National Tax Agency Report2005

To Our Nation’s Taxpayers

Since its establishment, the National Tax Agency

With a limited staff size, the NTA’s tax administration has grown more and more difficult as the number of(NTA) has administered the nation’s taxation sys-

taxpayers submitting tax returns increases due to pension taxation reform and a lowered sales threshold fortem with the aim of achieving its mission of helping

exemption from the consumption tax. In order to respond accurately to these changes, we believe we must

taxpayers to properly and smoothly fulfill their tax

give kind treatment to good taxpayers and fight against unscrupulous taxpayers. In dealing with Certified

responsibility. With the reform of Japan’s central

Public Tax Accountants (CPTAs), we must conduct tax administration meeting the purpose of the new sys-

government in 2001, we established and publicizedtem for attaching relevant documents to tax returns. We thus believe that we must prioritize operations. We

implementation standards and other regulations con-are willing to promote proper and fair tax administration to get the people’s understanding of and confidence

cerning the operations under our authority. In addi-

in our tax administration.

tion, we set performance targets for our organizationand then conducted performance evaluations against
those targets and released the results to the public.
Based on the fundamental awareness that the NTA has been entrusted with the administration of tax by
the people of Japan, the reform was designed to:(1) fulfill the NTA’s responsibility to clearly explain its mission, performance targets, and policy measures to the people of Japan;

National Tax Agency Report 2005 was compiled for the purpose of explaining the NTA’s measures to taxpayers in an easy-to-understand format, and it focuses on the following:(1) the NTA’s future policy for tax administration, and(2) areas for improvement in the current administration.
The NTA’s mission is to help taxpayers to voluntarily and properly fulfill their tax responsibility under the
self-assessment system. I hope that this National Tax Agency Report 2005 deepens taxpayers’ understanding of their taxes.

(2) provide an efficient and high-quality tax administration tailored to the needs of the times by
objectively evaluating all NTA operations; andJune 2005(3) streamline work flow, raise the morale of tax officials, and revitalize the NTA organization.
At present, the rate at which Japan’s birthrate is declining and its population is aging is unprecedented.
The savings rate is falling dramatically as the population ages. Economic globalization has prompted individuals and enterprises to expand cross-border activities. Enterprises and families have changed dramatically.
On the other hand, the public finance situation has worsened, while social security expenses are expected
to increase. The time has come for the people to seriously consider what form our taxation system and our

1nation should take, including how the nation should be supported and how public services and contribu-

Kenichiro Otake,tions should be selected. In this sense, the NTA last year shifted from the “Know Your Tax” week campaign,

Commissioner

which had lasted for 30 years, to the “Think of Your Tax” week campaign.

National Tax Agency
2

1 To Our Nation’s Taxpayers

page

Self-Assessment
Systempage

Mission of the National
Tax Agency

Contents

for Infringement of
35 Remedy
Taxpayer Rights
Requests for Reinvestigation

page

5

Requests for Reconsideration

Mission of the National Tax Agency

Litigation
Case Trends

 Undertaking for Enforcement of
the Revised Consumption Tax Law .................... 8

page

38 Administration of the Liquor Industry

Tax Administration in the
Era of Globalization

Major Undertakings

Liquor Industry Revitalization Efforts

 Promotion of Online Tax Return Filling and
Tax Payment Using IT .......................................... 9

Supporting Management Revitalization
Ensuring a Fair Trade Environment

e-Tax

Cooperation with the National Research Instituteof Brewing (NRIB)

Filing Assistance on the NTA Website

Responding to Society’s Demands
Conducting Rigorous Licensing Inspections

43 Future Challenges

Remedy for Infringement of
Taxpayer Rights

page

Improving Tax Payment Environment
Overhauling Backoffice Operations inside Tax Offices
Overhauling Tax Examination and Collection
Improving NTA Officials’ Work Environment
Operation and System Optimization Plan

page

Administration of the
Liquor Industry

page

48 Statistics

11 Self-Assessment System
 Taxpayer Services:  Public Relations, Tax
Consultations, and Information Provision ....... 12

 Payment of Taxes ............................................... 25
Fostering a Cooperative Attitude Regarding Self Initiated Tax
Payment

