Statutory definition

Corporate crypto holdings are generally marked to market at year-end, bringing unrealized gains and losses into income. Appreciation can be taxed even without a sale. However, tokens issued by the company and continuously held since issuance can fall outside that principle as “specified self-issued crypto assets.”

“(b) Specified self-issued crypto assets: crypto assets issued by that domestic corporation and continuously held since issuance (called ‘self-issued crypto assets’ in the following item), prescribed by Cabinet Order as continuously subject since issuance to transfer restrictions or other conditions; the same applies in paragraph (6).”

There are three requirements: self-issuance, continuous holding since issuance, and continuous transfer restrictions or other conditions since issuance. The first two define “self-issued crypto assets”; adding restrictions makes them “specified self-issued crypto assets.” Self-issuance alone is insufficient: inability to transfer must accompany it.

This definition operates in the main text of Article 61(2)(i).

“(i) 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): market value method.”

Year-end market valuation is limited to market crypto assets, with further exclusions for the listed assets: specified transfer-restricted crypto assets in (a) and specified self-issued crypto assets in (b). Without market valuation, unrealized year-end gains are not recognized.

Overview

Why Were These Assets Excluded from Market Valuation?

Consider the pre-reform position. Purchased crypto assets have a purchase price, but self-issued assets do not. Article 118-5(1)(ii) sets acquisition cost at “expenses incurred for issuance.” Actual issuance costs are small, so book value begins at a very low amount.

Meanwhile, Article 61(3) treats the excess of market valuation over book value as a valuation gain and requires inclusion in gross income or deductible expenses for that fiscal year. If a token with near-zero cost acquires a market price, almost its entire market value becomes taxable gross income. No cash has been received, but corporation tax still arises.

Chapter III, Corporate Taxation, of the FY2023 outline, approved on December 23, 2022, addressed this.

“(5) The following changes shall be made to crypto asset valuation methods and related matters (the revision in (2) below shall also apply to income tax).”

“(1) Crypto assets meeting the following requirements shall be excluded from the scope of crypto assets held by corporations at fiscal year-end for which market valuation gains and losses are recognized.”

“(a) Self-issued crypto assets held continuously since issuance.”

“(b) Transfer restrictions maintained continuously from issuance through one of the following means.”

“(a) Technical measures preventing transfer to another person.”

“(b) Holding as trust property of a trust meeting specified requirements.”

“(2) The acquisition cost of self-issued crypto assets shall be the expenses incurred for issuance.”

The outline's requirements became Article 61(2)(i)(b) and items (i) and (ii) of Article 118-7(3) of the Order. As the opening wording states, measure (2) also extends to income tax: Article 119-6(1)(ii) specifies “crypto assets acquired through self-issuance: expenses incurred for issuance” (How is the acquisition price of crypto assets held by individuals determined?). Measure (1) does not extend to income tax because individuals have no year-end market valuation.

Requirement 1: Technical Measures Preventing Transfer to Others

The third element, “prescribed by Cabinet Order,” is detailed in Article 118-7(3).

“Assets prescribed by Cabinet Order in Article 61(2)(i)(b) shall be crypto assets continuously meeting either of the following requirements from issuance.”

Both items (i) and (ii) need not be met. However, “continuously from issuance” applies equally to both. Imposing restrictions only later does not satisfy the requirement.

“(i) Measures prescribed by Ministry of Finance Order as technical measures preventing transfer of the crypto assets to another person have been taken.”

A contractual promise not to transfer is insufficient. The requirement is technical measures preventing transfer: the system must make transfer impossible. Details are delegated to a Ministry of Finance Order. This article has not examined its original text and does not address those details.

Requirement 2: Trust Property in a Qualifying Trust

The alternative is the trust in item (ii).

“(ii) The crypto assets are held in a trust meeting all of the following requirements.”

The parenthetical limits this to trusts whose beneficiaries or equivalent persons are deemed to hold the trust assets and liabilities under Article 12(1) of the Corporation Tax Act. All of subitems (a), (b), and (c) must then be met; unlike the choice between items, these are cumulative.

“(a) The trustees consist solely of trust companies (including financial institutions conducting trust business under Article 1(1) (Approval for Concurrent Business) of the Act on Engagement in Trust Business Activities by Financial Institutions), and the sole beneficiary or equivalent person is that domestic corporation.”

