TOKYO (Reuters) -Japan’s ruling Liberal Democratic Party (LDP) is examining the possibility of introducing measures to provide tax breaks for companies converting foreign profits into the yen, two senior party officials told Reuters.
The tax holiday may be deployed as a policy tool to stem the yen’s sharp declines, incentivising firms to return overseas profits to Japan, according the officials, who declined to be named as the information is not public yet.
The measures, if supported broadly, may be included in the government’s annual mid-year policy blueprint compiled in the summer as part of the government’s efforts to prop up the Japanese currency, the officials said.
But the LDP is yet to kick off full-fledged discussions on such measures and the course of the policy talks remains unclear, the officials added.
A finance ministry official was not immediately available for comment on Wednesday.
The yen has slumped about 11% against the dollar so far this year as currency traders bet Japanese interest rates will remain low for some time in contrast to relatively high U.S. interest rates.
The Sankei newspaper reported on Tuesday that Japan may introduce tax breaks for repatriation of corporate profits into the yen and may include the plan in the annual mid-year policy blueprint.
The tax break would be applied for about 20 trillion yen ($126.74 billion) worth of “foreign direct investment earnings” from companies’ overseas subsidiaries, the Sankei said.
Japan in 2009 introduced tax treatment for companies that excludes 95% of dividends earned from foreign subsidiaries from taxable income.
Since only the remaining 5% of dividends would be subject to the potential new tax breaks, the impact of such relief is likely to be limited, government officials told Reuters prior to the Sankei reports.
That scepticism is held by some within the ruling party, one of the LDP officials said.
The government sees spurring domestic investment to achieve durable economic growth as one of top policy priorities.
Many Japanese firms tend to reinvest offshore profits in overseas operations due to slim prospects of growth in the ageing home market.
Against this backdrop, Japanese top currency diplomat Masato Kanda has launched a panel of private-sector experts to review Japan’s balance of payments and aims to compile opinions in June.
($1 = 157.8000 yen)
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