Japan Tax Bulletin
Tax Reform on the Electronic Preservation System for Books and Documents

September 2023
The electronic preservation system for books and documents is asystem for storing books, receipts, invoices, financial statements,and other national tax-related documents that are required to bepreserved under tax law in electronic data format instead of paper
format, and is divided into the following three categories. The
system is stipulated in “the Act on Special Provisions concerning
Preservation Methods for Books and Documents Related toNational Tax Prepared by Means of Computers” (“the Act”).
1. Electronic Preservation for Books and Documents
Books of account and national tax-related documents preparedon a computer, etc. can be preserved as electronic data, instead ofbeing printed out and preserved. Furthermore, if a certain rangeof books of account is preserved in electronic data by meeting therequirements for “excellent” electronic books there is a measurethat reduces the additional tax on underreporting by 5% (10%→5%)even if an underreporting related to such electronic books ofaccount is later discovered. In order to be eligible for thisexemption, a notification must be submitted in advance.

books of account meet the requirements of “excellent” electronicbooks, the additional tax on underreporting will be reduced by 5%.
Under the tax reform, the scope of books that must be preparedas electronic books to qualify for the “excellent” electronic books
requirement has been revised as follows for both individual income
tax and corporate tax. The scope has been clearly limited.
Before the revision.
(1) Journal leger;(2) General ledger; and(3) All other required ledgers.
After the revision.
Limited to the following entries:(1) Journal ledger;(2) General ledger; and(3) Books other than 1. and 2. pertaining to the following entries:

2. Scanner preservation
Paper receipts, invoices, and other documents received frombusiness partners can be saved as electronic data scanned with asmartphone or scanner, instead of saving the documents
themselves.
3. Electronic transactions
If those who are subject to the obligation to preserve books anddocuments with respect to individual income tax and corporate tax,
receive electronic data such as purchase orders, contracts, invoices,receipts, estimates, invoices, etc., they must preserve them aselectronic data.




Bills
Accounts receivable, etc.
Accounts payable, etc.
Marketable securities
Depreciable assets
Deferred assets
Sales and other income
Purchases and other expenses

There is no change in the scope of books that must be prepared
as “excellent” electronic books for consumption tax purposes.
This tax reform will be applied to national tax returns due on orafter January 1, 2024.
B) Relaxed Requirements for Scanner Preservation

The overview of these systems has already been explained in ourtax bulletin of September 2021, and the following three revisions
were made in the 2023 tax reform:

The requirements for scanner preservation were eased in the2022 tax reform, and the following three points will be further
reviewed this time. It can be said that the work man-hours forscanner preservation has been reduced, making it easier to use thescanner preservation system.

A)
B)
C)

a) Abolition of the requirement to preserve information on resolution, toneand size

Change in the scope of “excellent” electronic books
Relaxed requirements for scanner preservation system
Revision of the requirements for preservation of electronictransactionA) Change in the scope of “excellent” electronic books

If there is an omission in a tax return with respect to mattersrecorded in national tax-related books, an additional tax forunderreporting will be imposed on the omission. However, if theThe requirement to preserve information on the resolution,tone, and size of tax-related documents scanned by scanners has
been abolished. Although it is no longer necessary to retain thisinformation, the requirements for resolution (200dpi or higher)
and tone (color images in principle) that must be maintained
when scanning remain unchanged.

b) Abolition of the requirement to confirm information on the person whoentered the recorded items, etc.
The requirement to be able to verify information regarding theperson who enters recorded matters or the person who directlysupervises such person at the time of scanner storage has beeneliminated. The same applies to electronic transactions.

stamp the transaction information after it has been exchanged,
and to make it possible to verify information regarding the person
who preserves or supervises the preservation of the information.
However, under the recent tax reform, the "information regarding
the person who preserves or supervises the preservation" part is
no longer required.

c) Documents that must be able to confirm interrelationships are limited toimportant documents such as contracts and receipts.

c) Institutionalization of "appeasement measures" in the mandatory
preservation of electromagnetic records

National tax-related documents that need to be scanned so that
their relationship to the ledger can be confirmed are now limited
to "important documents such as documents that are directly
linked to the flow of funds or goods, such as contracts, receipts,invoices, delivery slips, etc.". As a result of this reform, it is nolonger necessary to ensure interrelationships when scanning andstoring general documents such as documents that are not directly
linked to the flow of funds or goods, such as quotations, orderforms, etc., and copies of delivery receipts.

The mandatory electronic preservation of electromagneticrecords (abolition of measures for preservation by means ofelectronic data output documents, etc.) was the content includedin the tax reform of the Act in 2022. However, the preparation
period leading up to the enforcement of the revised law was
short, and many companies were still not able to comply with thelaw even at the last minute. In light of this situation, in December
2021, just prior to the enforcement of the revised law,"appeasement measures" were established in the 2022 tax reform.

This tax reform will be applied to national tax-related documents
to be preserved on and after January 1, 2024.

Specifically, electromagnetic records may be saved as paper
output for two years until 2024 under the following two
conditions: "under unavoidable circumstances" and "when therequest for downloading, presentation or submission of theoutput document is accepted”. The measure also stated thatelectronic storage would be mandatory after 2024, as it wasoriginally intended.

C) Revision of preservation requirements for electronic transactions

The preservation requirements for electronic transactions havealso been revised as followsa) The following are the revised targets for which all of the searchrequirements are no longer required.
The requirement for persons obliged to preserve the data has
been limited from persons whose sales for the base period were
JPY10 million or less to persons whose sales for the base period
were JPY50 million or less.
In addition, "persons obligated to preserve electronic transaction
data that are capable of presenting or submitting printed
documents of electronic transaction data, organized bytransaction date or other date and by counterparty" have been
added to the targets for which all of the search requirements are
no longer required.

This "appeasement measure" will be abolished as of December
31, 2023, but a new permanent grace measure was established by
the 2023 reform.
Under the grace measure, if both of the following requirements(a) and (b) are met, it is no longer necessary to follow therequirements that must be met at the time of storage, such as
tamper-prevention and search functions, and the electronictransaction data can simply be stored.
(a) Where the head of the competent tax office finds reasonablecause for failing to preserve the electronic transaction data inaccordance with the requirements to be met at the time ofpreservation.

This tax reform not only raises the upper limit on the size ofcompanies eligible for the exemption, but also significantly eases
the exemption for any company that is able to present or submit
the output document.

(b) Where the taxpayer is able to respond to a request todownload the electronic transaction data and a request topresent or submit a document containing a printout of theelectronic transaction data at the time of a tax audit, etc.

b) Abolition of the requirement to confirm information regarding the person
who preserves electromagnetic records, etc.

No prior application is required for this grace measure.

There are two major requirements for the preservation ofelectronic transactions: the "truthfulness requirement" and the"visibility requirement“.

These tax reforms will apply to electronic transactions
conducted on and after January 1, 2024.

One of the "truthfulness requirements" was to promptly time© Grant Thornton Taiyo Tax Corporation. All rights reserved. “Grant Thornton” refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients
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