Taxpayer Briefings

Measures to Address Tax Delinquency

Tax Consultations at Tax Counsel Offices

Tax Payment Call Centers
Efficient Management of Tax Claims and Liabilities

Responses to Taxpayer Advance Inquiries

 Roles of CPTAs .................................................. 27

 Taxpayer Services:  Making the Filing ofReturns More Convenient ................................. 14

Promoting Attachment of Return Working Paper to Tax
Returns

Promoting Self Completion of Tax Returns

Fighting against CPTA Law Violationse-Tax

 Cooperation with Private Organizations.......... 28

Filing Assistance on the NTA Website

Relevant Private Organizations

Touch-Screen Computers
Weekend Tax Consultations
page

Administration in the Era
30 Taxof Globalization

Information

Developing Common Tax Rules

Guidance

Preventing International Double Taxation—|Implementation of Mutual Consultations Basedon Tax Conventions

Strict Treatment of Unscrupulous Taxpayers
Enterprise Groups Engaged in Wide-Area Transactions
International Tax Avoidance Schemes

Statistics

 Promotion of Proper andFair Tax Administration...................................... 18

Future Challenges

Tax Education

Addressing International Tax Avoidance—
Exchange of Information Based on Tax Conventions

Transfer Pricing Issues
Electronic Commerce Transactions

3

Tax Criminal Investigations

4

Mission of the National
Tax Agency

Mission of the National Tax Agency
Helping Taxpayers to Voluntarily Fulfill Their Tax Responsibilities Properly and Smoothly

Public services are indispensable to support the lifestyle the Japanese people enjoy today, and the national and

NTA Budget and Personnel

local governments conduct a variety of public administration activities to provide those services. Taxes provide the(1)-(4) (thousand cases)

revenue to cover the expenses incurred in those activities. The Constitution of Japan stipulates that tax payment is an

Year

1975

1997

2004

(Reference)
2004/1975
107.2%

obligation of the people of Japan, and the NTA is given the authority to collect taxes so that these public services can

Number of personnel

52,44057,202

56,239be provided smoothly.

(1) Number of Income Tax
Returns Filed

7,327

20,023(21,390)291.9%(2) Number of Corporations

1,482

2,793

(2,920)

197.0%In order to fulfill its mission as mandated by the people, the NTA has tried to properly and fairly impose and collect(3) Number of Establishments
Subject to Commodity Tax

117

—

—

—

internal tax through tax education, public relations and other activities (taxpayer services) to help taxpayers under-(4) Number of Enterprises Subject
to Consumption Tax

The mission of the NTA is to help taxpayers to voluntarily fulfill their tax responsibilities properly and smoothly.

(1)+(2)+(3)+(4)stand and fulfill their tax responsibilities, and through activities (for promotion of proper and fair tax administration

regarding taxpayers alleged to have failed to properly fulfill their tax responsibilities. The latter activities are designed

development of the liquor industry and the proper management of CPTAs’ services.
The ultimate aim of all these efforts is to develop taxpayers’ understanding of our tax administration and to gain
their trust. (See “Directive on Standard and Rules for Implementation of NTA Duties” in Appendix - Page 54).

2,521

(2,533)—25,337

26,843300.7%

Notes: 1. The figures for item (4) are the number of Notifications of Taxable Enterprise Status for Consumption
Tax submitted.
2. Numbers in brackets are 2003 figures.
3. The figures under “(Reference)” are 2004 percentages when 1975 figures are set at 100.

to maintain and improve taxpayers’ compliance* with tax laws) to implement accurate instructions and examinations

to prevent good taxpayers from feeling unfairness regarding taxation. The NTA has also tried to guarantee the sound

—
8,926

The fiscal 2004 NTA budget was ¥717.6 billion, the majority of which was spent on personnel expenses. In recent years, theKSK System (Kokuzei Sogo Kanri [Comprehensive Tax Administration] System) and other IT-related expenses have come tocomprise an increasing amount of the budget, and we are focusing on raising the efficiency of operations and improving taxpayer
services.
NTA personnel numbered around 52,000 from the 1970s through the first half of the 1980s. With the introduction of the consumption tax in 1989, personnel figures increased and peaked in 1997. As of the end of fiscal 2004, the NTA staff numbered
56,239.

