Statutory definition

Should a corporation revalue crypto holdings at fiscal year-end or retain their acquisition value? The dividing line is whether they qualify as “market crypto assets.” Begin with Article 61(2)(i) of the Corporation Tax Act, where the term appears.

“Short-term trading commodities and similar assets (for crypto assets, limited to market crypto assets (those prescribed by Cabinet Order as having an active market; the same applies in the following item), excluding the following).”

The provision limits market valuation of crypto assets to market crypto assets. The Act does not itself determine what those are. It delegates the details through the phrase “prescribed by Cabinet Order as having an active market.” The delegated provision is Article 118-7(1) of the corporation tax Order.

“Crypto assets prescribed by Cabinet Order as having an active market under Article 61(2)(i) of the Act (Gains and Losses on Transfers and Market Valuation of Short-Term Trading Commodities, etc.) shall be crypto assets held by a domestic corporation that meet all of the following requirements.”

There is no separate definition of “active market.” There are only the three requirements that follow. Because the provision says “all,” failure of even one means the asset is not a market crypto asset. Let us examine them in order.

“(i) Trading prices (including exchange ratios against other crypto assets, called ‘exchange ratios’ in Article 118-8(1)(iv), and collectively ‘trading prices and similar values’ in this paragraph and Article 118-8(1)(iii)) are published continuously, and those published values materially influence the determination of the asset's trading prices or exchange ratios.”

“(ii) Transactions occur in sufficient quantity and frequency to permit continuous publication of the trading prices and similar values in the preceding item.”

“(iii) Either of the following requirements is met: (a) the trading prices and similar values in item (i) are published by a person other than that domestic corporation; (b) the transactions in the preceding item are not primarily transactions conducted by that domestic corporation for its own account.”

Overview

Requirement 1: Published Prices

Item (i) is long but consists of two conditions joined by “and.” The first concerns publication; the second requires the published prices or ratios to materially influence actual price or ratio determination.

The first condition says “continuously.” A price quoted somewhere once in the past is insufficient. The second goes further: published values must actually influence pricing. Someone merely displaying a number is not enough; actual trading prices or exchange ratios must be determined with reference to it.

The meaning of “trading prices and similar values” matters. Item (i)'s parentheses include “exchange ratios against other crypto assets (called ‘exchange ratios’ in Article 118-8(1)(iv)).” Even without a yen quote, a published ratio against another crypto asset falls within the term.

This aligns with the year-end market valuation provision. Article 118-8(1)(iv) specifies that where values are published as exchange ratios, the amount is calculated by multiplying that ratio by the price under the preceding item for the other crypto asset. An asset qualifying through an exchange ratio is thus converted into yen by following that ratio.

Requirement 2: Sufficient Quantity and Frequency

Item (ii) contains no numbers. It merely requires transactions in “sufficient quantity and frequency,” without thresholds for number or value.

Yet the benchmark for “sufficient” is not blank. The item says sufficient “to permit continuous publication” of the values in item (i). Sufficiency is defined by purpose: are there enough transactions to sustain publication? Items (i) and (ii) are separate requirements but internally connected.

“Quantity and frequency” also matters. It says “and,” not “or.” A single large trade annually or tiny daily trades might appear sufficient if only one measure were considered.

Requirement 3: Not Entirely Self-Generated

Item (iii) is easily overlooked when reading only the first two. Here is its wording again.

“(iii) Either of the following requirements is met: (a) the trading prices and similar values in item (i) are published by a person other than that domestic corporation; (b) the transactions in the preceding item are not primarily transactions conducted by that domestic corporation for its own account.”

Subitem (a) concerns who publishes prices. Publication must be by “a person other than that domestic corporation”—someone else must provide the quotes. Subitem (b) concerns who trades. Item (ii)'s transactions must not be “primarily conducted by that domestic corporation for its own account”—they cannot consist mainly of its own-account trades.

Item (iii) joins these with “either.” Meeting one is enough. Conversely, it fails only when both publication and the bulk of own-account trading are by the corporation itself.

A corporation setting and publishing its own prices and trading at them could formally satisfy items (i) and (ii) alone: continuous publication, influence on prices, and sufficient transactions to sustain publication. Item (iii) excludes that situation from market crypto asset status.

