With respect to the substantial requirements, we have the concept of the Specified CFCs and the Economic Activity Tests as described below.

1. Specified CFCs
The basic idea of the Specified CFCs is that a CFC having no substance and apparently earning only passive income is generally subject to the CFC rules. The Specified CFCs consists of following 3 types of CFC.

(1) Paper company
A Paper company  is a CFC that meets neither of the following conditions:
Substance Test: The CFC maintains an office, store, factory or other fixed place of business necessary to conduct its business . and
Administration  and control test: The CFC functions with its own administration, control and management in the country in which the head office of the subsidiary is located .

(2) Cash box  
Cash box is a CFC that falls under either (a) or (b).
(a) CFC that meets both of the following requirements;
Passive Income Test: the ratio of the passive income to the total amounts of its gross assets exceed 30%; and
Asset Test: the ratio of the amount of securities, loan receivables, tangible assets for leasing and intangible assets exceed 50% of the total amount of its gross assets .
or
(b) CFC that meets both of the following requirements;
Insurance Income Test: the ratio of the total insurance income from non-related parties to the total insurance income is less than  10%; and
Insurance Payment Test: the ratio of the total reinsurance payment to non-related parties to the total insurance income from related parties (insurance income other than insurance income from non-related parties) is less than  50%.

(3) Blacklist company
A Blacklist company is a CFC that has a head or principal office in the jurisdiction designated by the Minister of Finance as a non-cooperative jurisdiction with respect to the exchange of information for tax purposes.

2. Economic Activity Tests
Economic Activity Tests consists of following requirements.
CFC that meets any of the requirements below is categorized into the Partial inclusion CFC and only passive income of such CFC is subject to the CFC rules.
(1) Primary business test
The primary business of a CFC is not any of the following businesses:
・Holding of shares and bonds
・Licensing of intangibles
・Leasing of vessels or aircraft
(2) Substance test
The CFC maintains an office, store, factory or other fixed place of business necessary to conduct its business in the country where the head office of the subsidiary is located.
(3) Administration and control test
The CFC functions with its own administration, control and management in the country where the head office of the subsidiary is located
(4)-a Unrelated Party Test
The CFC conducts its business mainly (more than 50%) with unrelated parties.
(4)-b Country of location test
The CFC conducts its business mainly in the country in which the head office of the subsidiary is located.