Article 45(1)The amount of expenses, listed as follows, that a resident spends or pays shall be excluded from necessary expenses in the calculation of the amount of the person's real property income, business income, timber income, or miscellaneous income:

(2)The amount of a bribe as prescribed in Article 198 (Bribe) of the Penal Code (Act No. 45 of 1907), monies or other profits as prescribed in Article 18, paragraph (1) (Prohibition of Provision of Illicit Profits, etc. to Foreign Public Officials, etc.) of the Unfair Competition Prevention Act (Act No.47 of 1993) and the value of an article other than monies, rights, or any other economic benefits, which is provided by a resident (in the case where any expenses are required for the provision thereof, the amount adding said expenses), shall be excluded from necessary expenses in the calculation of the amount of the person's real property income, business income, timber income or miscellaneous income.

(3)The amount of expenses listed in items (ii) to (vii) of paragraph (1), or the amount of monies and the value of an article other than monies, rights, or any other economic benefits prescribed in the preceding paragraph shall be excluded from the amount spent in the calculation of the amount of a resident's occasional income set forth in paragraph (1) or the preceding paragraph.

Article 46In the case where a resident seeks the application of the provisions of Article 95, paragraph (1) (Credit for Foreign Tax) or Article 138, paragraph (1) (Refund of Withholding Tax, etc.) to the amount of foreign income tax prescribed in Article 95, paragraph (1), the amount of said foreign income tax shall be excluded from necessary expenses or the amount spent, in the calculation of the amount of the person's real property income, business income, timber income, miscellaneous income, or occasional income.

Article 47(1)In the case where a calculation is made, with regard to a resident's inventories, for the amount that is to be included in necessary expenses in the calculation of the amount of the person's business income pursuant to the provisions of Article 37, paragraph (1) (Necessary Expenses), the value of the inventories that the person possesses as of December 31 of the relevant year which is to be used as the basis of the calculation (in the case where the person has died or left the country during the year, as of the time of the person's death or departure; the same shall apply in the following Article to Article 50), shall be the amount that the person values in accordance with the valuation method that the person selected for inventories (in the case where no valuation methods were selected or a valuation was not based on the selected valuation method, the amount valued in accordance with a valuation method specified by Cabinet Order).

(2)Types of valuation methods that can be selected as set forth in the preceding paragraph, procedures for the selection, and any other matters necessary for the valuation of inventories shall be specified by Cabinet Order.

Article 48(1)In the case where a calculation is made, with regard to a resident's securities, for the amount that is to be included in necessary expenses in the calculation of the amount of the person's business income pursuant to the provisions of Article 37, paragraph (1) (Necessary Expenses), the value of the securities that the person possesses as of December 31 of the year which is to be used as the basis of the calculation, shall be the amount that the person values in accordance with the valuation method that the person selected for securities (in the case where no valuation methods were selected or a valuation was not based on the selected valuation method, the amount valued in accordance with a valuation method specified by Cabinet Order).

(2)Types of valuation methods that can be selected as set forth in the preceding paragraph, procedures for the selection, and any other matters necessary for the valuation of securities shall be specified by Cabinet Order.

(3)With regard to the same class of securities that a resident acquired on two or more occasions, the amount to be included in necessary expenses in the calculation of the amount of the person's miscellaneous income pursuant to the provisions of Article 37, paragraph (1) or the amount to be included in the acquisition costs in the calculation of the amount of the person's capital gains pursuant to the provisions of Article 38, paragraph (1) (Acquisition Costs to be Deducted in the Calculation of Capital Gains) shall be the amount valued in accordance with the provisions of paragraph (1), based on the amount required for the acquisition of securities on each occasion, as specified by Cabinet Order.

Article 49(1)With regard to depreciable assets that a resident possesses as of December 31 of the relevant year, the amount to be included in necessary expenses as the depreciation allowance thereof in the calculation of the amount of the person's real property income, business income, timber income or miscellaneous income pursuant to the provisions of Article 37 (Necessary Expenses) shall be the amount calculated as specified by Cabinet Order, based on the depreciation method that the person selected for said assets from among depreciation methods specified by Cabinet Order, in accordance with the date of acquisition and category of assets (in the case where no depreciation methods were selected, based on a depreciation method specified by Cabinet Order).

