I INTRODUCTION

In Japan, tax disputes are generally commenced when a tax audit is conducted in connection with a tax return filed by a taxpayer. If a taxpayer is dissatisfied with a reassessment or determination made by the tax authority, such taxpayer may request a re-examination or review. When a taxpayer is still dissatisfied even after such re-examination or review, such taxpayer has the right to file a lawsuit to invalidate such reassessment or determination. It may take several years from the date of reassessment or determination until a final decision is rendered with regard to the reassessment or determination if the case is appealed to the Supreme Court of Japan (SCJ).2

In Japan, most taxpayers have historically not argued against reassessments or determinations; however, many large tax disputes have arisen since the late 1990s in Japan, and some of the reassessments have been invalidated, while the number of tax disputes has been decreasing since around 2010.

II COMMENCING DISPUTES

i Tax filing

In Japan, a tax filing system is adopted for most national taxes, including corporation tax, income tax, consumption tax and inheritance tax.3

In principle, under such system, the amount of payable tax is determined based on the filing made by taxpayers. In exceptional cases, when there is no filing or when the filed tax amount is inappropriate, the tax amount is instead determined by the tax authority's reassessment or determination after a tax audit.4

The due dates for tax filings differ depending on the taxation categories.5 Tax filing may be performed online.6

In principle, the tax authority's reassessment or determination is to be made before five years7 have elapsed after the statutory due date for the tax filing concerning the reassessment or determination.8

Nevertheless, a reassessment of national taxes, etc., for which the taxpayer has evaded payment of the whole or part of the tax amount through deception or otherwise wrongful acts, may be made until seven years have elapsed from the statutory due date.9

Taxpayers may file an amended return where there is a shortfall in the filed tax amount.10 The amended return may only change the original tax return adversely for taxpayers, while in order to advantageously change the tax return, a request must be made for reassessment.11 A request for reassessment must be made within five years of the statutory due date.12

ii Tax audits

When tax authorities impose taxation by way of a reassessment or determination, they need to obtain materials or information concerning the requirements for taxation. Therefore, the tax authorities have the right to conduct inquiries and inspections in relation to taxpayers.13

Commencement of tax audits

Requirements

Inquiries and inspections may be conducted when they are necessary for tax audits.14 'When they are necessary' means when there is an objective necessity, and although tax authorities do not have an unfettered discretion in their judgment, there are few cases where this requirement is not applied.15

Targets of tax audits

The targets of tax audits are mainly (1) taxpayers and (2) third parties who are in a business relationship with taxpayers.16 Generally, audits against those who fall under (1) are called main audits, and audits against those who fall under (2) are called counterparty audits.

Prior notification

The commissioner of the National Tax Agency (NTA), the regional commissioner of Regional Tax Bureau, the district director of the Tax Office (the District Director) or the director-general of a custom office (collectively, the Directors) shall, prior to tax audits being conducted in relation to taxpayers, notify such taxpayers of the fact that the tax audit will be conducted, and certain other matters.17, 18

Nevertheless, it should be noted that such prior notification is not necessary under certain conditions.19

Procedures for tax audits

Optional audits

As the Act on General Rules for National Taxes does not allow compulsory audits, inquiries, inspections, entering into business places or inspecting documents and goods against the intention of the audit target is prohibited.

However, criminal penalties will be imposed when the auditee does not respond to the inquiry or refuses the audit without a justifiable reason.20 Therefore, the audit target is obliged to accept the inquiry and inspection in the absence of a justifiable reason.

Attorney–client privilege

Countries under the legal system of Anglo-American laws provide an attorney–client privilege between an attorney and his or her client.

However, such privilege is not provided in Japan. Therefore, taxpayers may not refuse to respond to a tax audit by using the existence of the attorney–client privilege as an excuse.

End of tax audits

Procedures for ending audits

The Directors shall, when a reassessment or determination is found to be unnecessary at that time as a result of an on-site audit, provide written notification to the taxpayer against whom such audit is conducted of such fact.21

On the other hand, where the reassessment or determination is found to be necessary as a result of an on-site audit, such Directors shall explain the result of the audit to such taxpayer.22 In such cases, although such Directors may encourage such taxpayer to file an amended return, etc., he or she shall explain that the taxpayer may not make an objection after filing a return form regarding the result of the audit, but that the taxpayer may instead request a reassessment, and shall issue a document to that effect.23

Amended return

As referred to above, when being encouraged to file an amended return, the taxpayer may file an amended return in accordance with the intention of the tax authority without the need for a reassessment or determination.

In Japan, settlements in the course of tax audit procedures are not legally permitted.

However, in practice, many cases are solved in a form somewhat close to a settlement, in which filing an amended return regarding part of the tax authorities' claims is conducted instead of a reassessment or determination.