National Revenue and Taxes

Others7.0
8.2%
Revenuefrom
Government
Bonds*
35.3
41.3%

Total

85.6
(¥ trillion)

National Revenue

National Expenditure

Fiscal 2003 General Account Revenue (settled account)

Fiscal 2003 General Account Expenditure (settled account)

Others 1.4%
Custom Duty 1.9%
Tobacco Tax 2.1%
Motor Vehicle
Tonnage Tax 1.8%
Tax
Gasoline Tax 5.0%
RevenueStamp
43.3
Revenue 2.7%
50.6%
Liquor Tax 3.9%
Inheritance Tax
3.3%

Withholding
Income Tax
26.3%
Tax
Revenue

43.3

Consumption
Tax
22.4%

(¥ trillion)

Self-Assessed
Income Tax
5.8%

Corporation Tax
23.4%

Note: “Revenue from government bonds” is revenue from construction bonds, which are issued to cover public works
expenditure, and special deficit-financing bonds, which are issued to cover shortfalls in revenue. All revenue fromgovernment bond issues constitutes a debt that must be paid back in the future.

OthersSurplus, etc.

6.9

3.2

19.7

National
Debt
Service

Total

85.6

15.5

(¥ trillion)

Local Allocation
Tax Grants

17.4

Economic
Assistance

0.9

SocialSecurity

PublicWorks

9.4

Educationand Science

6.5

Defense 4.9
Government Employee Pensions 1.2

National revenue (general account revenue) in fiscal 2003 was ¥85.6 trillion. Of this revenue, ¥43.3 trillion were from tax.
Deducting tax and stamp revenue from customhouses and the Postal Service Agency FY2003(currently Japan Post), revenue from
Composition ratio

national taxes alone amounted to ¥38.1 trillion. This means that the NTA collects about (%)
88 percent of government revenue
43.3
50.6
Revenue
Government Bonds
Income tax, corporation tax, and consumption tax account for about 80 percent
of taxfrom
revenue.
35.3
41.3
Others
7.0
8.2
Total
85.6
100.0
Tax and Stamp Revenue

received through taxation.
* Compliance means that taxpayers are highly conscious of their tax responsibilities and fulfill such responsibilities as provided in law voluntarily and properly, and that taxpayers comply with all relevant laws.

5

6

Mission of the National
Tax Agency

Major Undertakings
Structure of the National Tax Agency

In business year 2004 (July 2004 through June 2005), we focused on implementation of the enforcement of therevised Consumption Tax Law and the promotion of online tax return filing and payment using IT.

The NTA is responsible for the nationwide administration of tax and oversees the 12 Regional Taxation Bureaus and 524 Tax Offices.
(Local Branch Offices)

National Tax Agency

Regional Taxation Bureaus(11)

Tax Offices(518)(Sapporo, Sendai, Kanto-Shinetsu, Tokyo, Kanazawa, Nagoya, Osaka, Hiroshima, Takamatsu, Fukuoka, Kumamoto)
The NTA performs tax planning and standardizes the interpretation of tax laws to facilitate the execution of tax administration.
The NTA also oversees the Regional Taxation Bureaus and Tax Offices. (634 personnel, 1.1%)*1(Internal Subdivisions)
Commissioner’s Secretariat

Taxation Department

Revenue Management
and Collection Department
Examination andCriminal Investigation Department(Councils, etc.)

