The Journal The Authority on Global Business in Japan

Following the lead of the United States, and many other developed countries, Japan is increasing its efforts to enforce accurate reporting of assets and income by its taxpayers.

Beginning in the 2015 tax year, a new assets and liabilities report filing requirement will go into effect, as will the ID system known as My Number, which comes into force January 1, 2016.

New Requirements
In the wake of the introduction of the Overseas Assets Report, which started with the 2013 tax year, the Assets and Liabilities Statement will change as of the 2015 tax year, with the first report due by March 15, 2016, for individual taxpayers.

The old Assets and Liabilities Statement (zaisan saimu meisaisho) will be changed to the Assets and Liabilities Report (zaisan saimu chosho) and will request much more detailed information than the previous document—including the declaration of bank accounts held, the name and address of the banks, the branch name or number, and the type of account.

However, the new criteria may decrease the number of people who need to file. Along with the previous condition of net income exceeding ¥20 million, the filing requirement will be triggered by an additional condition: that individuals hold either worldwide assets with a gross fair value of ¥300 million or more, or financial assets amounting to ¥100 million or more as of December 31, which would also make them subject to the Japan’s so-called exit tax.

The fact that the taxpayer would not be subject to the exit tax due to nationality and/or visa status is irrelevant.

Global assets and liabilities as of December 31 will need to be reported, unless those assets are already being reported on the same tax year’s Overseas Assets Report.

Furthermore, taxpayers will have to report the cost basis for financial securities. This basis reporting requirement will also extend to the Overseas Assets Report starting from the 2015 tax year.

In addition, and perhaps most importantly, there will be potential penalties associated with non-compliance. There is an associated penalty regime of imprisonment up to 1 year, or a fine of up to ¥500,000.

Furthermore, there will be additional penalties on the underreporting of income taxes and inheritance taxes for assets excluded from the reports.

My Number System
In addition to the updated asset and liability reporting requirements, individuals residing in Japan were sent notifications in October 2015 from the local government notifying them of their 12-digit My Number.

My Number will need to be written on Japanese income tax statements and tax returns starting with the 2016 tax year.

The ID system is intended to provide increased consistency for personal information sharing among government organizations, and help improve public services. Initially, it will be used for social security administration, taxation, and disaster response.

INFORMATION COLLECTION
As reported in the September 3, 2015, edition of the Nikkei Shimbun, Japan’s National Tax Authority (NTA) revised the individual tax audit selection criteria to focus more on high income and high net-worth individuals, who might not be fully compliant with income, gift, and inheritance taxation requirements.

The new Assets and Liabilities Report and the Overseas Assets Report can be subject to audit by the tax authorities, and are a part of this information collection effort in order to focus the audit selection criteria. They will also be tools used in field audits.

WHAT CAN YOU DO?
High income earning and high net-worth individuals will be subject to closer scrutiny by the NTA. With the new Assets and Liabilities Report and My Number system coming into effect, individuals should review their tax compliance requirements and consider any potential tax planning before the start of the next year.

COPYRIGHT: PwC

COPYRIGHT: PwC

William Pieschel, PwC Japan American Chamber of Commerce in Japan (ACCJ) Taxation Committee Member