As previously reported in the December 2016/January 2017 issue of this newsletter, the 2017 Tax Reform included amendments to the CFC Rules in Japan. As a result, beginning April 1, 2018, a Japanese parent company must recognize the income of a controlled foreign corporation ("CFC") that is subject to an effective tax rate of 20 percent or more in its home country (currently excluded from the CFC Rules) if the CFC constitutes a "shell company" or certain other types of entities. On January 31, 2018, the National Tax Agency issued a brochure titled "Q&A Concerning CFC Rules as Amended by the 2017 Tax Reform," which provides questions and typical examples regarding various CFC-related issues, such as the thresholds used to determine "shell company" treatment. Japanese companies that have CFCs should take into account the new guidelines in considering how to manage the CFCs going forward.

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