The Regional Taxation Bureaus oversee
the Tax Offices within their jurisdiction.
The bureaus also carry out front-line operations, including providing tax consultations and other services to taxpayers, carrying out tax examinations of large-scale,inter-prefectural, and difficult cases, andconducting procedures for tax delinquencies.*3 (10,693 personnel, 19.0%)

Under the fiscal 2003 tax system reform, the Consumption Tax Law was revised to lower the tax exemption sales threshold for
The Tax Offices, which serve as liaison
offices for taxpayers, are front-line administrative institutions in charge of carrying out national tax administration.
(44,086 personnel, 78.4%)

Special Officer (Public Relations)

National Tax College
The National Tax College trains tax officials. (348 personnel, 0.6%)(Attached Institutions)
National Tax Tribunal
The National Tax Tribunal makes decisions on requests for reconsideration from
taxpayers regarding national taxationrelated penalties imposed by the Regional
Taxation Bureaus, the Tax Offices, andother institutions. (478 personnel, 0.9%)

Revenue Management
and Collection Group

Individual Taxation Group

consumption taxpayers. Most of them are small sole proprietorship. In order to lead these enterprises in obtaining awareness of
their consumption tax payments started, the NTA has been publicizing the revisions through various media, holding briefings on therevisions and bookkeeping procedures, and introducing bookkeeping guidance providers to these enterprises. The NTA has also
requested relevant private sector organizations to promote “communications movements” for their member enterprises to notify theseenterprises of the bookkeeping requirement.

Property Taxation GroupThe NTA will continue to publicize the revised consumption tax system, hold briefings and promote the accumulation of funds
for on-time tax payments and the system for tax payment by

Criminal Investigation
Department

Corporation Taxation Group(Except for at the Tokyo, Nagoya, and Osaka
Regional Taxation Bureaus, the Examination
and Criminal Investigation Departments are
combined into one department.)

Chief Examiner(Liquor Tax and Industry)transfer accounts. In order to allow the new consumption taxpayers to properly submit consumption tax returns and make

The Information and Examination Division of the Taxation Department carries
out examinations of difficult cases.
The Revenue Management and Collection Department carries out procedures
for large-scale tax delinquencies.
The Examination Department carries out
examinations of large corporations andothers.
The Criminal Investigation Department
carries out investigations and examinations based on the National Tax Violations
Control Law and enforces regulations in
the case of violation.

Okinawa Regional Taxation Office

As the tax exemption threshold is lowered, some 1.8 million individual and corporate enterprises are expected to become new
the details of the Consumption Tax Law revisions and implement proper bookkeeping from January 2005, when the first year for

National Tax Council*2(Facilities)

April 1, 2004, and were applied to sole proprietorship from 2005 and to corporate enterprises from the business year that started

menting various measures including consulting services and guidance.

Taxation Department

Examination Department

designed to enhance taxpayers’ confidence in and transparency of the consumption tax system. The revisions came into effect on

administration operations. In a bid to ensure the smooth acceptance of the revised law, the NTA is publicizing the revisions and impleCo-ordination Division

Revenue Management andCollection Department

enterprises*1 from ¥30 million to ¥10 million and the threshold for application of the simplified tax system*2. These revisions areon and after April 1, 2004. The NTA has promoted the enforcement of the revised Consumption Tax Law as one of top priority tax

Management andCo-ordination Department

The Sapporo, Sendai, Kanto-Shinetsu,
Tokyo, Nagoya, Osaka, Hiroshima, andFukuoka Regional Taxation Bureaus havea First Taxation Department and a Second Taxation Department.

1 Undertaking for Enforcement of the Revised Consumption Tax Law

tax payments in the period for filing of tax returns for 2005, theNTA will thus try to implement fine-tuned measures including
publication, consulting, and guid-(Millions)

Total number of taxable
enterprises after thelaw revision (estimate):
2.16
3.88 million

2.4

ance.

0.53
1.72

1.6

1.28

1.63

0.8

0.44
0

Tax Offices (6)Leaflet for the Revised
Consumption Tax Law

Notes:*1 Percentage figures represent the percentage of total personnel.
*2 The National Tax Council performs the following: (1) studies and deliberations at the request of the NTA Commissioner in cases where the president of the National Tax Tribunal
gives a decision that interprets the law in a different way from the directives issued by the NTA Commissioner, (2) enforcement of CPTA examinations and deliberations on disciplinary
actions against CPTAs, and (3) deliberations on the establishment of labeling standards for liquor and other issues.
*3 If taxes are not paid by the due date, they are deemed delinquent. To collect delinquent national taxes, taxpayer assets may be seized and converted into cash through public sales
or collection of claims, and the cash proceeds collected as taxes. This series of procedures is referred to as “procedures for tax delinquencies.”

