The Journal The Authority on Global Business in Japan

On March 31, 2017, the Act on Special Provisions of the Income Tax Act was announced. This law came into effect on April 1, 2017, and is seen as a fundamental commitment by the National Tax Agency to “strengthen tax enforcement by training and increasing staff in order to investigate international tax avoidance and high-net-worth individuals.”

The following was emphasized during the inaugural interview of the Tokyo Regional Commissioner in July.

Be more aggressive in auditing globally mobile and high-net-worth individuals. Organize a special team and increase staff to monitor and plan audits of certain key high-net-worth individuals.

Effectively utilize information exchange systems available under international tax treaties, especially those available as part of the Common Reporting Standard (CRS).

Per the National Tax Agency, high-net-worth individuals are generally defined as those who meet the following criteria:

a. earns more than ¥100 million yen;
b. receives annual dividends of more than ¥40 million from securities;
c. earns more than ¥100 million from rental or real estate;
d. acquired assets valued at more than ¥400 million; or
e. have continuous or a large number of overseas transactions.

Even if the above criteria do not apply, the National Tax Agency will conduct an audit if any questionable issues are identified when cross referencing information possessed by the National Tax Agency against tax returns, overseas asset reports, and other filings made by the taxpayer.

In the near future, more individuals are expected to be selected for tax audits based on information gathered through the CRS, which calls on jurisdictions to obtain information from financial institutions and automatically exchange that information with other jurisdictions on an annual basis. Such information will be used to monitor individuals and plan audits.

Discussions about the CRS have been held by the Organisation for Economic Co-operation and Development’s Committee on Fiscal Affairs through the Global Forum on Transparency and Exchange of Information for Tax Purposes. In November 2014, a joint statement to implement the CRS was announced at the G20 Summit in Brisbane, Australia, and 101 countries have since committed.

Exchange of information on accounts held by non-residents will begin in September 2018. Information to be shared includes the name of the account holder, account balance, and total annual receipts of interest and dividends. Although the United States is not committed to the CRS, information is heavily exchanged between the United States and Japan.

If you are contacted by the National Tax Agency for an audit, be mindful of the following:

1. General tax audits are scheduled in advance. You will be contacted by the National Tax Agency beforehand to schedule an appointment. If the suggested date or time is not convenient, you may request a more suitable date or time.
2. If undeclared items exist, contact a certified tax accountant or other tax professional to attend the audit. As in many countries, the tax code in Japan is complex. It is important to seek expert advice against any assertions made by the tax authority.

Yukiteru Abe is a director at Grant Thornton Japan’s Global Mobility Services, providing tax solutions to globally mobile employees, global businesses, and high-net-worth individuals with overseas assets. Abe was an auditor, investigator, and tax consultant at the Tokyo Regional Taxation Bureau for 38 years before joining Grant Thornton.

For more information, please contact your Grant Thornton representative at +81 (0)3 5770 8829 or email us at tax-info@jp.gt.com
www.grantthornton.jp/en

Yukiteru Abe is a director at Grant Thornton Japan’s Global Mobility Services, providing tax solutions to globally mobile employees, global businesses, and high-net-worth individuals with overseas assets. Abe was an auditor, investigator, and tax consultant at the Tokyo Regional Taxation Bureau for 38 years before joining Grant Thornton. www.grantthornton.jp/en