Over the last couple of months, Japanese companies have been flocking to galleries to purchase inexpensive artworks. This trend is a result of a significant governmental change in relation to taxation policy which was adopted from January 2015.

According to the newly amended Corporate and Income Tax Law Interpretive Regulations announced by the National Tax Agency, any fine art purchased during and after January 2015 at a price of less than one million Japanese yen (roughly £5,600) may be treated as a depreciable asset for the purpose of Corporate Tax and Business Income Tax. This means that a part of the purchase price may be subtracted in five years from the company’s income as a depreciation cost.

The main points of the amended regulation are summarised below.

1. Irreplaceable artistic objects, having historic or scarcity value, such as antiques, ancient manuscripts, artefacts, relics of the past, etc. shall not be treated as depreciable assets.
2. An artwork other than those in item 1 above may be in principle treated as a depreciable asset if its purchase price is less than one million yen.
3. An artwork other than those in items 1 and 2 above may be treated as a depreciable asset if its value is clearly reduced by lapse of time. (An example of such an artwork would be an object purchased by a company for the purpose of decoration or display in a public space (such as a lobby or hall), and which is difficult to remove and sell as an ordinary artwork once it has been installed in such space.)

The aim of the new regulation is to encourage companies and business people to purchase more contemporary art so as to promote the expansion of the Japanese art market.

Makoto Shimada is Professor of Law at Keio University, Japan, and Visiting Professor at City Law School, United Kingdom