7

Estimated Number of Enterprises Subjected
Newly to Consumption Tax on Lowering of Tax
Exemption Threshold (as of the end of December, 2004)

Individuals■ Number of enterprises taxed

Corporations■ Estimated number of newly taxable enterprises*1 Enterprises have consumption tax obligations; however, enterprises with taxable sales of ¥10 million or less (¥30 million or less before the revisions) are exempted from paying this tax. This iscalled the ”system for exempting enterprises from tax liability.
*2 In principle, the amount of consumption tax payable is calculated by deducting the amount of consumption tax on purchases and other items from the amount of consumption tax on sales.
Enterprises with taxable sales of ¥50 million or less (¥200 million or less before the revisions), however, can calculate their consumption tax by multiplying the amount of consumption tax on sales
by the purchase ratio set for their industry. This is referred to as the “simplified tax system.”

8

The NTA has been trying to take advantage of IT systems, including the e-Tax system for online tax return filing and tax
payment and the Filing Assistance on the NTA website, to help reduce taxpayers’ tax return filing and tax payment burdens(See Page 14)

taking care to ensure the security of the system, we will further

own at home, but also provides the opportunity for taxpayers

improve e-Tax functions and operations and promote the uti-

to use the e-Tax system with the data linked to e-Tax.

lization of the system through public relations activities for its
diffusion*.

We would like to continue promoting improvements basedon users’ requests to make the Filing Assistance on the NTA
website easier to use so that more taxpayers can utilize theFiling Assistance on the NTA Website

section.

The Filing Assistance on the NTA website allows taxpayers toe-Taxdaily acceptance hours to improve taxpayers’ convenience as

The e-Tax system for online tax return filing and tax payment
was developed as part of “A Program for the Creation of Next-

requested by many users. In April 2005, the system started services regarding filing of liquor and stamp tax returns.

Generation Electronic Government” that aims to improve con-With e-Tax, taxpayers can send in their tax returns and appli-

venience for the people, and to simplify and raise the efficiency

cations from their home or office computers. In addition, taxof administrative procedures through the use of IT.

payment procedures, which had required that taxpayers bring

The e-Tax system was launched for the filing of income tax

cash and tax payment slips to the bank or Tax Office, can also

and consumption tax returns (individual) in the region controlled

be made via Internet banking from the taxpayer’s home orby the Nagoya Regional Taxation Bureau in February 2004. In

office computer. The e-Tax system has a major impact on tax-

March, it was slightly expanded to cover part of corporation

payer rights and obligations and involves taxpayers’ personal

tax and consumption tax return filing, tax payment, application,

data, such as tax information. For these reasons, we are doing

and reporting. The system was made available for the whole

our utmost to keep system safety to earn taxpayer trust.

of the nation in June. In September, additional application and

The e-Tax system still does not satisfy taxpayers, however.

reporting procedures were made available through the system.

For example, taxpayers must submit an advance notification to

The NTA has thus gradually expanded the system’s coverage

the Tax Office indicating that they wish to start filing by e-Tax,of users and procedures while confirming stable operations

and must separately send original certificates made by thirdof the system. In November, the NTA expanded the system’s

parties to the Tax Office for strict personal identification. While

Number of Advance Notifications for
e-Tax Submitted

6,712

38,246computer screen, taxpayers can prepare their final returns andhave the income and tax amounts calculated automatically. If
the form is printed out on a color printer, it can be submitted
as the final form. Forms may be either submitted in person or

Usage of the Filing Assistanceon the NTA Website

sent by post or other courier service to the Tax Office. The section can link data to the e-Tax system, allowing completed tax(thousand accesses)

returns to be submitted via e-Tax.

12,000The number of accesses to the section has been increasing
since the section was introduced for the period for filing of final

10,235
9,000

548

tax returns for 2002. In the period for filing of tax returns for
2004, the number came to about 10.24 million.

