Bringing AI to Business - What legal systems are in place to support the accelerated commercialization of AI?
Tax incentives for IT investments for "Connected Industries

In 2017, the Japanese government announced "Connected Industries" as a growth strategy for Japan. Connected Industries" is based on the 4th Industrial Revolution, which is realized by massive amounts of information and artificial intelligence, and aims to improve productivity by creating new added value through various connections. What kind of support measures will the government provide to businesses in promoting "Connected Industries"?

*Source: "Connected Industries" Tokyo Initiative 2017, Ministry of Economy, Trade and Industry (released October 2, 2017, see April 17, 2018)

Tax incentives for IT investments in IoT and Big Data that create new added value

The tax reform of fiscal year 2018 will establish a special system of taxation for IT investments by businesses that link and utilize information to improve productivity. If a blue-chip corporation newly establishes or expands "innovative information industry utilization equipment" such as software, etc. worth 50 million yen or more during the designated period in accordance with an approved "innovative data industry utilization plan" and uses the equipment for business, it will be able to apply for either special depreciation or special tax credit.

• <Contents of Special Taxation Exception
• Special depreciation of 30% of acquisition cost Special depreciation of 30% of acquisition cost
• Special depreciation of 5% or 3% of acquisition cost Special tax credit of 5% or 3% of the acquisition cost [*1][*2]"

<Designated period>
From the effective date of the related law [*3] to March 31, 2021

<Tax items covered>
National tax: corporate tax, income tax
Local tax: corporate inhabitant tax, corporate enterprise tax[*4].

[1] If the increase in "average salary and other payments" is 3% or more compared to the previous year, the tax credit will be 5%; if the increase is less than 3%, the tax credit will be 3%.
[2] The maximum amount of tax credit depends on the growth rate of "average salaries and wages" from the previous year as follows.
　　If the increase is less than 3%, the tax credit will be capped at 3% of the current year's tax amount.
If the increase is more than 3%, the tax credit will be capped at 20% of the current year's tax amount.
[*3] Law on Special Measures for Productivity Improvement (the bill is under discussion in the Diet as of April 17, 2018)
[*4] If special depreciation is selected for corporate tax, it is also applied to corporate enterprise tax and corporate inhabitant tax, and if tax credit is selected, it is applied to corporate inhabitant tax on SMEs only. If a tax credit is selected, it will be applied only to the corporate inhabitant tax on small and medium-sized enterprises, etc.

What is the "Innovative Data Industry Utilization Plan" that is eligible for support?

The "Innovative Data Industry Utilization Plan" is a plan approved by the competent minister, with security as a requirement, for private companies to create new added value and improve productivity by linking and highly utilizing data from within and outside the company. The following are examples of equipment that may be used in the implementation of the plan.

<Example of equipment

• Systems required for data linkage and analysis (software, AI, servers, etc.)
• Data collection equipment (sensors, etc.)
• Robots and machine tools to be automated by data analysis
• Cyber security products

*Source: "Connected Industries" Tokyo Initiative 2017, Ministry of Economy, Trade and Industry (released October 2, 2017, see April 17, 2018)

Summary of requirements for certification of "Innovative Data Industry Utilization Plan

In order to receive approval from the competent minister for an "innovative data industry utilization plan," which is a prerequisite for applying for the special exception to taxation, the plan must meet the following requirements

(1) Details of data linkage and utilization

• Linking external data and previously unacquired data with internal data
• Linkage of important data in a company's competitiveness among group companies and offices

(2) Security aspects

A security expert (e.g., information processing security specialist) must certify that the necessary security measures have been taken.

(3) Productivity improvement targets

All of the following are expected to be achieved within a certain period of time from the investment year

• Labor productivity: average annual growth rate of 2% or more
• Return on investment: 15% or more per year on average

*Source: Ministry of Economy, Trade and Industry, "Revision of Taxation System Related to Economy, Trade and Industry in Fiscal Year 2018" (released December 2017, see April 17, 2018)

What is "innovative information industry utilization equipment" eligible for preferential tax treatment?

Innovative Information Industry Utilization Equipment" refers to the following equipment with a total acquisition cost of 50 million yen or more, which is acquired and used based on the "Innovative Data Industry Utilization Plan" approved by the competent minister.

①Specified software
related to the Innovative Data Industry Utilization Plan that has been confirmed as particularly conducive to improving productivity
②Machinery and equipment
③Furniture and fixtures

*For (1) through (3), assets for industrial testing and research are excluded. Also, for (2) through (3), only certain items that contribute to the coordination and utilization of information.

The use of AI in business is essential to increase productivity in the field and strengthen business competitiveness. Government support systems are being put in place to help companies collect a variety of data and develop an environment in which AI can analyze and learn from these data.

We believe that this tax incentive will be applicable to the introduction of our artificial intelligence business application "HUE" as long as it meets the statutory requirements, such as being certified as an "innovative data industry utilization plan". If you are interested in utilizing AI in your back office or strengthening your competitiveness through the use of AI, please feel free to contact us from the following link.