It should be noted that, even after filing an amend return, when taxpayers are dissatisfied with the contents of the filing an amended return, they may request a reassessment to reduce the payable tax until such time as five years have elapsed after the due date for the tax filing concerned.24

Reassessment and determination

The District Director may, when the calculations of the tax base, etc., or the tax amount filed do not comply with the provisions of national tax laws, or if the tax base, etc., or the tax amount is otherwise different from the result of the audit, reassess the tax base or the tax amount, etc.25 In addition, the District Director may, when taxpayers fail to file taxes, determine the tax base or the tax amount.26

A reassessment or determination shall be made by sending a reassessment notification or determination notification.27

A reassessment shall be accompanied with the reasons for such reassessment.28 A reassessment made without reasons is invalid, and when the reasons accompanying the reassessment are insufficient, this may constitute a ground for revocation of the reassessment.29

It should further be noted that if, after performing a reassessment or determination, the District Director becomes aware that the reassessed or determined tax base or tax amount, etc., is overestimated or underestimated, he or she may further reassess such reassessed or determined tax base or tax amount, etc. There is no limit on the number of times for reassessment.

iii Request for re-examination

When taxpayers are dissatisfied with a reassessment or determination, they may request the District Director for re-examination.30 In the examination procedure, the taxpayer may request a chance to render an oral opinion on the case31 and may submit evidentiary documents or materials.32

The re-examining agency shall make a determination regarding the re-examination.33 The standard period for re-examination is three months.

Please note that taxpayers may request a review without requesting a re-examination.34 In addition, when taxpayers are dissatisfied with the result of a re-examination, they may request a review.35

A request for re-examination offers the merit that it leads to a judgment earlier than a request for review. However, as the District Director who has imposed the disposition conducts the re-examination, the conclusion is unlikely to be reversed, and the number of such requests has been decreasing. Nevertheless, in cases such as where there is an obvious error in the documents submitted in the tax audit, a request for re-examination should be considered in order to quickly settle the dispute as the conclusion is likely to be reversed.

iv Request for review

Overview

Requests for review to the director general of the National Tax Tribunal (the Director-General) are generally permitted as to dispositions regarding internal taxes.36

Requests for review shall be made within three months of the date37 on which taxpayers become aware of the disposition.38 When taxpayers are dissatisfied with the results of the determination regarding the request for re-examination, they may request a review39 only within one month of the date on which a certified copy of the decision on re-examination is delivered.40

Procedures

Requests for review shall be made by submitting a written request for examination with designated matters in duplicate to the National Tax Tribunal (the Tribunal) or its district offices.41 There are 12 district offices of the Tribunal in Japan. The Tribunal is an agency belonging to the NTA, and organisationally a part of the NTA. However, the Director-General has the independent right to make judgement in the review. The Director-General designates one trial examiner in charge and two or more observing trial examiners,42 and all of these examiners together form a panel to promote the investigation and trial of such requests for review.

When a request for review is lawfully made, the Director-General shall send a copy of the written request for review to the administrative agency that has imposed the disposition (the Disposing Agency), and have the agency submit a written answer in duplicate within a reasonable period of time.43

A copy of the written answer by the Disposing Agency is delivered to the requestor, and thereby the requestor may submit a written opposition, or submit evidentiary documents or materials.44

Although the trial shall basically be in writing, upon request, the requestor shall be provided with a chance to orally make an opinion.45

In addition, although a trial for request for review shall be ex officio,46 the requestor may submit a written opposition, or submit evidentiary documents or materials,47 and the Disposing Agency may submit documents and other materials that establish the facts on which the disposition is based.48

The requestor and the Disposing Agency may inspect the documents and materials and request the provision of copies of such documents.49

Judgment

After the examination and the trial, the trial examiner in charge and the observing trial examiners forming a panel have a meeting to draft a resolution through a majority. After the resolution is drafted, the Director-General makes a judgment based on the resolution.50

To make the judgment, the Director-General shall send a certified copy of the written judgment supplemented with the reasons for judgment.51

The standard period for review is one year.

v Written answer to advance inquiry

Taxpayers may inquire with the NTA in advance of filing a tax return, and the NTA will answer such inquiry in writing if: (1) such inquiry is regarding the tax treatment of the transactions the taxpayer actually conducted or the transactions that the taxpayer intends to conduct; (2) individual specific materials may be submitted; (3) the tax treatment of such transactions is not made clear by circulars regarding the interpretation of the law; and (4) the requirements of (a) and (b), below,52 are satisfied:

  1. the inquiry is made before the deadline for filing the tax return for the national tax imposed on the relevant transactions; and
  2. the inquirer agrees to publication of the content of the inquiry and the answer.53

Note that the inquiry may not be used in certain cases, such as if the inquiry is related to the valuation of individual assets or the calculation or appropriateness of the amount of transactions, or if the main purpose of the transactions is a reduction of national tax, or the transaction is otherwise unreasonable as a normal economic transaction.