“(b) The trust agreement provides that the trustee will not transfer trust assets or liabilities to persons other than the trustee and beneficiaries or equivalent persons.”

“(c) The trust agreement provides that the domestic corporation cannot transfer the beneficial interest or change the beneficiaries or equivalent persons.”

Subitem (a) prevents using an insider trustee to move assets freely; (b) blocks tokens leaving the trust; (c) blocks selling beneficial interests while leaving tokens in trust. The structure closes direct and indirect exits and entrusts control to a trust company. Item (i) prevents movement technologically; item (ii) does so through legal arrangements.

Loss of Qualification Immediately Triggers a Deemed Transfer

Lockups eventually end. Article 61(6) determines what happens then.

“When the crypto assets cease to qualify as specified self-issued crypto assets or another event prescribed by Cabinet Order occurs, the corporation's income for each fiscal year shall be calculated, as prescribed by Cabinet Order, deeming the assets transferred and reacquired.”

No sale or purchase occurs, yet income is calculated as if both did. Article 118-11(1) lists the relevant events; item (i) is loss of specified self-issued status. The question is the deemed transfer value, specified in paragraph (2).

“At the time the event occurs, the domestic corporation's income for each fiscal year shall be calculated deeming the crypto assets transferred at their book value immediately before that time and acquired at that book value.”

This is not market value. A deemed sale and repurchase at the same preceding book value produces no transfer gain or loss at that point. Although “deemed transfer” may suggest market-value taxation, item (i) does not work that way.

What, then, is the deemed transfer for? One purpose is a change in the category used to calculate book value per unit. Article 118-6(2) divides crypto assets into four categories, placing specified self-issued assets in item (iii). A deemed transfer and reacquisition allows the category movement to be recorded in the books.

The other purpose is central. Once specified self-issued status ends, the token leaves the exclusions in Article 61(2)(i). If it is a market crypto asset and not a specified transfer-restricted crypto asset, market valuation resumes. Unrealized gains are taxed through the ordinary route at that fiscal year-end, not immediately when restrictions end. Which fiscal year contains the release matters more than the release date itself.

Article 118-7(4) also provides that even otherwise qualifying self-issued assets are deemed not to be specified self-issued assets if they “qualify or previously qualified as specified transfer-restricted crypto assets under subitem (a).” The past tense is crucial: once in that category, they cannot return.

Points that require care in practice

• When part of an issue is sold or distributed, whether the remainder can be described as “continuously held since issuance.”
• Determining when qualification ended after technical restrictions were removed. Near fiscal year-end, whether market valuation begins at that year-end or the next can shift recognition of unrealized gains by a year.
• For trusts, the requirement that the domestic corporation be the sole beneficiary or equivalent person. Joint issuance by several corporations or intragroup transfers of beneficial interests require review against subitems (a) and (c).
• Technical measures are delegated to a Ministry of Finance Order. Whether the adopted system qualifies requires checking the original Order.
• Tokens received through a qualified merger or qualified company split. Article 118-7(5) and (6) provide determinations, with different deemed timing for self-issued and specified self-issued crypto assets.
• The scope of “expenses incurred for issuance.” Which expenses qualify depends on the facts.

These matters require examining issuance structures and contracts, not statutory wording alone. For filing, confirm individual circumstances. For the definition, see How does the tax law define "cryptoassets"? Please also see.