(2)Special provisions on the depreciation methods that can be selected as set forth in the preceding paragraph, procedures for the selection of depreciation methods, the acquisition costs of depreciable assets that is to be used as the basis of the calculation of the depreciation allowance, and any other matters necessary for the depreciation of depreciable assets shall be specified by Cabinet Order.

Article 50(1)With regard to deferred expenses that a resident possesses as of December 31 of the relevant year, the amount to be included in necessary expenses as the depreciation allowance thereof in the calculation of the amount of the person's real property income, business income, timber income or miscellaneous income pursuant to the provisions of Article 37 (Necessary Expenses) shall be the amount calculated as specified by Cabinet Order, based on the period during which the expenses related to said deferred expenses continue to affect the calculation.

(2)In addition to what is provided for in the preceding paragraph, any other matters necessary for the depreciation of deferred expenses assets shall be specified by Cabinet Order.

Article 51(1)With regard to fixed assets or any other assets equivalent thereto as specified by Cabinet Order, which are used for a business conducted by a resident so as to generate real property income, business income, or timber income, the amount of loss caused by demolition, removal, extinguishment (including a decrease in value due to damage to the assets) or on any other grounds (such amount shall exclude the amount of loss compensated for by insurance benefit, compensation for damage or any other payment equivalent thereto and the amount of loss due to or related to the transfer of assets) shall be included in necessary expenses in the calculation of the amount of the person's amount of real property income, business income, or timber income for the year containing the day on which said loss occurred.

(2)With regard to a business conducted by a resident to generate real property income, business income, or timber income, the amount of loss caused by accounts receivable, loans, advance payments, bad debt claims equivalent thereto, or on any other grounds specified by Cabinet Order, arising in the course of the business, shall be included in necessary expenses in the calculation of the amount of the person's amount of real property income, business income, or timber income for the year containing the day on which said loss occurred.

(3)With regard to forests owned by a resident, the amount of loss due to disasters, robbery, or embezzlement (excluding the amount of loss compensated for by insurance benefit, compensation for damage or any other payment equivalent thereto) shall be included in necessary expenses in the calculation of the amount of the person's amount of business income or timber income for the year containing the day on which said loss occurred.

(4)The amount of loss on assets (excluding the forests and assets prescribed in Article 62, paragraph (1) (Loss Caused by Disasters for Assets Not Ordinarily Necessary for Daily Life)) which are used for a resident's operations that generate real property income or miscellaneous income or are the basis of such income (such amount shall exclude the amount of loss compensated for by insurance benefit, compensation for damage or any other payment equivalent thereto, the amount of loss due to or related to the transfer of assets, or the amount of loss prescribed in paragraph (1) or paragraph (2) or Article 72, paragraph (1) (Deduction for Casualty Loss)) shall be included in necessary expenses in the calculation of the amount of the person's real property income or miscellaneous income for the year containing the day on which said loss occurred, up to the amount of the real property income or miscellaneous income for the year (such amount shall be the amount of such income calculated without applying the provisions of this paragraph).

(5)Matters necessary for the calculation of the amount of loss prescribed in paragraph (1) and the preceding two paragraphs shall be specified by Cabinet Order.

Article 52(1)In the case where a resident conducting a business that generates real property income, business income or timber income is granted a payment grace period or is allowed installment payments for the resident's accounts receivable, loans, advance payments or any other equivalent monetary claims that have arisen through said business (hereinafter referred to as "loans, etc." in this paragraph), based on the decision of the confirmation of a reorganization plan pursuant to the provisions of the Corporate Reorganization Act (Act No. 154 of 2002), or in any other cases specified by Cabinet Order, the amount credited to reserves for bad debts in each year (excluding the year containing the day on which the whole business was transferred or terminated; the same shall apply in the following paragraph) as the prospective amount of loss from loans, part of which is expected to generate a loss due to bad debts or on any other equivalent grounds (in the case where the debtor of said loans, etc. has other loans, including said other loans; hereinafter referred to as the "individually assessed loans, etc." in this paragraph and the following paragraph) shall be included in necessary expenses in the calculation of the amount of the person's real property income, business income or timber income for the year, up to the amount calculated as specified by Cabinet Order, based on the portion of said amount for which it is deemed that there is little chance of the collection or payment of said individually assessed loans, etc. as of December 31 of the relevant year (in the case where a person has died during the year, as of the time of the person's death; the same shall apply in the following paragraph); provided, however, that this shall not apply where a person has died and the person's heir has not succeeded to said business.