The NTA shall make efforts to provide a written answer within three months of the date of receipt of the inquiry.

As stated above, the cases where inquiry procedures may be used are limited. In addition, even if taxpayers file a tax return in accordance with the answer in writing, the NTA may reach a different conclusion and make a reassessment or decision if there is any amendment to tax law or if, after investigation, the actual facts are found to be different from the facts alleged in the inquiry.

Note that, instead of the above procedures, the APA procedures will apply to the transfer pricing issues.54

III THE COURTS AND TRIBUNALS

i Request for re-examination and request for review

As mentioned in Section II.iii and II.iv, a request for re-examination or review of a reassessment or determination is permitted. Taxpayers may request a review without requesting a re-examination, and they may request a review when they are dissatisfied with the result of a re-examination.

ii Tax disputes

When taxpayers are dissatisfied with a judgment on a request for review, they may file a lawsuit against such judgment. As Japan adopts the principle of utilising lawsuits only after requests for review, taxpayers may not generally file a lawsuit without first making a request for review.55 Note that taxpayers may directly file a lawsuit for revocation when a judgment on a request for review has not been made within three months of making the request.56 The time limit for filing a lawsuit for revocation is six months after becoming aware of a disposition or judgment57 and until one year has elapsed after the disposition or the judgment.58

The jurisdictions for lawsuits for revocation are: (1) the district court having jurisdiction over the location of the administrative agency that has imposed the disposition;59 (2) the district court having jurisdiction over the location of the high court having jurisdiction over the location of the general venue of the plaintiff;60 and (3) the district court having jurisdiction over the location of the general venue of the defendant (the state),61 and the court in (3) shall be the Tokyo District Court.

Lawsuits for revocation adopt a three-tiered court system. That is, district court, High Court and the SCJ. Among these bodies, the first and second instances are fact-finding proceedings, and the third instance is a law-interpretation proceeding. When a party is dissatisfied with the judgment of the district court, it may file an appeal to a High Court within two weeks of the receipt of the original of the judgment document.62 However, each party has the right to file an appeal to the SCJ within two weeks of the receipt of the original of the judgment document only when 'the judgment contains a misconstruction of the Constitution or other violation of the Constitution' or other limited grounds are met.63 Even without these final grounds for appeal, a party may file a petition for the acceptance of a final appeal when it believes the judgment is inconsistent with precedents and otherwise contains important matters regarding the interpretation of laws,64 but it is at the SCJ's discretion as to whether to accept it.

IV PENALTIES AND REMEDIES

i Tax

Delinquent tax

Delinquent tax is an ancillary tax whose tax base is the amount of unpaid tax.65 Delinquent tax is imposed if all or part of the national tax is not paid by the statutory due date for national tax.

The annual rate for delinquent tax is 14.6 per cent.66

Note that this rate is reduced to 7.3 per cent with regard to the period from the statutory due date for payment until the due date for payment and the period of two months from the date following the due date for payment.67

Additional tax

There are four types of additional tax; additional tax for underestimation, additional tax for failure to file, additional tax on non-payment, and substantial additional tax.

When a tax return is filed by the statutory due date for tax returns but the amount of the tax in the return turns out to be underestimated as a result of an amended tax return or reassessment, additional tax for underestimation whose amount is 10 per cent of the difference shall be imposed, in principle.68 If a tax return is not filed by the statutory due date for tax returns and the amount of tax is fixed by a tax filing after that date or determination or such fixed amount turns out to be underestimated as a result of an amended tax return or reassessment, additional tax for failure to file shall be imposed.69 The amount of such additional tax shall be 15 per cent multiplied by the fixed amount or underestimated amount.70

Additional tax for non-payment shall be imposed when the national tax to be withheld is not paid by the statutory due date for payment.71 The amount of additional tax for non-payment shall be 10 per cent of the amount stated in the notice of tax payment or the amount of tax paid without receiving notice of tax payment after the statutory due date for payment.

Substantial additional tax shall be imposed instead of additional tax for underestimation, additional tax for failure to file and additional tax for non-payment if there is any concealment or disguise with regard to the facts on which the calculation of taxes to be paid is based and the underestimation, failure to file or non-payment is based on such concealment or disguise.72 Imposition of substantial additional tax is often a controversial issue in tax audits.

ii Criminal penalties

Certain actions that violate the tax law are subject to criminal penalty.

The acts of evading tax or receiving tax refunds through unfair acts, including fraud, are subject to criminal penalty. The criminal penalty for such actions is either imprisonment for 10 years or less, a fine of ¥10 million or less, or both.73 The amount of the fine may be increased up to the amount of evaded tax when the amount of evaded tax is the amount of the fine or greater.74

Other actions subject to criminal penalty include refusal to answer to a tax audit, in the absence of reasonable ground.75

V TAX CLAIMS

i Recovering overpaid tax

Request for reassessment

Taxpayers may make a request to the District Director for a reassessment as to the tax base or the tax amount, etc., within five years of the due date when they have reported an overstatement of the tax amount because of the calculations of the tax base or the tax amount, etc., filed does not comply with the provisions of laws or there is an error in the calculations.76 When taxpayers have reported an overstatement, they basically may not exercise any remedy other than the request for reassessment. That is, when taxpayers have paid an excessive amount of tax owing to an error, they are able to obtain a refund by requesting a reassessment, not by an amended return.

