Transferring a part of the business to another company and then selling the company's shares. In business succession and M&A preparation, such a sequence is sometimes considered.

At this time, it is not always true that "because there are plans to sell shares, the corporate split will definitely be non-qualifying." Conversely, it cannot be said that "as long as the split is completed first, the subsequent sale does not matter." What determines the decision is the type of split, who sells which company's shares, and what is planned at the time of the split.

"Qualified" does not mean that even capital gains are tax-free.

In a corporate division, assets and liabilities belonging to a business are transferred from the splitting company to the succeeding company. In a qualified division that meets certain requirements, the assets and liabilities transferred by a domestic corporation are, in principle, processed based on their book values immediately before the division. This is a mechanism that defers taxation on unrealized gains on assets at the time of their transfer.Article 62-2, Paragraph 2 and Article 62-3 of the Corporation Tax Act

This is not a system that makes subsequent capital gains from stock sales tax-free as well. The asset transfer by the company, the treatment of shareholders upon a split, and the subsequent transfer of shares each require confirmation.

First, let's review the two classifications of division.

"Whether to form a new company" and "who holds the consideration for the split" are different classifications.

Transferring a business to a new company is an incorporation-type company split, while transferring it to an existing company is an absorption-type company split. On the other hand, tax-wise split-type and spin-off-type divisions are categorized mainly based on the destination of the split consideration. In typical examples where shares are used as consideration, it can be organized as follows:

A tax-free spin-off without consideration has a separate definition, and there is also specific treatment when only a part of the consideration is delivered to shareholders. The simple explanation of "splitting a company" does not determine the tax classification.Article 2, Item 12-9 and Item 12-10 of the Corporation Tax Act

Furthermore, we will confirm which requirements are used to determine qualification, such as divisions based on a fully controlling relationship, divisions based on a controlling relationship, or divisions for the purpose of conducting a business jointly. The conditions regarding relationships to be maintained, businesses, and employees are not the same. There are also separate requirements for divisions intended to conduct a business independently.Article 2, Item 12-11 of the Corporation Tax Act and Paragraphs 6 through 9 of Article 4-3 of the Order for Enforcement of the Corporation Tax Act

When selling a demerged "original company"—there are types that remain unaffected

The National Tax Agency provides an example of conducting an absorption-type company split between two companies wholly owned by the same shareholder. Let us call the company transferring the business Company A and the company receiving it Company B. The shares of Company B, which serve as the consideration for the split, are delivered to the shareholder through Company A.

In this category, continuity must be expected after the spin-off between the same shareholders and Company B, that is,complete control relationship with the company that succeeded to the business. Even if a shareholder plans to sell Company A's shares, that alone does not mean this continuation requirement will no longer be met.

The response from the National Tax Agency also clearly states this point. However, the response deals with the requirements for shareholding relationships in a specific category. It is not a response that permits post-spinoff sales in general, including other qualification requirements.National Tax Agency: Regarding shareholding relationships in spin-offs within corporate groups

Conversely, if the target of the sale is Company B's shares and that sale is expected to break the fully controlled relationship required for continuation, the same explanation does not apply. It is important not to lump the sales target together simply as "company shares."

When selling shares received through a corporate split-up: Examples where planned sales become an issue

As another example, consider a corporate separation where two companies bring together their operations and jointly establish a new company. The original company receives shares of the new company as consideration for transferring the business.

When determining eligibility under joint venture requirements, if the share-holding continuation requirement applies, an issue arises as to whether the splitting corporation expects to continuously hold all of the shares delivered through the division. If there is a plan to sell those shares from the outset, this requirement may not be met.

In the National Tax Agency's examples, a distinction is made between the new company's third-party allotment of shares or listing itself, and the sale of held shares by the split corporation. The answer differs depending on whether the sale was anticipated at the time of the spin-off, or whether it was not specifically planned at the time of the spin-off and was decided upon later.National Tax Agency: Stock continued holding requirement in cases where the succeeding corporation lists its shares after a split

In addition, even for the joint business type, there is a provision that excludes this share-holding continuity requirement if, immediately prior to the split, there is no control relationship by other persons over all of the splitting corporations. The split-off type also has separate provisions regarding shares delivered to controlling shareholders. It is not appropriate to generalize that "in a joint business, no one can sell their shares forever."Main text of Article 4-3, Paragraph 8, Item 6 of the Order for Enforcement of the Corporation Tax Act

Whether something was "planned" is not determined by a name given afterwards

To determine the likelihood of continuation, it is necessary to check the plan at the time of the split. Neither the mere fact of the actual sale at a later date nor the mere fact that "undecided" was written in internal documents is sufficient.

For example, whether negotiations with the buyer were already underway before the spin-off, whether there was a basic agreement, or whether the spin-off was a condition for the execution of the sale. Arranging such documents in chronological order makes it easier to distinguish between the initial plan and subsequent changes.

Conversely, abstract references to potential future sales cannot be immediately treated the same as concrete sales plans. We examine this by including not only the contract, but also the reality of negotiations and internal decision-making.

Do not combine the spin-off, contribution in kind, and sale into a single "qualified transaction"

In the plan to transfer shares to another company by means of a contribution in kind following a corporate split, and subsequently sell the shares, each stage is evaluated separately. A qualifying corporate split and a qualifying contribution in kind are separate systems, and the fact that the previous stage was qualifying does not mean the next stage is also qualifying.Article 2, Item 12-11 and Item 12-14 of the Corporation Tax Act

On the other hand, judging in stages does not mean that subsequent transactions can be ignored. Plans for future sales or reorganizations may be relevant to the expectation of continuation required in the preceding division.

In addition, Article 132-2 of the Corporation Tax Act contains a provision for denying acts or calculations related to organizational restructuring that result in an unreasonable reduction of the corporate tax burden. It cannot be said that having a business purpose will always exempt one from its application. A distinction must be made between meeting the qualification requirements and examining this provision.Article 132-2 of the Corporation Tax Act

If you are considering a sale, picture three scenarios before the division

In actual practice, creating organization charts for three scenarios—before the split, immediately after the split, and after the planned sale or reorganization—clarifies the relationships that need to be reviewed.

• Who owns what percentage of which company's stock.
• Who receives the consideration for the spin-off and who ultimately holds those shares.
• Are we selling the shares of the original company, the successor company, or the shares of an even higher holding company?
• At what point and to what extent the sale and subsequent restructuring have become concrete.

It is not possible to give an answer based solely on the sequence of "selling after the split." The starting point for consideration is to identify the shares to be sold and the relationship that needs to be maintained, and then review the taxation of the split, shareholders, and sale, respectively.

*This is an explanation of the general system. It does not indicate the eligibility or tax amount of individual transactions. It is based on the text of laws and regulations and National Tax Agency published materials confirmed as of September 21, 2026. The legal reference date for the displayed cited National Tax Agency FAQ examples is August 1, 2025.