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14. Taxation of Liquidation Income

a. Tax Base and Tax Amount

(1) Calculation of tax base

The tax base of corporate income on the liquidation income of a domestic

corporation is the amount of liquidation income.

(a) Liquidation income from termination of business

i)   For the dissolution of a domestic corporation, the amount of liquidation income

is the amount remaining after the deduction of the aggregate of paid-in capital or

investment and surplus as of the date of dissolution from the value of residual

assets of the said corporation after the dissolution.

ii)  The value of residual assets is the amount remaining after deduction of total

liabilities from total assets.

(b) Liquidation income from corporate merger

Liquidation income of merged corporation is the amount remaining after deducting

the total amount of the merged corporation's capital as of the date of the merger

of the corporation from the aggregate value of compensation from the newly

created corporation.

(c) Liquidation income from corporate division

In the case of a division of a domestic corporation, liquidation income is the

amount remaining after deducting the total amount of capital as of the date of the

division of the corporation from the aggregate of the value of stocks and

investments of the surviving corporation, or the cash and value of other property

received by stockholders, members, or investors of the divided corporation.

(d)  In calculating liquidation income, refundable corporation tax is added to the

total amount of capital, and the carried-over deficit is offset against the total amount of

capital.

(e)  In calculating liquidation income, the provisions regarding calculation of

income of a domestic corporation during each business year are also applicable

mutatis mutandis except where otherwise provided thereof.

(2) Calculation of taxable amount

Corporation tax on the liquidation income of a domestic corporation is the amount

calculated by applying the tax rates (13% or 25%) to the income of the domestic

corporation for each business year.

b.  Return and Payment

(1) Tax return

(a) Report on Liquidation Income

i)   A domestic corporation in liquidation due to dissolution shall file a return

thereon within three months from the date of the determination of the value of the

residual assets.

ii)  In the case of a merger of a domestic corporation, the corporation shall file a

return thereon within three months from the date of the registration of the merger.

iii)  In the case of a division of a domestic corporation, the corporation shall file a

return thereon with the government within three months from the day following the

date of the registration of the division.

iv)  In filing a return, the balance sheet of the dissolved corporation and other

necessary papers shall be attached thereto.

(b) Interim report on liquidation income

In cases where residual assets of a dissolved corporation are distributed to

shareholders before the value of the residual assets are not determined or where

the value of residual assets are not determined until the end of one year after the

registration date of dissolution, the corporation in question shall file an interim tax

return within one month.

(2) Payment of tax

(a)   A domestic corporation liable to file a return on liquidation income shall pay the

government, within the reporting period, an amount of corporation tax on the

liquidation income.

(b)   Where a domestic corporation which is liable to file an interim report on

liquidation income has residual assets that exceed the total amount of its capital as

of the date of dissolution, it shall pay the government, within the reporting period, an

amount of corporation tax on the excess amount.

c. Determination, Adjustment and Collection

(1) Determination and Adjustment of tax base and tax amount

(a)   Where a domestic corporation has failed to file a tax return by the end of the

reporting period, the government shall determine the tax base and corporation tax

due on the liquidation income.

(b)   If the contents of the tax return appear to the government to be unreasonable,

the government shall correct the tax base and corporation tax due on the liquidation

income.

(c)   Where the government has found any omissions or errors in the tax base and

tax amount after the determination or an adjustment thereof, it shall immediately

re-adjust the tax base and tax amount thereon.

(2) Notice

When the government has determined or corrected the tax base and tax amount, it

shall serve a notice thereon to the concerned corporation or its liquidators.

(3) Collection

(a)   Where a domestic corporation has failed to pay all or part of the corporation

taxes payable upon liquidation, the government shall collect the unpaid corporation

tax within two months from the end of the payment period.

(b)  Where there are amounts of corporation tax payable due to adjustment or

determination by the government, the government shall collect the outstanding

corporation tax.

(c)   With respect to liquidation income, penalty taxes on income of a domestic

corporation for each business year are applied mutatis mutandis.