To request a reassessment, a written request containing the reasons for the request and other designated matters must be submitted to the District Director.77 When a request for reassessment is made, the District Director shall, after examining the tax base or the tax amount, etc., concerning the request, make a notice to the requesting taxpayer of the result.78

Taxpayers may request a re-examination or review, or file a lawsuit for revocation as to such notification.

Claims for national compensation

Claims for national compensation are regulations with the purpose of providing relief against violations of rights by the state's illegal acts, and are provided in the State Redress Act based on Article 17 of the Constitution. That is, Article 1 of the State Redress Act states:

When a public officer who exercises the public authority of the State or of a public entity has, in the course of his/her duties, unlawfully inflicted damage on another person, intentionally or negligently, the State or public entity shall assume the responsibility to compensate therefor.

It is construed that where there is illegal taxation, taxpayers may make a claim for national compensation without the need to file an administrative objection or a lawsuit for revocation.79

Nevertheless, upon making a claim for national compensation (as it is relatively difficult to make such a claim, compared to filing an administrative objection or a lawsuit for revocation because the taxpayer needs to establish that the personnel of a tax authority has violated their duties, in addition to proving that the taxation does not comply with the provisions of laws), it is more usual to file an administrative objection or a lawsuit for revocation when such avenues are possible.

ii Challenging administrative decisions

When taxpayers are dissatisfied with a reassessment or determination made by the tax authorities, as mentioned in Section II.iii and iv, and Section III, they may file a request for re-examination or review, and when they are still dissatisfied with the result, they may file a lawsuit for revocation.

iii Claimants

In principle, taxpayers may make a request for refund of excessively paid taxes.

As to consumption tax, as taxpayers are those who have transferred taxable assets or provided taxable services, they shall make a request for refund by requesting a reassessment when there is excessively paid tax. The counterparty of the taxable transactions may not request the NTA to refund excessively paid tax.

VI COSTS

No cost will be incurred for making a request for re-examination or review, except for attorneys' fees.

When a lawsuit for invalidating a reassessment or decision is filed, administration fees must be paid, and such administration fees increase in accordance with the amount subject to the lawsuit.80

Note that the cost for lawsuits (e.g., costs for delivery of documents) shall be borne by the losing party, in principle.81

VII ALTERNATIVE DISPUTE RESOLUTION

i ADR

There is no ADR system for tax disputes in Japan.

ii Written answer to advance inquiry

As described in Section II.v, advance inquiry may be made to the NTA in certain cases, and the NTA will provide a written answer.82

iii APA

There is an advance pricing agreement (APA) procedure for application of the transfer pricing rule. An APA is a procedure for the tax authority to confirm the most reasonable transfer pricing method adopted by the taxpayer and the details of the method.83 There are two types of APA; unilateral APAs and bilateral APAs. According to the NTA, the average time spent for bilateral APAs was 30.7 months in 2017.84

VIII ANTI-AVOIDANCE

i Outline

In Japan, there is no GAAR. However, there are anti-avoidance rules for family companies in the Corporation Tax Act, the Income Tax Act and the Inheritance Tax Act,85 and the tax authority actively applies these rules. In addition, there are comprehensive anti-avoidance rules for corporate reorganisation86 and comprehensive anti-avoidance rules for consolidated tax return.87

ii Tax avoidance rule for family companies

Under the Corporation Tax Act, when it is found that any acts conducted or calculations made by a family company88 will, if allowed, unreasonably reduce the burden of corporation tax, the amount of corporation tax, etc., may be calculated, based on such company's own recognition, notwithstanding the said acts or calculation.89 The Income Tax Act and Inheritance Tax Act have similar rules.90

The IBM case is one of the cases where the application of such anti-avoidance rule was an issue.91 In this case, the tax authority denied the capital loss caused by acquisition of treasury stock pursuant to the anti-avoidance rule; however, the court denied the application of the anti-avoidance rule and invalidated the imposition of corporation tax in the amount of ¥120 billion.

iii Comprehensive tax-avoidance rules for corporate reorganisation

When it is found that any acts conducted or calculations made by certain companies will, if allowed, unreasonably reduce the burden of corporation tax, owing to a decrease in the amount of profit or an increase in the amount of loss on the transfer of assets and liabilities transferred as a result of a merger, etc., or because of other grounds, the amount of corporation tax, etc., may be calculated based on the taxpayer's own recognition, notwithstanding the said acts or calculation.92

There has been a controversy about the meaning of 'unreasonably reduce the burden of corporation tax'; however, a recent case has rendered a judgment about such meaning.93 In the case, the SCJ held that 'unreasonably reduce the burden of corporation tax' means reducing the burden of corporation tax by an act or calculation of a company abusing the provisions regarding corporate reorganisation as a way of tax avoidance,94 and the imposition of corporation tax in the amount of ¥26.5 billion was upheld.

