Outline of "Towards Fundamental Reform of the Public Service Corporation System-Summary of Discussions"

1. Background

The necessary tasks have been taken in response to the Cabinet Decision of March 29, 2002, calling for a fundamental and systematic revision of the public service corporation system and related systems. This document is a summary of the results of discussions regarding fundamental reform based on six hearings involving a total of 27 experts from April to June.

2. Contents

The Necessity of Fundamental Reform of the Public Service Corporation System

It has been pointed out that the public service corporation system in Japan has not undergone fundamental revision for over 100 years and that its framework has become more complex as a result of the establishment of a corporation system based on special laws, the establishment of the NPO Law and the Intermediary Corporation Law. Furthermore, although public service corporations have fulfilled certain role as representative bodies shouldering private nonprofit activities, there have been various criticisms regarding the modalities of management, supervision and oversight, and governance concerning matters such as the issuance of permits for establishment and limits on general supervision and oversight by the Government office with jurisdiction.

In light of this, it is necessary to conduct a fundamental and systematic revision of the public service corporation system and related systems, considering that the Commercial Code, which is the basic law governing profit-oriented corporations, has undergone broad revision in recent years, and taking into consideration resolutions passed by successive sessions of the Diet, and thereby to reformulate the basic structure of the nonprofit corporation system, so that it will be able to properly meet the needs of the new age.

The Appropriate Modalities for the Nonprofit Corporation System

The appropriate modality for the nonprofit corporation system should incorporate "simplification," "objectivity," "autonomy," "transparency" and "flexibility."

The Direction of Nonprofit Corporation System Reform

(1) Types of corporations

A. Reform pattern[1](this pattern is the primary focus of current consideration) The category of public service corporation and the category of intermediary corporation will be consolidated into one category, the "nonprofit corporation (provisional name)." Legal entity status will be recognized only through corporate registration (principle of common rules).

Concerning the judgment whether a corporation is regarded as public utility, two cases can be thought of; one is that the judgment is made only for tax purposes, and the other is that the concept of public utility is incorporated in the corporation system.

It is expected that for certain corporations there will not be any determination in the corporation system regarding their public utility, while for others the concept of public utility will be included in the corporation system.

B. Reform pattern [2](this pattern is being considered for reference)
Two categories will be recognized. Specifically, these which are regarded as public utility will be "nonprofit/public service corporations (provisional name)" and these which are non-profit organizations but not regarded as public utility (currently intermediary corporations) will be "intermediary corporations (provisional name)."

The granting of legal status for "nonprofit/public service corporations (provisional name)" will be certified by administrative agencies (certification-based incorporation) while the granting of legal status for "intermediary corporations (provisional name)" will be made through corporate registration (principle of common rules).

(2) Ensuring appropriate management

A. Establishment of self-governance (corporate autonomy system)

B. Establishment of a disclosure system

C. Transition to post-facto check principle

(3) Tax system measures

The Ministry of Finance, the Ministry of Public Management, Home Affairs, Posts and Telecommunications and other related ministries and agencies will give renewed fundamental consideration with a view to clarifying the basic stance for compiling the "Guidelines for Reform of the Public Service Corporation System (provisional name)" within the specified time frame (within FY2002).

Together with these revisions, in order to foster a culture of philanthropy, there is a need to give consideration to new tax system measures concerning philanthropic donations.

(4) Reclassifying existing public service corporations into other corporate categories

After effecting the necessary reforms, it will be necessary to reclassify existing public service corporations according to the newly created nonprofit corporation system. In that process, there is a need to create a fair and rational transition system in order to ensure that no parties improperly accrue benefit in the transfer of assets.

3. Schedule

(1) Public announcement is scheduled for August 2, 2002 (Friday). (This will be a summary of discussions and will not amount to a Cabinet Decision.)

(2) Opinions from experts and relevant persons will be collected for 40 days after the public announcement.

(3) Formulation of the "Guidelines for Reform of the Public Service Corporation System (provisional name)" will be concluded by the end of the current fiscal year (March 2003).