As a hypothetical example, the amount of miscellaneous income, etc. from futures trading of a Japanese individual was a loss of 800,000 yen in year 1, a loss of 300,000 yen in year 2, and a gain of 1,500,000 yen in year 3. The requirements for the carryforward deduction are met every year. Income tax is calculated at 15%, without the special income tax for reconstruction and other items. If the carryforward deduction is used in year 3, how much income tax is due on the miscellaneous income, etc. from futures trading?
Quiz: Tax
Last reviewed: October 15, 2026
This is a draft, shown for review before publication.
4 questions to check your understanding of the chapter “Tax”. Choose an answer and select “Check answer” to see the answer and explanation. You can also open “Answer and explanation” to see the answer first.
Question 1
Answer and explanation
Answer: C
It is 60,000 yen. A carryforward loss is deducted starting with the oldest year's loss, up to the amount of miscellaneous income, etc. from futures trading for that year. Deducting year 1's 800,000 yen and then year 2's 300,000 yen from 1,500,000 yen leaves a taxable amount of 400,000 yen. 400,000 yen × 15% = 60,000 yen, and the tax for year 1 and year 2 is 0 yen. A carryforward deduction can be used for three years after the year the loss arose. The requirement is to file a final return in consecutive years, with the supplementary schedule and the statement of calculation attached.
225,000 yen is the tax when 1,500,000 yen is taxed without a carryforward deduction (1,500,000 yen × 15%). 105,000 yen is the case where only year 1's loss is deducted (700,000 yen × 15%). 180,000 yen is the case where only year 2's loss is deducted (1,200,000 yen × 15%). In both cases, part of the loss that could be deducted is not used.
Learn more: Taxation of Derivative Gains and Losses
Question 2
A staff member at a Japanese company believes that the gain or loss on a derivative trade not settled at the end of the fiscal year need not be included in income until it is settled. Assume that the trade is not subject to hedge treatment and is not excluded from deemed settlement. How does the Corporation Tax Act treat this trade in calculating income?
Answer and explanation
Answer: A
The Corporation Tax Act treats a derivative trade that has not been settled at the end of the fiscal year as settled at that time. The gain or loss at that time (the deemed settlement gain or loss) is included in taxable revenue or deductible expenses for that fiscal year. So even for an unsettled trade, the gain or loss as of the closing date goes into income. Cases where hedge treatment is used, and trades set by Ministry of Finance ordinance, differ from this general treatment. Gains and losses are both included as of the closing date, so the staff member's view that they are postponed until settlement does not apply.
A company's revenue and expenses are, except where there is a special provision, calculated in accordance with generally accepted accounting standards. The treatment of derivative trades at the closing date is set by a provision that counts as such a special provision. So taxable income does not necessarily match the accounting gain or loss. The mechanism under which an individual's gains and losses on futures trading are separated from other income and taxed separately upon filing a return is a special provision of the Act on Special Measures Concerning Taxation, not the Corporation Tax Act. It applies to individuals' gains and losses.
Learn more: Taxation of Derivative Gains and Losses
Question 3
As a hypothetical example, V Co., a Japanese company, pays 10 million yen of Japan-source income in a category subject to withholding to a non-resident. As of April 1, 2026, the domestic-law rate is 20%, and the limit rate under the tax treaty is a hypothetical 10%. The recipient has not filed the application form by the day before the payment. Calculated without the special income tax for reconstruction and other items, how much does V Co. withhold from the payment?
Answer and explanation
Answer: C
It is 2 million yen. The application form was not filed by the day before the payment. So the payer withholds at the domestic-law rate, not at the treaty limit rate. 10 million yen × 20% = 2 million yen, and the recipient's net amount is 10 million yen − 2 million yen = 8 million yen.
1 million yen (10 million yen × 10%) is the amount when the form is filed in time and the limit rate applies. The recipient can later file the form and a refund claim to request the difference. If it is approved, the difference of 1 million yen is returned. The net amount then becomes 9 million yen. 0 yen would mean the payer does not withhold, which does not apply to a payment in a category subject to withholding. 8 million yen is not the amount withheld but the net amount after withholding.
Learn more: Withholding Tax
Question 4
As a hypothetical example, W Co. enters into an interest rate swap with a notional amount of 10 billion yen, receiving a fixed rate of 1.10%, and an offsetting swap, paying 1.08% to its wholly owned foreign subsidiary. The floating-rate payments offset each other, and no part of the difference counts as a donation. The fixed rate at the arm's length price is 1.05%. Under Article 66-4, paragraph 1 of the Act on Special Measures Concerning Taxation as of October 2026, if the transaction is deemed to have been conducted at the arm's length price, what annual difference is not deductible?
Answer and explanation
Answer: D
It is 3 million yen. The consideration W Co. pays to its wholly owned foreign subsidiary (the booking entity) exceeds the arm's length price (a fixed rate of 1.05%). So the transaction is deemed to have been conducted at 1.05%. The difference in fixed rates is 1.08% − 1.05% = 0.03%, and 10 billion yen × 0.03% = 3 million yen is the difference that is not included in deductible expenses. The amount that actually remains with W Co. each year is 10 billion yen × (1.10% − 1.08%) = 2 million yen. At the arm's length level it would be 5 million yen (10 billion yen × (1.10% − 1.05%)), so it is 3 million yen less.
2 million yen is the amount that actually remains with W Co. 5 million yen is the amount that would remain at the arm's length level. Neither is the difference. 0 yen is the mistaken reading that W Co. is outside the provision because it is the paying side. The provision also applies when the consideration paid to a foreign related party exceeds the arm's length price. The arm's length fixed rate of 1.05% is a value set for the example, not one obtained by the calculation methods of Article 66-4.
Learn more: Transfer Pricing for Cross-Border Trades