IX DOUBLE TAXATION TREATIES

As of 1 December 2018, Japan has executed 74 tax treaties. Some provisions of tax treaties may be directly applied; however, the Special Act for Implementation of Tax Treaties, etc., (Act No. 46 of 1969) has been established to implement tax treaties. For example, a prior notification is required to claim reductions of or exemptions from withholding tax under tax treaties.95

Under the Japanese Constitution, the prevailing view is that the Constitution prevails over treaties.96 On the other hand, tax treaties are considered to prevail over laws.

Japan is a party to the Vienna Convention on the Law of Treaties, and tax treaties are interpreted in accordance with the Convention.

Recently, the interpretation and application of a tax treaty was an issue in the Glaxo Smith Klein case,97 wherein the NTA imposed tax on the income of a Singaporean subsidiary of Japanese company in accordance with Japanese anti-tax haven rules. Whether such taxation violated Article 7, Paragraph 1 of the Japan–Singapore Tax Treaty was an issue in this case because the income of a Singaporean company was found to be subject to Japanese tax even if it did not hold a PE in Japan. The SCJ held that such taxation did not violate the treaty because the income of the Singaporean company was deemed to be that of the Japanese company and the Japanese company was subject to Japanese tax. The legal status of commentary on the OECD model tax treaty was also an issue in this case and the SCJ held that such commentary was a 'supplementary means of interpretation'98 because the Japan–Singapore Tax Treaty was prepared based on the OECD model tax treaty.

Japan has become a party to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, which will enter into force in Japan on 1 January 2019.

X AREAS OF FOCUS

i International taxation

Recently, there have been many cases where significant amounts of tax have been imposed on large companies based on the transfer pricing rule. However, the number of transfer pricing taxation cases is decreasing because the NTA failed to prevail in some lawsuits regarding transfer pricing taxation99 and the use of APA has become more common.

In addition, there are many cases where tax is imposed based on anti-tax haven rules. Such rules are strict in Japan compared with other countries. A recent case saw a taxpayer win because the SCJ reversed the conclusion with regard to the satisfaction of requirements for exemption from the anti-tax haven rules.100

ii Taxation on the wealthy

In Japan, some wealthy people have recently migrated to countries where the tax rate is low in order to reduce their income tax, inheritance tax and gift tax. Japan has introduced laws to prevent such tax avoidance and to strengthen taxation on the wealthy. The NTA also focuses on taxation on the wealthy by, for example, establishing a super wealthy project team.

To list a few examples of such legislation, Japanese residents with ¥50 million or more of assets in a foreign country at the end of year must submit a report of their overseas assets to the competent tax bureau by March 15 of the next year.101 Filing a report of assets and debts is also required when the income and assets of a taxpayer are more than a certain amount.102

In addition, an exit tax was introduced in Japan as of 1 July 2015. If an individual who has ¥100 million or more of certain types of assets migrates overseas, any unrealised capital gains on such assets shall be subject to income tax upon migration.103

XI OUTLOOK AND CONCLUSIONS

In Japan, taxpayers have generally hesitated to commence tax dispute as the possibility of winning a tax lawsuit was limited and taxpayers were also fearful of worsening their relationship with the tax authorities by commencing a tax dispute.

However, after corporate profits decreased as a result of the end of the economic bubble, shareholders' demands became stronger and the risk of shareholder litigation increased if a company accepted an unreasonable tax imposition. Accordingly, the number of tax litigations increased around the year 2000, and there have been some cases where large amounts of tax impositions have been invalidated.104

The number of tax litigations has decreased recently compared with those days105 as the tax authority is careful about tax imposition because of clarification of the tax audit rules by the amendment to the Act on General Rules for National Taxes. The NTA's losses in several high-profile tax litigations is one of the reasons why the NTA has become less aggressive toward tax imposition.

Japan has become stricter toward tax avoidance recently (e.g., the introduction of stricter anti-tax haven rules); however, the protection of taxpayers has become strengthened by way of legislative amendments and court judgments.


Footnotes

1 Masakazu Iwakura is a senior partner and Hiroyuki Yoshioka is a senior associate at TMI Associates.

2 For example, in the case referred to in footnote 93, the reassessment was made as of 29 June 2010, and the SCJ rendered its judgment on 29 February 2016. Thus, it took more than five and a half years for a final judgment to be made on the reassessment.