(2)With regard to a resident who files a blue return and conducts a business that generates business income, the amount credited to reserves for bad debts in each year as the prospective amount of loss due to bad debts on the resident's accounts receivable, loans, or any other equivalent monetary claims that have arisen through said business (excluding individually assessed loans, etc.; hereinafter referred to as "collectively assessed loans" in this paragraph) shall be included in necessary expenses in the calculation of the amount of the person's business income for the year, up to the amount calculated as specified by Cabinet Order, based on the amount of the collectively assessed loans as of December 31 of the relevant year; provided, however, this shall not apply where the person has died and the person's heir has not succeeded to said business or any other case specified by Cabinet Order.

(3)The amount of reserves for bad debts included in necessary expenses in the calculation of the amount of real property income, business income, or timber income for the year in which said amount was credited pursuant to the provisions of the preceding two paragraphs shall be included in gross revenue in the calculation of the amount of real property income, business income, or timber income for the year following the year in which said amount was credited.

(4)The provisions of paragraph (1) and paragraph (2) shall apply only in the case where a tax return states details concerning the inclusion of the amount credited to reserves for bad debts in necessary expenses.

(5)Even in the case where a tax return with no entries for the matters set forth in the preceding paragraph has been filed, the district director of the tax office may apply the provisions of paragraph (1) or paragraph (2), when the director finds any unavoidable reason for the person's failure to make entries for such matters.

(6)In the case where a resident prescribed in paragraph (1) or paragraph (2) has died, when there is any amount of reserves for bad debts included in necessary expenses in the calculation of the amount of real property income, business income, or timber income for the year containing the date of the person's death, the matters necessary for the disposition of said amount of reserves for bad debts shall be specified by Cabinet Order.

Article 53(1)With regard to a resident who files a blue return and conducts a publishing business or any other business as specified by Cabinet Order and who continuously concludes special provisions concerning the repurchase of most of the resident's inventories for sale related to said business at the value at the time of the sales thereof or any other special provisions specified by Cabinet Order, the amount credited to reserves for loss on returned goods in each year (excluding the year containing the day on which the whole business was transferred or terminated) as the estimated amount of loss due to the repurchase of said inventories under said special provisions shall be included in necessary expenses in the calculation of the amount of the person's business income for the year, up to the amount calculated as specified by Cabinet Order, based on the actual result of the repurchase of said inventories under said special provisions in recent years; provided, however, that this shall not apply where the person has died and his/her heir has not succeeded to said business or to any other case specified by Cabinet Order.

(2)The amount of reserves for loss on returned goods included in necessary expenses in the calculation of the amount of business income for the year in which said amount was credited pursuant to the provisions of the preceding paragraph shall be included in gross revenue in the calculation of the amount of business income for the year following the year in which said amount was credited.

(3)The provisions of paragraph (1) shall apply only in the case where a tax return states details concerning the inclusion of the amount credited to reserves for losses on returned goods in necessary expenses.

(4)Even in the case where a tax return with no entries for the matters set forth in the preceding paragraph has been filed, the district director of the tax office may apply the provisions of paragraph (1), when the director finds any unavoidable reason for the person's failure to make entries for such matters.

(5)In the case where a resident prescribed in paragraph (1) has died, when there is any amount of reserves for loss on returned goods included in necessary expenses in the calculation of the amount of business income for the year containing the date of the person's death, the matters necessary for the disposition of said amount of reserves for losses on returned goods shall be specified by Cabinet Order.

