japan would induce
Japanese economic growth with jobs and technological innovation by
Working Party D: Financial Services, Accounting and Tax
EU-Japan BRT 2015 Recommendations Report
Page 7 of 8

inviting prominent technologies and individuals .Reduction of effective
corporate tax rate and abolition or reduction fixed asset tax on depreciable
assets are necessary measures for providing a globally competitive
business environment.
<Recent Progress>
The Cabinet decided Fiscal Year 2015 Tax Reform (Main Points) which
mentions the reduction of effective corporate tax rate in January 2015.
<Background>
There is expectation that in addition to revitalisation of Japanese
corporations, foreign direct investment to Japan will contribute to Japanese
economic growth. So as to encourage foreign direct investment to Japan as
one of the attractive markets in Asia, a globally competitive corporate tax
system should be adopted.

Working Party D: Financial Services, Accounting and Tax
EU-Japan BRT 2015 Recommendations ReportPage 8 of 8