3 Article 120 of the Income Tax Act (Act No. 33 of 1965), Articles 71, 74, 81-19 and 81-22 of the Corporation Tax Act (Act No. 34 of 1965), Articles 42 and 45 of the Consumption Tax Act (Act No. 108 of 1988) and Article 27 of the Inheritance Tax Act (Act No. 73 of 1950).

4 Articles 24 and 25 of the Act on General Rules for National Taxes (Act No. 66 of 1962).

5 For example, the filing of corporate tax is to be performed before two months have passed after the end of the business year or the consolidated business year (Articles 74 and 81-22 of the Corporation Tax Act).

6 Article 3 of the Act on Use of Information and Communications Technology in Administrative Procedures (Act No. 151 of 2002).

7 Six years for donation tax and corporation tax concerning transfer pricing taxation, etc. (Article 36, Paragraph 1, Items 1 and 2 of the Inheritance Tax Act, and Article 66-4, Paragraph 17, Item 1 of the Act on Special Measures Concerning Taxation (Act No. 26 of 1957)).

8 Article 70, Paragraph 1 of the Act on General Rules for National Taxes.

9 Article 70, Paragraph 4 of the Act on General Rules for National Taxes.

10 Article 19, Paragraphs 1 and 2 of the Act on General Rules for National Taxes.

11 Article 23 of the Act on General Rules for National Taxes.

12 Article 23, Paragraph 1 of the Act on General Rules for National Taxes.

13 Article 74-2 of the Act on General Rules for National Taxes, etc.

14 Article 74-2, Paragraph 1 of the Act on General Rules for National Taxes, etc.

15 Supreme Court Order of July 10, 1973, Keishu Vol.27, No. 7, p. 1205, etc.

16 Article 74-2, Paragraph 1 of the Act on General Rules for National Taxes, etc.

17 (1) The commencement date of the on-site audit; (2) the place of the audit; (3) the purpose of the audit; (4) the targeted tax category; (5) the period of the audit; (6) the books, documents and other items subject to the audit; and (7) the matters necessary for the appropriate and smooth execution of the audit provided in the Cabinet Order.

18 Article 74-9, Paragraph 1 of the Act on General Rules for National Taxes.

19 Prior notification is not necessary when the Directors find that such notification would render it easier to perform illegal or improper conduct and would make it difficult to grasp the tax base, etc., or the tax amount precisely and other situations that may cause impediments to the proper execution of the audit regarding national taxes, in light of the tax filing of the taxpayer which forms the basis for the audit or the contents of previous tax audits, or the information regarding the business in which the taxpayer is engaged, and other information in the hands of the NTA or Customs (Article 74-10 of the Act on General Rules for National Taxes).

20 Article 127, Items 2 and 3 of the Act on General Rules for National Taxes.

21 Article 74-11, Paragraph 1 of the Act on General Rules for National Taxes.

22 Article 74-11, Paragraph 2 of the Act on General Rules for National Taxes.

23 Article 74-11, Paragraph 3 of the Act on General Rules for National Taxes.

24 Article 23, Paragraph 1 of the Act on General Rules for National Taxes.

25 Article 24 of the Act on General Rules for National Taxes.

26 Article 25 of the Act on General Rules for National Taxes.

27 Article 28, Paragraph 1 of the Act on General Rules for National Taxes.

28 Article 14 of the Administrative Procedures Act (Act No. 88 of 1993) and Article 74-14, Paragraph 1 of the Act on General Rules for National Taxes.