Article 54(1)With regard to a resident who files a blue return and conducts a business that generates business income and who determines the rules for a retirement allowance as specified by Cabinet Order, the amount credited to reserves for a retirement allowance in each year, for the purpose of allocating that amount to the retirement allowance to be paid to employees engaged in the business (excluding a spouse or any other relatives whose cost of living is included in that of the resident; hereinafter the same shall apply in this Article) upon their retirement, shall be included in necessary expenses in the calculation of the amount of the resident's business income for the year, up to the amount calculated as specified by Cabinet Order, based on the portion that is deemed to have increased in the year out of the calculated prospective amount of retirement allowance to be paid when assuming that all the employees engaged in the business as of December 31 of the relevant year (in the case where the resident has died during the year, as of the time of resident's death) retire on personal grounds.

(2)A resident who holds the amount of reserves for a retirement allowance (limited to the amount included in necessary expenses in the calculation of the amount of business income for the year in which said amount was credited pursuant to the provisions of the preceding paragraph, and excluding the amount already determined to be withdrawn pursuant to the provisions of this paragraph; hereinafter the same shall apply in this Article) shall withdraw said amount of reserves for a retirement allowance, in the case where an employee set forth in the preceding paragraph retired or the approval to file a blue return was rescinded, or in any other case specified by Cabinet Order.

(3)The amount of reserves for a retirement allowance determined to be withdrawn pursuant to the provisions of the preceding paragraph or the amount of reserves for a retirement allowance having been withdrawn although it does not fall under the provisions of said paragraph shall be included in gross revenue in the calculation of the amount of business income for the year containing the day on which the amount was determined to be withdrawn or the amount was withdrawn, respectively.

(4)The provisions of paragraph (1) shall apply only in the case where a tax return states details concerning the inclusion of the amount credited to reserves for retirement allowance in necessary expenses.

(5)Even in the case where a tax return with no entries for the matters set forth in the preceding paragraph has been filed, the district director of the tax office may apply the provisions of paragraph (1), when the director finds any unavoidable reason for the person's failure to make entries for such matters.

(6)In addition to what is provided for in paragraph (2) to the preceding paragraph, matters necessary for the disposition of the amount of reserves for a retirement allowance in the case where a resident holding the amount of reserves for a retirement allowance has died and any other matters necessary for the application of the provisions of paragraph (1) shall be specified by Cabinet Order.

Article 56In the case where the spouse or any other relatives whose cost of living is included in that of a resident receive payment of a consideration from the resident's business that generates real property income, business income, or timber income, as a result of their engagement in said business or on any other grounds, the amount equivalent to the consideration shall be excluded from necessary expenses in the calculation of the amount of real property income, business income, or timber income related to said resident's business, and the amount to be included in necessary expenses in the calculation of the amount of classified income related to said relatives' consideration shall be included in necessary expenses in the calculation of the amount of real property income, business income, or timber income related to said resident's business.In this case, the amount of the consideration received by said relatives and the amount to be included in necessary expenses in the calculation of the amount of classified income related to said relatives' consideration shall be disregarded in the calculation of the amount of said classified income.

Article 57(1)In the case where the spouse or any other relatives (excluding those under 15 years of age) whose cost of living is included in that of a resident who has obtained approval to file a blue return from the district director of the tax office, and who are exclusively engaged in the resident's business prescribed in the preceding Article (hereinafter referred to as the "family employees of a blue return taxpayer" in this Article) have received any salaries, within the amount entered in a document set forth in the following paragraph, from said business in accordance with the method entered in said document; the portion of the amount of the salaries that is deemed to be appropriate as a consideration for their labor, in light of the period of the labor, the nature and the level of the provision of the labor, the type and size of the business, the salaries ordinarily paid for the same type and similar size of business, and any other circumstances specified by Cabinet Order, shall be included in necessary expenses in the calculation of the amount of the resident's real property income, business income, or timber income related to said business for the year pertaining to the payment of said salaries, notwithstanding the provisions of the preceding paragraph, and shall be deemed to be revenue from employment income for the year of said family employees of a blue return taxpayer.

