## v) Treatment of the PE (Permanent Establishment) Taxation

- Non-resident investors who invest in investment funds established as an investment partnership in Japan may be taxed in Japan when they are considered as being engaged in a joint business with the general partner in Japan and having a permanent establishment (PE) in Japan. While a reform measure was taken to avoid this problem in revision of the tax system in fiscal 2009, it has remained under-utilized mostly because the requirements for its application were unclear in many respects, and the problem remains unsolved. Japan should thus reform the system more comprehensively to make it clear that non-residents shall not be subject to the taxation.

## vi) Promotion of Long-term Investments

- In order to promote long-term investments, including inward direct investments, Japan should take measures such as increasing the rate of tax on short-term investments while reducing the tax related to long-term investments in the capital gain taxation.

## 2 ) Securing Human Resources, Employment System, etc

Foreign companies and related entities provided considerable feedback regarding problems related to the difficulty in securing human resources in Japan, the employment system and labor market. The following are concrete suggestions regarding these points.

## i) Fostering Globally Competitive Human Resources, etc

- It is necessary to foster Japanese human resources who are capable of responding to the needs of global businesses, and for that purpose, Japan needs to focus on education, fostering human resources with English skills, analytical abilities and communication skills. As a part of such efforts, the country should expand subsidy programs, etc. to support corporate executives or youth who wish to study or participate in internship programs abroad.

- So that students who studied abroad can obtain jobs appropriate for their abilities, it should be made possible for companies to recruit year around students who graduated from universities.

- In order to receive an educational corporation license, foreign universities wishing to provide education in Japan from a global perspective are required to meet strict criteria regarding their capital or assets and the predictability of the time needed for the recognition procedure is low. The country should resolve these issues and make it easier to establish foreign national schools.

## ii) Ensuring the Flexibility and Transparency in Employment Agreement and Termination Rules

- Japan should clarify the requirements for cases in which employers (business owners) lay off employees for unavoidable reasons.

- For the cases of dismissal without sufficiently legitimate reasons, it should introduce a monetary compensation system which replaces the current system, which allows dismissed employees to return to the job.

## iii) Easing of Regulations Regarding Dispatched Workers, etc

- Japan should relax regulations regarding dispatched workers, such as by exempting small-and-medium-sized businesses employing dispatched workers from the regulation regarding the dispatching period, etc.

- It should also establish a tax incentive for host companies which directly employ the dispatched workers.