29 Osaka High Court, Decision of January 18, 2013, Hanrei-jiho, No. 2205, p. 25.

30 Article 75, Paragraph 1, Item 1, (i) and Paragraph 2, Item 1of the Act on General Rules for National Taxes.

31 Article 84, Paragraph 1 of the Act on General Rules for National Taxes.

32 Article 84, Paragraph 6 of the Act on General Rules for National Taxes.

33 Article 84, Paragraph 7 of the Act on General Rules for National Taxes.

34 Article 75, Paragraph 1, Item 1, (i) of the Act on General Rules for National Taxes.

35 Article 75, Paragraph 3 of the Act on General Rules for National Taxes.

36 Article 75, Paragraph 1, Item 1, (i) of the Act on General Rules for National Taxes.

37 When taxpayers receive a notification concerning the disposition, the date when they receive such notification.

38 Article 77, Paragraph 1 of the Act on General Rules for National Taxes.

39 Article 75, Paragraph 3 of the Act on General Rules for National Taxes.

40 Article 77, Paragraph 2 of the Act on General Rules for National Taxes.

41 Article 87, Paragraph 1 of the Act on General Rules for National Taxes.

42 Article 94, Paragraph 1 of the Act on General Rules for National Taxes.

43 Article 93, Paragraph 1 of the Act on General Rules for National Taxes.

44 Article 95, Paragraph 1 and Article 96, Paragraph 1 of the Act on General Rules for National Taxes.

45 Article 95-2, Paragraph 1 of the Act on General Rules for National Taxes.

46 Article 97, Paragraph 1 of the Act on General Rules for National Taxes.

47 Article 96, Paragraph 1 of the Act on General Rules for National Taxes.

48 Article 96, Paragraph 2 of the Act on General Rules for National Taxes.

49 Article 97-3, Paragraph 1 of the Act on General Rules for National Taxes.

50 Article 98, Paragraph 4 of the Act on General Rules for National Taxes.

51 Article 101, Paragraphs 1 and 3 of the Act on General Rules for National Taxes.

52 See Administrative Procedures for Answer in Writing to Advance Inquiry (Administrative Guidelines).

53 The name of the inquirer will not be disclosed to the public unless requested by the inquirer.

54 Chapter 6 of Commissioner's Directive on the Operation of Transfer Pricing (Administrative Guidelines).

55 Article 115, Paragraph 1 of the Act on General Rules for National Taxes.

56 Article 115, Paragraph 1, Item 1 of the Act on General Rules for National Taxes.

57 Article 14, Paragraph 1 of the Administrative Case Litigation Act (Act No. 139 of 1962).

58 Article 14, Paragraph 2 of the Administrative Case Litigation Act.

59 Article 12, Paragraph 3 of the Administrative Case Litigation Act.

60 Article 12, Paragraph 1 of the Administrative Case Litigation Act.

61 Article 12, Paragraph 4 of the Administrative Case Litigation Act.

62 Article 285, of the Civil Case Litigation Act (Act No. 109 of 1996).

63 Article 312, Paragraph 1 and 2 of the Civil Case Litigation Act.

64 Article 318, Paragraph 1 of the Civil Case Litigation Act.

65 Article 60, Paragraph 1 of the Act on General Rules for National Taxes.

66 Article 60, Paragraph 2 of the Act on General Rules for National Taxes.

67 Article 60, Paragraph 2, proviso of the Act on General Rules for National Taxes. In addition, there is a special rule in relation to such tax rate. If the special base rate for the year is lower than 7.3 per cent, the 14.6 per cent above shall be reduced to the special base rate plus 7.3 per cent, and such rate of 7.3 per cent shall be reduced to the special base rate plus 1 per cent if such reduced rate is lower than 7.3 per cent (Article 94, Paragraph 1 of the Act on Special Measures Concerning Taxation).

68 Article 65, Paragraph 1 of the Act on General Rules for National Taxes. If the difference exceeds the larger of the amount of tax stated in the tax return filed by the statutory due date for tax returns or ¥500,000, 5 per cent of the excess amount shall be added to the amount of additional tax for underestimation (Article 65, Paragraph 2 of the Act on General Rules for National Taxes).

69 Article 66, Paragraph 1 of the Act on General Rules for National Taxes.

70 If the fixed amount or underestimated amount exceeds ¥500,000, 5 per cent of such excess amount shall be added as additional tax (Article 66, Paragraph 2 of the Act on General Rules for National Taxes).

71 Article 67, Paragraph 1 of the Act on General Rules for National Taxes.

72 Article 67, Paragraphs 1, 2 and 3 of the Act on General Rules for National Taxes. The amount of substantial additional tax is, respectively, 35 per cent of the amount of tax which the calculation of additional tax for underestimation is based on, 40 per cent of the amount of tax which the calculation of additional tax for failure to file is based on, and 35 per cent of the amount of tax which the calculation of additional tax for non-payment is based on.

73 Article 238, Paragraphs 1 and 3 and Article 239, Paragraph 1 of the Income Tax Act, Article 159, Paragraph 1 of the Corporation Tax Act, Article 68, Paragraph 1 of the Inheritance Tax Act, Article 64, Paragraph 1 of the Consumption Tax Act, etc.

74 Article 238, Paragraphs 2 and 4 and Article 239, Paragraph 3 of the Income Tax Act, Article 159, Paragraph 2 of the Corporation Tax Act, Article 68, Paragraph 2 of the Inheritance Tax Act, Article 64, Paragraph 2 of the Consumption Tax Act, etc.

75 Article 127, Items 2 and 3, Article 128 and Article 129 of the Act on General Rules for National Taxes.

76 Note that taxpayers may request a reassessment within six years of the due date for donation tax, as the period for reassessment or determination for donation tax is six years (Article 32, Paragraph 2 of the Inheritance Tax Act).