The same concept appears in Article 118-8(1)(iii), which determines year-end market value. It defines the publisher of the prices used as follows.

“Price publisher: a person continuously publishing crypto trading prices and similar values that materially influence actual trading prices or exchange ratios (excluding the domestic corporation itself where the transactions under Article 118-7(1)(ii) relating to those values are primarily its own-account transactions); the same applies in the following item.”

The parentheses exclude the domestic corporation as a price publisher when trading is primarily for its own account. The same type of exclusion appears both at the qualification stage in Article 118-7(1)(iii) and at the valuation stage in Article 118-8(1)(iii).

What If an Asset Does Not Qualify as a Market Crypto Asset?

It falls outside market valuation. Article 61(2)(iii) provides:

“(iii) Short-term trading commodities and similar assets other than those in the preceding two items: cost method.”

The cost method is defined in the parentheses of paragraph (2)(ii)(b).

“Cost method: the method using the book value at fiscal year-end as the valuation amount at that time for short-term trading commodities and similar assets held then; the same applies in the following item.”

It simply uses year-end book value. Price movements do not generate year-end valuation gains or losses because Article 61(3) limits recognition of such gains or losses to assets whose year-end value is determined under the market value method.

Absence of year-end valuation gains or losses is different from absence of gains or losses on sale. Article 61(1) recognizes transfer gains and losses in the fiscal year containing the agreement date. A sale generates a gain or loss regardless of market crypto asset status. What changes is year-end treatment when the asset remains unsold.

For book value per unit used in transfer costs, Article 118-6(1) lists moving average and total average. Where no notification is filed, paragraph (8) provides that “the method prescribed by Cabinet Order in Article 61(1)(ii) shall be the moving average method under paragraph (1)(i).” This is opposite to the income tax default of total average for individuals (The average method and moving average method — how to evaluate individual crypto assets and how to report them）。

Qualification is not permanent. Article 118-11(1)(iv) lists as a deemed-transfer event a corporation's crypto assets “ceasing to qualify as market crypto assets at some point during the fiscal year.” Even while assets remain held, loss of that status can trigger income calculation based on a deemed transfer and reacquisition.

Where Did This Wording Originate?

“An active market exists” appeared in the FY2019 Tax Reform Outline, approved on December 21, 2018. Its corporate taxation chapter states:

“For virtual currency held by a corporation at fiscal year-end for which an active market exists, valuation gains and losses shall be recognized through market valuation.”

The outline does not define an active market. It simply uses that term to delimit market valuation, leaving the boundary to the Act and Cabinet Order: Article 61(2)(i) and Article 118-7(1), which we have been reading.

Subsequently, continuously held self-issued crypto assets and certain other assets were excluded from market valuation. The FY2024 outline provided that market crypto assets held subject to transfer restrictions or other conditions are valued using the corporation's selected method. Market crypto asset status is therefore the first gate in determining year-end valuation, not the last. The underlying definition of “crypto assets” is also not independently created by the Corporation Tax Act (How does the tax law define "cryptoassets"?）。

Points that require care in practice

• Crypto assets traded on very few exchanges. Prices may be published, but whether item (ii)'s “sufficient quantity and frequency” is met becomes an issue.
• Assets unavailable domestically, with prices published only overseas. Item (i) does not restrict the publisher's location.
• Assets with no yen price and only exchange ratios against other crypto assets. Item (i)'s parentheses include those ratios within trading prices and similar values.
• Self-issued crypto assets traded only in venues involving the issuing company. Check whether neither subitem (a) nor (b) of item (iii) is satisfied.
• Several publishers quoting conflicting prices. This raises the question of which publication “materially influences” pricing.
• Trading beginning or ending during the fiscal year. In addition to the assessment date, check deemed transfers under Article 118-11.
• Identifying when declining trading activity causes loss of market crypto asset status. Item (ii) contains no numerical quantity threshold.
• How to preserve evidence supporting the determination. Publication conditions and trading quantities and frequency can be difficult to reconstruct later.

These questions require examining the actual trading circumstances, not just statutory wording. For filing, confirm the treatment based on individual facts.

