Japan Legal Update, Vol. 10

Corporate: The Japanese Class Action System will Come into Force on October 1, 2016

On November 11, 2015, a cabinet order setting the effective date of the Act on Special Measures Concerning Civil Court Proceedings for the Collective Redress for Property Damage Incurred by Consumers ("the Act") was promulgated. As a result, the Act will come into force on October 1, 2016.

The Act introduces the so-called "Japanese Class Action System," to establish a legal procedure for consumers to recover damages collectively.

The two-step system consists of (i) establishing whether consumers generally have the right to recover damages; and (ii) determining a specific amount of damages to be recovered by individual consumers. The system applies only to monetary claims that arise from consumer contracts and fall under (i) claims regarding performance of a contractual obligation; (ii) claims pertaining to unjust enrichment; (iii) claims for damages based on a breach of a contractual obligation; (iv) claims for damages based on a warranty against defects; and (v) claims for tort damages based on the provisions of the Civil Code.

Only consumer contracts that are entered into on or after the effective date of the Act are subject to the system. Therefore, before the effective date, businesses have the opportunity to review their consumer contracts to confirm whether they conform to the Consumer Contract Act and to reconsider their consumer transactions so as to reduce the risk of litigation due to the new system.

General: Amended Administrative Appeal Act will Come into Force on April 1, 2016

Based on the Cabinet Order promulgated on November 26, 2015, the Partial Amendment of the Administrative Appeal Act (the "Amendment") will come into force on April 1, 2016. The Amendment is the first fundamental amendment to the administrative appeal system in 50 years. The Amendment includes the following:

(i) In order to improve fairness, officers who were involved in the subject administrative action will be excluded from the appeal proceedings. Furthermore, appellate administrative agencies will, in principle, be required to consult with an independent committee consisting of knowledgeable persons prior to making decisions.

(ii) In order to improve convenience for users, the period for filing an appeal will be extended from 60 days to three months. Furthermore, opposition proceedings will be abolished and the existing administrative appeal proceedings will, as a general rule, be integrated into the administrative examination proceedings.

(iii) Out of 96 Acts that have adopted the "Principle of Institution of a Lawsuit after Administrative Appeal," which requires that a decision be rendered in administrative appeal proceeding before filing a lawsuit with the court, 47 Acts (such as the Building Standards Act) will completely abolish the principle and 21 Acts (such as the Patent Act) will partially abolish the principle.

Each company should check the system of administrative remedies applicable to its business and to review its relevant internal rules.

Tax: Outline of the 2016 Tax Reform Proposal (Corporate Income Tax and International Taxation)

The 2016 Tax Reform Proposal was approved by the Cabinet on December 24, 2015.

Major amendments regarding corporate income tax and international taxation are as follows:

• With respect to corporate income tax, reductions of the corporate tax rate (i.e., the effective corporate tax rate will be reduced from the current 32.11 percent to 29.97 percent in FY2016 and further reduced to 29.74 percent in FY2018), and expansion of the corporate tax base (i.e., an increase in the size-based corporate taxes on large corporations, an amendment to a depreciation method and further reforms of the loss carryover system) are scheduled. 
• With respect to international taxation, domestic tax rules will be developed to implement the matters provided for in the Japan-Taiwan income tax agreement (e.g., reduced withholding tax rate for dividends). Documentation rules for transfer pricing also will be developed.

From this year onward, each enterprise will need to conduct business according to the tax reforms above.

Labor: Publication of Guidelines Regarding the Preparation of the Action Plan Prescribed in the Act Concerning Promotion of Women's Career Activities (November 20, 2015): This guideline will be a useful reference for employers when they prepare an action plan as prescribed in the Act Concerning Promotion of Women’s Career Activities (See the Japan Legal Update Vol. 7| September 2015), as the guideline shows in detail what to include in the plan as well as what to consider when preparing the plan.

Labor: Enforcement of the Amendment of the Industrial Safety and Health Act (December 1, 2015): Employers are required to carry out a stress check test and face-to-face consultations (if necessary) once a year (the first test to be carried out by November 30, 2016) on every employee (excluding certain employees) in every workplace where there are 50 or more employees.

Tax: Amended Japan-Germany Tax Treaty was Signed (December 17, 2015) The amended tax treaty has wholly revised the existing agreement and implemented changes such as exempting dividends paid to parent companies, interest and royalties from source-country taxation, as well as introducing countermeasures against tax avoidance.

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