Legal basis

• Corporation Tax Act, Article 61(2)(i)(b) (Gains and Losses on Transfers and Market Valuation of Short-Term Trading Commodities, etc.) / Quoted wording: “(b) Specified self-issued crypto assets: crypto assets issued by that domestic corporation and continuously held since issuance (called ‘self-issued crypto assets’ in the following item), prescribed by Cabinet Order as continuously subject since issuance to transfer restrictions or other conditions; the same applies in paragraph (6).”
• Corporation Tax Act, Article 61(2)(i) / Quoted wording: “(i) 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): market value method.”
• Corporation Tax Act, Article 61(3) / Quoted wording: “shall be included in gross income or deductible expenses in calculating income for the fiscal year containing that year-end.”
• Corporation Tax Act, Article 61(6) / Quoted wording: “When the crypto assets cease to qualify as specified self-issued crypto assets or another event prescribed by Cabinet Order occurs, the corporation's income for each fiscal year shall be calculated, as prescribed by Cabinet Order, deeming the assets transferred and reacquired.”
• Order for Enforcement of the Corporation Tax Act, Article 118-7(3) (Scope of Market Crypto Assets, etc.) / Quoted wording: “Assets prescribed by Cabinet Order in Article 61(2)(i)(b) shall be crypto assets continuously meeting either of the following requirements from issuance.”
• Order for Enforcement of the Corporation Tax Act, Article 118-7(3)(i) / Quoted wording: “(i) Measures prescribed by Ministry of Finance Order as technical measures preventing transfer of the crypto assets to another person have been taken.”
• Order for Enforcement of the Corporation Tax Act, Article 118-7(3)(ii) / Quoted wording: “(ii) The crypto assets are held in a trust meeting all of the following requirements.”
• Order for Enforcement of the Corporation Tax Act, Article 118-7(3)(ii)(a) / Quoted wording: “(a) The trustees consist solely of trust companies (including financial institutions conducting trust business under Article 1(1) (Approval for Concurrent Business) of the Act on Engagement in Trust Business Activities by Financial Institutions), and the sole beneficiary or equivalent person is that domestic corporation.”
• Order for Enforcement of the Corporation Tax Act, Article 118-7(3)(ii)(b) / Quoted wording: “(b) The trust agreement provides that the trustee will not transfer trust assets or liabilities to persons other than the trustee and beneficiaries or equivalent persons.”
• Order for Enforcement of the Corporation Tax Act, Article 118-7(3)(ii)(c) / Quoted wording: “(c) The trust agreement provides that the domestic corporation cannot transfer the beneficial interest or change the beneficiaries or equivalent persons.”
• Order for Enforcement of the Corporation Tax Act, Article 118-7(4) / Quoted wording: “where the crypto assets qualify or previously qualified as specified transfer-restricted crypto assets under subitem (a).”
• Order for Enforcement of the Corporation Tax Act, Article 118-5(1)(ii) (Acquisition Cost of Short-Term Trading Commodities, etc.) / Quoted wording: “(ii) Short-term trading commodities and similar assets acquired through self-issuance (limited to crypto assets under Article 61(1) of the Act; the same applies in this subdivision): expenses incurred for issuance.”
• Order for Enforcement of the Corporation Tax Act, Article 118-6(2)(iii) (Methods for Calculating Book Value per Unit of Short-Term Trading Commodities, etc., and Selection Procedures) / Quoted wording: “(iii) Crypto assets qualifying as specified self-issued crypto assets under Article 61(2)(i)(b) of the Act.”
• Order for Enforcement of the Corporation Tax Act, Article 118-11(1)(i) (Deemed Transfers upon Changes in Crypto Asset Classification, etc.) / Quoted wording: “(i) Crypto assets held by the domestic corporation under Article 61(6) cease to qualify as specified self-issued crypto assets (as defined in Article 61(2)(i)(b); the same applies in this paragraph).”
• Order for Enforcement of the Corporation Tax Act, Article 118-11(2) / Quoted wording: “At the time the event occurs, the domestic corporation's income for each fiscal year shall be calculated deeming the crypto assets transferred at their book value immediately before that time and acquired at that book value.”
• Order for Enforcement of the Income Tax Act, Article 119-6(1)(ii) (Acquisition Cost of Crypto Assets) / Quoted wording: “(ii) Crypto assets acquired through self-issuance: expenses incurred for issuance.”
• FY2023 Tax Reform Outline (Cabinet approval: December 23, 2022), III Corporate Taxation, (5) / Quoted wording: “(5) The following changes shall be made to crypto asset valuation methods and related matters (the revision in (2) also applies to income tax)”; “(1) Assets meeting the following requirements shall be excluded from corporate year-end market valuation”; “(a) self-issued assets held continuously since issuance”; “(b) transfer restrictions maintained continuously from issuance through either (a) technical measures preventing transfer to others or (b) holding as trust property in a qualifying trust”; “(2) Acquisition cost of self-issued crypto assets shall be issuance expenses.”