Legal basis

• Corporation Tax Act, Article 61(2)(i) (Gains and Losses on Transfers and Market Valuation of Short-Term Trading Commodities, etc.) / Quoted wording: “Short-term trading commodities and similar assets (for crypto assets, limited to market crypto assets (those prescribed by Cabinet Order as having an active market; the same applies in the following item), excluding the following).”
• Corporation Tax Act, Article 61(2)(ii)(b) / Quoted wording: “Cost method: the method using book value at fiscal year-end as the valuation amount at that time for short-term trading commodities and similar assets held then; the same applies in the following item.”
• Corporation Tax Act, Article 61(2)(iii) / Quoted wording: “(iii) Short-term trading commodities and similar assets other than those in the preceding two items: cost method.”
• Corporation Tax Act, Article 61(1) / Quoted wording: “the transfer gain (the excess of the amount in item (i) over the amount in item (ii)).”
• Corporation Tax Act, Article 61(3) / Quoted wording: “Where a domestic corporation holds short-term trading commodities and similar assets at fiscal year-end (limited to those valued then at the amount determined under the market value method, called the ‘market valuation amount’ in this paragraph; the same applies in this and the following paragraph).”
• Order for Enforcement of the Corporation Tax Act, Article 118-7(1), Opening Provision (Scope of Market Crypto Assets, etc.) / Quoted wording: “Crypto assets prescribed by Cabinet Order as having an active market under Article 61(2)(i) of the Act shall be crypto assets held by a domestic corporation meeting all of the following requirements.”
• Order for Enforcement of the Corporation Tax Act, Article 118-7(1)(i) / Quoted wording: “(i) Trading prices (including exchange ratios against other crypto assets, called ‘exchange ratios’ in Article 118-8(1)(iv), and collectively ‘trading prices and similar values’ in this paragraph and Article 118-8(1)(iii)) are published continuously, and those values materially influence the determination of the asset's trading prices or exchange ratios.”
• Order for Enforcement of the Corporation Tax Act, Article 118-7(1)(ii) / Quoted wording: “(ii) Transactions occur in sufficient quantity and frequency to permit continuous publication of the trading prices and similar values in the preceding item.”
• Order for Enforcement of the Corporation Tax Act, Article 118-7(1)(iii) / Quoted wording: “(iii) Either of the following is met: (a) the values in item (i) are published by a person other than that domestic corporation; (b) the transactions in the preceding item are not primarily conducted by that domestic corporation for its own account.”
• Order for Enforcement of the Corporation Tax Act, Article 118-8(1)(iii) (Market Valuation of Short-Term Trading Commodities, etc.) / Quoted wording: “Price publisher: a person continuously publishing crypto trading prices and similar values that materially influence actual trading prices or exchange ratios (excluding the domestic corporation where the transactions under Article 118-7(1)(ii) relating to those values are primarily its own-account transactions); the same applies in the following item.”
• Order for Enforcement of the Corporation Tax Act, Article 118-8(1)(iv) / Quoted wording: “the amount calculated by multiplying by the price under the preceding item for the other crypto asset exchanged at that ratio.”
• Order for Enforcement of the Corporation Tax Act, Article 118-6(8) (Methods for Calculating Book Value per Unit of Short-Term Trading Commodities, etc., and Selection Procedures) / Quoted wording: “The method prescribed by Cabinet Order in Article 61(1)(ii) of the Act shall be the moving average method specified in paragraph (1)(i).”
• Order for Enforcement of the Corporation Tax Act, Article 118-11(1)(iv) (Deemed Transfers upon Changes in Crypto Asset Classification, etc.) / Quoted wording: “Crypto assets held by the domestic corporation under Article 61(6) of the Act cease to qualify as market crypto assets at some point during that fiscal year.”
• FY2019 Tax Reform Outline (Cabinet approval: December 21, 2018), III Corporate Taxation / Quoted wording: “For virtual currency held by a corporation at fiscal year-end for which an active market exists, valuation gains and losses shall be recognized through market valuation.”
• FY2024 Tax Reform Outline, III Corporate Taxation / Quoted wording: “The year-end value of market crypto assets held by a corporation subject to transfer restrictions or other conditions shall be determined using the corporation's selected method from the following valuation methods.”