Recommendationsof theEU-Japan Business Round Table
to the Leaders of the European Union and JapanTokyo, 8 & 9 April 2014

Working Party D
Financial Services, Accounting and Tax Issues

Working Party Leaders:

Mr.Jean LEMIERRE
Senior Advisor to the Chairman
BNP Paribas

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

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EU-Japan BRT 2014 Recommendations Report
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List of Abbreviations

Abbreviation
FSB
CFTC
BCBS
IOSCO
BEPS
APA
FTT

Meaning
Financial Stability Board
US Commodity Future Trading Commission
Basel Committee on Banking SupervisionInternational Organization of Securities Commission
Base erosion and profit shifting
Advance Pricing Agreement
Financial Transaction Tax

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Introduction
Japan and the EU are still facing the challenges of recovery and the need to restore
sustainable growth. The leaders of the G20 have agreed to implement regulatory
reforms to promote integrity, stability and transparency in the financial sector andsuch global efforts for the reform implementation are being monitored closely by theFinancial Stability Board (FSB) to ensure international consistency. The proposed
regulations and prudential measures are expected to prevent the recurrence ofsystemic crisis, increase accountability and ultimately contribute to economic
recovery through support given to real economic activities by a healthy financial
sector.
It is essential that governments and global supervisory bodies take a coordinatedapproach to the introduction and implementation of regulations or measures, toidentify their full and cumulative implications on markets which have different
circumstances and practices, and to ensure consistency and efficiency. 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 theirefforts to steer through this challenging time and achieve recovery most effectively.
The above is reflected in our selection of Recommendations for this Working Party D
document.

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Recommendations from bothEuropean and Japanese industries

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

Recommendation regarding Financial Reform

The BRT requests that regulating bodies fully address the impact of reforms
and new regulations on the real economy notably in the implementation phaseand take a co-ordinated approach to avoid negative effects on global businessactivities and efficient allocation of resources.
<Recent Progress>
In July 2013, the European Commission and the US Commodity Futures
Trading Commission (CFTC) announced a Path Forward regarding their joint
understandings on a package of measures for how to approach cross-borderderivatives. As stated there, there will be considerable co-ordination
challenges to avoid cross-border conflicts, inconsistencies and duplication.
The final report on margin requirement for non-centrally cleared derivatives
was issued by the Basel Committee on Banking Supervision (BCBS) and theInternational Organization of Securities Commissions (IOSCO) in September
2013, which includes a threshold of €50 million for initial margin to minimise
impact on corporate business activities.
<Background>
Financial reform and introduction of additional regulations are underway toachieve a more resilient financial system but they should be designed to beappropriate and effective so as to enable financial markets and financial
industry support sustainably economic activities and the revitalisation of global
economy.
The European and Japanese authorities as well as market participants
including banks and business corporations should continue to unite efforts toensure effective influence on US financial regulations which have internationalreach, particularly cross-border OTC derivatives market reforms, to avoid
decrease in liquidity and increase in hedging cost.

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WP-D / # 02** / EJ to EJ Recommendation on BEPS Action Plan
The BRT recommends that, as to the 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.
<Background>
The BEPS Action Plan was proposed by the OECD and endorsed by G20 Finance
Ministers and Central Bank Governors in July 2013. The BRT supports the idea ofmodernising international taxation rules that would include non-OECD countries tocope with the globalisation and digitalisation of economy. However, the BRT isconcerned that the requirement of BEPS Action Plan for multinational enterprises todisclose information on their global allocation of income, economic activity andcountry-by-country taxes paid to all relevant governments would risk leading to anincrease of administrative burden on enterprises and of a risk of double taxation. The
BRT recommends that the introduction of excessive disclosure and anti-tax
avoidance rules should be avoided so that legitimate business activities would not behampered.

WP-D / # 03* / EJ to EJ Recommendation on Tax Issues
 The BRT requests that the EU Member States and Japan should modernise thetax treaties between them and ensure that, to the greatest extent possible,

dividend, royalty and interest payments are exempted from withholdings taxes
and that they provide for corresponding adjustments and arbitration in case oftransfer pricing taxation.
The BRT requests the harmonisation and simplification of documentary
requirements in transfer pricing taxation and the facilitation of the conclusion ofbilateral and multilateral APAs (Advance Pricing Arrangements).
The BRT recommends the introduction of participation exemption that will exempt
dividends and capital gains received from business investment from further
corporate taxation.

<Recent progress>
Some progress has been seen for the recommendation on the modernisation of tax
treaties. No progress has been seen on transfer pricing and participation exemption.
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<Background>
In order to enhance direct investment between the EU and Japan, the removal of
double taxation and the reduction of compliance costs associated with the transfer
pricing taxation including the conclusion of APAs are essential.
Participation exemption, by which dividends and capital gains received from business
investment are exempted from further corporate taxation to reward for taking risks
associated with foreign investment, will further encourage direct investment.

WP-D / # 04** / EJ to E

Recommendation on Financial Transaction Tax

The BRT maintains its serious concern over the EC’s proposed financial transaction
tax (FTT), particularly with respect to its wider application and extraterritorial impact.
For instance, as the proposed Directive introduces both a residency and issuancetest for such unilateral taxation, it risks causing costly double or multiple taxation. If
imposed, the FTT will result in reduced volume of financial transactions anddecreased liquidity, significantly increase funding costs and impair legitimate hedging
activities by parties such as business corporations. The decreased liquidity insecondary markets is also likely to cause impacts on primary markets eventually.
< Recent Progress >No agreement has been found.
< Background >The EC announced proposals in September 2011 to impose a Financial Transaction
Tax on financial instruments between financial institutions when at 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 reasonable amount of time by the EU as awhole. On 14 February 2013, the EC has adopted a proposal for a Council Directive
implementing enhanced cooperation between 11 Member States in the area offinancial transaction tax.

WP-D / # 05** / EJ to J
Recommendation on Japanese Fiscal Soundness
The BRT requests that Japanese Government shall devise a detailed roadmap
towards its goal of primary-balance surplus by fiscal 2020.
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<Background>Fiscal soundness is a fundamental issue for regaining trust in the Japanese economy.
Primary-balance deficit risks leading to jump in interest rate and abrupt retrenchment
in budget, and resulting in serious impact to the Japanese economy. Reforms ofJapan’s social security and taxation systems are key for both economic growth andthe realisation of fiscal soundness.

WP-D / # 06* / 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 invitingprominent technologies and individuals. Reduction of effective corporate tax rate andabolition or reduction of fixed asset tax on depreciable assets are necessary
measures for providing a globally competitive business environment.
<Background>
While Japanese society is aging rapidly, there is expectation that in addition torevitalisation of Japanese corporates foreign direct investment to Japan willcontribute 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.

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