Japan: What happened in 2018 and significant events in 2019
Industrial Competitiveness Enhancement Act: The amended Industrial Competitiveness Enhancement Act (the “Enhancement Act”) came into force on 9 July 2018. Prior to the amendment, the Enhancement Act had already set out certain exemptions to the requirements under the Companies Act in respect of in-kind contributions, such as the exemption to an investigation by a court appointed inspector, in the case of a tender offer (or any equivalent in other jurisdictions), using its shares as the consideration to acquire control of a target company if the acquirer obtains authorisation by the competent minister(s). The amendment has further expanded the scope so that the acquirer can use the Enhancement Act in the case of a transfer of shares of the target company. This amendment enables the acquirer to use the Enhancement Act for (a) the acquisition of a non-listed company and (b) an acquisition which does not fall under the category of a tender offer or any equivalent, such as an acquisition by way of a scheme of arrangement in the UK. In relation to this amendment, a relevant tax reform was made in 2018 so that shareholders who sold their shares pursuant to an acquisition made by an acquirer who conducted the acquisition under a special business restructuring plan (tokubetsu jigyou saihen keikaku) authorised by the competent minister(s), can benefit from tax deferral treatment.
Personal Data Transfer between Japan and the EU: Further, the acquisition by using shares as consideration will become available under the Companies Act as well, not just under the Enhancement Act. The Companies Act is expected to be amended to include a new system called “Share Delivery System” (kabushiki kouhu seido), whereby an acquiror can acquire the target shares in exchange for its shares. Under the current Companies Act, there is already a system called “Share-for-Share Exchange(kabushiki koukan)”, but it is only available for the acquisition of 100% shares in a Japanese KK. The new Share Delivery System may be used when the acquirer obtains only a simple majority (rather than all shares) in the target, and the target can be a foreign entity.
On 5 September 2018, the EU Commission officially launched the procedure for the recognition of the adequate protection of personal data by Japan. On 7 September 2018, the Personal Information Protection Commission (the “PPC”), the independent Japanese data protection authority, published the “Supplementary Rules under the Act on the Protection of Personal Information for the Handling of Personal Data Transferred from the EU based on an Adequacy Decision”, which will become effective when the EU Commission’s adequacy decision becomes effective.
These rules introduce additional safeguards when EU data is sent to Japan, which should help overcome certain differences which still exist between both legal systems. This includes enhanced rules on the definition of “sensitive data”, the exercise of individual rights and onward transfers. The Supplementary Rules indicate that these additional safeguards are binding on Japanese companies importing data from the EEA and will be enforceable by the PPC. Once the formal procedures are completed on both sides, personal data will be able to flow safely and freely between the EEA and Japan, without being subject to any further safeguards or derogations.