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Japan Considering Tax Breaks for Charitable Contributions Abroad

February 22, 1990

TOKYO (AP) _ The government is considering giving companies more tax breaks for charitable contributions abroad amid concern friction may grow over Japanese investments in the United States, an official said today.

The Foreign Ministry proposed the tax measure, and the Finance Ministry will consider it for implementation in the fiscal year starting April 1991, the Foreign Ministry official said.

Full details of the measure were not made public.

At a meeting last week, Foreign Minister Taro Nakayama told leading businessmen he was concerned that Japan’s image in the United States was in serious trouble. He urged Japanese businesses to contribute to U.S. communities in which they have businesses.

Nakayama said the problem underlying Americans’ fears about Japan ″is their feeling that Japan’s policy objectives and the Japanese way of thinking are not clear and that it is impossible to guess where Japan’s huge economic power is headed, and under what philosophy or principles.

″In short, there are an increasing number of Americans who think ‘The Japanese are faceless’ or ’There is no knowing what they are thinking.‴

Tax regulations now permit Japanese companies abroad to deduct only contributions that promote Japanese culture, such as museum exhibits or cultural exchanges, the official said on condition of anonymity.

Foreign branches of Japanese companies may, however, deduct contributions from foreign tax bills.

The new proposal was designed to allow new foreign branches to make charitable contributions even before they turn a profit and must pay taxes abroad. Parent companies in Japan would be able to deduct contributions from their Japanese taxes, the official said.

Japan has a weak tradition of corporate philanthropy, and business executives - some as concerned about Japan’s image abroad as the Foreign Ministry - have said incentives are needed to encourage companies to become better corporate citizens in the United States.

The Foreign Ministry’s proposal will take time to work through the Finance Ministry, the official said. It must be studied in detail to determine its impact on tax revenues, he said.

It would not, however, require approval by Parliament, the official said. Japan’s foreign investment, especially in the United States, soared in recent years as Japanese companies built factories, bought foreign companies and real estate and sought land and labor cheaper than at home.

Some investments provoked controversy in the United States, such as last year’s purchase of Columbia pictures by Sony Corp. and the purchase of a controlling interest in New York’s Rockefeller Center by Mitsubishi Estate.

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