Washington International Law Journal


Yo Ota


A number of commentators in Japan have argued that tax treatments for distressed bank loans seem to be more generous in Japan than in the United States, and that, in contrast to Japan, the United States does not allow any deduction for loan loss reserves. However, such arguments have not been based upon a careful analysis of case law and actual tax authority practices. This Article presents a comparative study of the tax treatments for distressed bank loans in the United States and Japan. It analyzes corporate income tax legislation, administrative practices and case law in the 1980s and 1990s and explores several major differences between the United States and Japan with respect to the treatment of distressed bank loans. Based on this analysis, this Article challenges the traditional view of comparative tax treatments in these two countries and contends that Japanese tax treatments provide insufficient incentives for banks to expedite the disposal of distressed loans. Finally, this Article suggests possible legislative approaches for establishing a workable legal scheme that provides more economically neutral and internationally harmonized tax treatments for distressed bank loans in Japan.

First Page