June 6 (Reuters) - In an effort to promote consolidated tax accounting, the Japanese government is considering legislative changes to enable businesses to reap greater tax benefits from losses incurred at subsidiaries, the Nikkei business daily said.
Consolidated tax accounting treats a parent company and its subsidiaries as a single taxpayer, allowing losses at one firm to offset profits for the whole. This makes it easier for a business to spin off new or low-profit operations, the paper said.
On a nonconsolidated basis, a company can deduct losses in one year from profits over multiple years. This can result in a corporate tax bill of zero for up to seven years. But unlike U.S. firms, Japanese businesses using consolidated tax accounting can only deduct subsidiaries’ losses in the year they are booked.
The Ministry of Economy, Trade and Industry aims to include a recommendation to eliminate this restriction in its proposed tax code revisions for fiscal 2010. It has set up a working group with the Finance Ministry to discuss the issue, the paper said without citing sources.
The ministries believe that Japanese businesses can become more competitive internationally by adopting this method, as have Sony Corp (6758.T), Toshiba Corp (6502.T) and others, the Nikkei said. (Reporting by Bijoy Koyitty in Bangalore; Editing by Deepak Kannan)