(2)A resident who wishes to seek the application of the provisions of the preceding paragraph to income tax for the year and each year thereafter, shall submit a document stating the names of any family employees of a blue return taxpayer, the details of their duties, the amount of their salaries, the dates for the payment thereof, and any other matters specified by Ordinance of the Ministry of Finance to the competent district director with jurisdiction over the place for tax payment no later than March 15 of the relevant year (in the case where such resident has started a business as set forth in said paragraph on or after January 16 of the year, within two months from the day on which the resident started said business).

(3)In the case where the spouse's or any other relative's (excluding those under 15 years of age) cost of living is included in that of a resident (excluding those prescribed in paragraph (1)) and who are exclusively engaged in the resident's business prescribed in the preceding Article (hereinafter referred to as "family employees" in this Article), the lower amount of either of the following shall be deemed to be the necessary expenses for each of the family employees in the calculation of the amount of the resident's real property income, business income, or timber income related to said business for the year:

(4)In the case where the provisions of the preceding paragraph are applied, the amount deemed to be the necessary expenses for each of the family employees pursuant to the provisions of said paragraph shall be deemed to be revenue from the employment income of said respective family employees in the calculation of the amount of their classified income for the year.

(5)The provisions of paragraph (3) shall not apply unless a tax return states an intention to seek the application of the provisions of said paragraph and matters concerning the amount deemed to be the necessary expenses pursuant to the provisions of said paragraph.

(6)Even in the case where a tax return has not been filed or a tax return with no entries for the matters set forth in the preceding paragraph has been filed, the district director of the tax office may apply the provisions of paragraph (3) when the director finds any unavoidable reason for the person's failure to file the tax return or to make entries for such matters.

(7)In the case of paragraph (1) or paragraph (3), the determination as to whether the relatives prescribed in these provisions are under 15 years of age shall be based on their circumstances as of December 31 of the relevant year (in the case where a resident prescribed in these provisions has died or left the country during the year, as of the time of the director's death or departure); provided, however, that in the case where any of said relatives was already deceased at that point of time, the determination shall be based on their circumstances as of the time of their death.

(8)Matters necessary for the procedures for changing the details of the requirements for family employees of a blue return taxpayer or family employees or matters entered in a document set forth in paragraph (2) and any other matters necessary for the application of the provisions of paragraph (1) or paragraph (3) shall be specified by Cabinet Order.

Article 57-2(1)In the case where a resident has paid specific expenses in each year, when the sum of the specific expenses for the year exceeds the employment income deduction prescribed in Article 28, paragraph (3) (Employment Income), the amount of employment income prescribed in paragraph (2) of said Article for the year may be deemed to be the amount that remains after deducting the amount of said excess from the remaining amount set forth in paragraph (2) of said Article, notwithstanding the provisions of paragraph (2) and paragraph (4) of said Article.

(2)The specific expenses prescribed in the preceding paragraph shall be a resident's expenses listed as follows (in the case where the portion of said expenses is compensated for by a person related to the resident who pays out the salaries, etc. prescribed in Article 28, paragraph (1) (hereinafter referred to as a "payer of salaries, etc.") and income tax shall not be imposed on said portion compensated for, excluding said portion):

(3)The provisions of paragraph (1) shall apply only in the case where a tax return states an intention to seek the application of the provisions of said paragraph and the sum of the amount of specific expenses prescribed in said paragraph, and is attached with a detailed statement concerning specific expenses listed respectively in the items of the preceding paragraph and certifying the documents prescribed in those items.

(4)In the case of filing a tax return stating an intention to seek the application of the provisions of paragraph (1), a document specified by Cabinet Order as a document certifying the fact that specific expenses prescribed in said paragraph have been paid and the amount actually spent shall be attached to said tax return or presented when filing said tax return.

(5)In addition to what is provided for in the preceding paragraphs, any matters necessary for providing details of the scope of specific expenses prescribed in paragraph (2) and any other matters necessary for the application of the provisions of paragraph (1) shall be specified by Cabinet Order.