77 Article 23, Paragraph 3 of the Act on General Rules for National Taxes.

78 Article 23, Paragraph 4 of the Act on General Rules for National Taxes.

79 Supreme Court, Decision of June 3, 2010, Minshu, Vol.64, No. 4, p. 1,010.

80 Article 7 of the Administrative Case Litigation Act, Article 8 of the Civil Case Litigation Act.

81 Article 7 of the Administrative Case Litigation Act, Article 61 of the Civil Case Litigation Act.

82 See the Administrative Procedures for Written Answers to Advance Inquiries (Administrative Guidelines).

83 Chapter 6 of Commissioner's Directive on the Operation of Transfer Pricing (Administrative Guidelines).

84 Status of Mutual Negotiation in 2017, the NTA.

85 Article 132, Paragraph 1, Item 1 of the Corporation Tax Act, Article 157, Paragraph 1, Item 1 of the Income Tax Act and Article 64, Paragraph 1 of the Inheritance Tax Act.

86 Article 132-2 of the Corporation Tax Act, Article 157, Paragraph 4 of the Income Tax Act and Article 64, Paragraph 4 of the Inheritance Tax Act

87 Article 132-3 of the Corporation Tax Act.

88 'Family company' means a company in which three or fewer shareholders or members, and individuals or corporations that have a special relationship therewith, hold shares or capital contributions that account for more than 50 per cent of the total number or total amount of the issued shares of or capital contributions to the company (Article 2, Item 10 of the Corporation Tax Act).

89 Article 132, Paragraph 1, Item 1 of the Corporation Tax Act.

90 Article 157, Paragraph 1, Item 1 of the Income Tax Act and Article 64, Paragraph 1 of the Inheritance Tax Act.

91 Supreme Court, decision of 18 February 2016 (Zeimu-sosho-shiryo, Vol. 266, No. 12802).

92 Article 132-2 of the Corporation Tax Act.

93 Yahoo Japan Corporation case (Supreme Court, Decision of February 29, 2016, Minshu, Vol. 70, No. 2, p. 242).

94 According to the SCJ, whether or not such abuse exists shall be determined from the viewpoint of whether such act or calculation is conducted in a way deviating from the intent or purpose of provisions regarding corporate reorganisation with the purpose of reducing tax, taking into consideration whether such acts or calculation are unnatural and whether there is any other reasonable business purpose for such act or calculation other than the purposes of tax reduction.

95 Article 2-2-5 and Articles 9-5 to 9-9 of the Order for Enforcement of the Act on Special Measures Concerning Taxation.

96 Article 98, Paragraph 1 of the Constitution of Japan.

97 Supreme Court, Decision of 29 October 2014, Minshu, Vol. 63, No. 8, p. 1881.

98 Article 32 of the Vienna Convention on the Law of Treaties.

99 Tax imposition on Takeda Pharmaceutical Co, Ltd owing to alleged failure to declare income of approximately ¥122.3 billion was partially invalidated by objection (Takeda Pharmaceutical Co, Ltd press release – 6 April 2012), and the remaining part of tax imposition was invalidated by review (Takeda Pharmaceutical Co, Ltd press release – 25 March 2013). Tax imposition of ¥7.5 billion on transactions between Honda Motor Corporation and its subsidiary was also invalidated (Tokyo High Court, Decision of 13 May 2015, Zeimu-sosho-shiryo, Vol. 265, No. 12659).

100 Supreme Court, Decision of 24 October 2017, Saibansho-jiho, No. 1686, p. 1.

101 Article 5, Paragraph 1 of the Act on Submission, etc. of Report regarding Overseas Transfer of Money, etc. for Ensuring Proper Taxation of Domestic Tax (Act No. 110 of 1997).

102 Article 6, Paragraph 1 of the Act on Submission, etc. of Report regarding Overseas Transfer of Money, etc. for Ensuring Proper Taxation of Domestic Tax.

103 Article 60-2 of the Income Tax Act.

104 For example, (1) the Industrial Bank of Japan, Limited case (Supreme Court, Decision of 24 December 2004, Minshu, Vol. 58, No. 9, p. 2637) where imposition of corporation tax in the amount of approximately ¥150 billion was invalidated; (2) the IBM case mentioned in footnote 91; (3) the Takeda Pharmaceutical Co, Ltd case mentioned in footnote 99; (4) the Yahoo Japan Corporation case mentioned in footnote 93; (5) the Takefuji Corporation case (Supreme Court Decision of 18 February 2011, Shumin, Vol. 236, p. 71) where imposition of donation tax in the amount of approximately ¥133 billion was invalidated; (6) the Tokyo Banking Tax Ordinance case (Tokyo High Court Decision of 30 January 2003, Hanrei-jiho, Vol. 1814, p. 44) where the Tokyo High Court held that such ordinance was invalid and that tax paid by banks in the amount of approximately ¥162.8 billion should be returned to the banks (the parties later settled at the Supreme Court); and (7) the Osaka Banking Tax Ordinance case where banks filed a lawsuit to confirm that the ordinance was invalid and then withdrew their claims because the tax rate was reduced from 3 per cent to 0.9 per cent.

105 The number of tax lawsuits filed in 2016 was 230 (Outline of Litigation, the NTA), which was about half of the number of the 457 tax lawsuits filed in 2004 (Report of the NTA in 2005).