6,000

5,180

The Filing Assistance on the NTA website not only contributes to taxpayers’ filing of tax returns that they make on their

3,000

3,334
164

0

For 2002 Returns(first year of service)

For 2003
Returns

For 2004
Returns(as of March 31, 2005)

Tax
Payment

Totalting the necessary information in the sequence indicated on the

Number of Tax Returns Filed via e-Tax(as of April 8, 2005)

Corporations

complete their tax returns and financial statements. By input-

Individuals

86,037 47,791

Applications
andNotifications

Individuals

Total

28,012 87,562

Income Tax

18,694

Consumption Tax

3,030

CorporationTax

17,898
Corporations
Consumption Tax

13,216

Leaflet for e-Tax

Trial Version of e-Tax* On the precondition that financial institutions should develop and diffuse computer systems and personal identification infrastructure, the NTA aims to increase the number of e-Tax users to about
1.3 million by fiscal 2006.

9

10

Mission of the National
Tax Agency

2

Promotion of Online Tax Return Filing and Tax Payment Using IT

Self-Assessment System“Taxpayer Services” and “Promotion of Proper and Fair Tax Administration”: the Two Cornerstones of the
Self-Assessment System

1 Taxpayer Services:  Public Relations, Tax Consultations, and Information Provision

official assessment system is generally used. Under that system, the tax amount is determined by the municipality in

To have taxpayers voluntarily and properly pay their taxes, it is vitally important that the NTA takes advantage of every
opportunity to enhance taxpayers’ understanding of their tax responsibilities. It is also important that we provide information

which the taxpayer resides.
Before World War II, Japan adopted the official assessment system for its national taxes as well. The tax authorities
assessed each taxpayer’s income and notified each of the tax amount due. With the democratization of the tax system in 1947, however, the self-assessment system was adopted for income tax, corporation tax, and inheritance tax.
Later, that system was applied to all national taxes.

on tax and respond to questions on tax.
We endeavor to create an environment in which information related to tax can be easily obtained. We employ a variety of PR
media ranging from pamphlets which are available at Tax Offices and city and town halls to taxpayer briefings, television, radio,
and newspaper to provide information on the significance and role of tax and the structure of the tax system. More recent
efforts include posting tax information on the NTA website. These efforts are targeted not only at taxpayers but all segments of

For the self-assessment system to function properly, two things are necessary: First, taxpayers must have a highsociety.

level of awareness regarding tax payment and voluntarily and properly fulfill their tax responsibilities prescribed by

Therefore, the NTA allows taxpayers to obtain information that they want at any time. It also makes wording of tax informa-law (tax compliance). To help taxpayers to correctly file and pay their taxes by themselves, the NTA endeavors totion easy for taxpayers to understand from their viewpoint. The NTA reflects taxpayers’ opinions in its information services. It

improve taxpayer services, including tax education, tax counseling, enhancing convenience for filing, public relations

aims at and implements unified PR operations.

activities about the significance of tax, and information on tax law and procedures.
Second, proper guidance and examinations are necessary to check taxpayers’ tax returns and lead them on how tofile their returns correctly. The NTA aims to promote proper and fair tax administration in order to achieve proper andfair taxation through guidance and examinations for taxpayers that require correction.

Tax Education

selves, to learn and think

Today’s children will lead and support Japan in future years.

about those issues, and to

To deepen their understanding of the significance and role ofindependently judge andtaxes and tax payment, the NTA encourages educators toresolve them.

incorporate tax education in their school classes.

Scenes of Final Tax Returns 1948

To promote tax education, the NTA established the Council

Taxpayer Briefings

for Promotion of Tax Education, which is composed of repre-

The NTA holds briefings

sentatives of national and local governments and educational

for taxpayers to inform them

organizations. The NTA also holds classes on tax and publish-

about tax system reforms

es and distributes supplementary textbooks for tax education.

and deepen their understanding of tax administration. At Tax

For schools that wish to tour a Tax Office or to try a hands-on

Offices throughout the nation, we hold a variety of taxpayer

experience of tax, we have set up permanent facilities exclu-

briefings to provide information about tax in general. There aresively for tax education at some Tax Offices. For example, “Taxbriefings for compiling financial statements for those filing a final

Space Ueno” at the Tokyo-Ueno Tax Office gives students anreturn or a blue return; year-end adjustment briefings for with-

opportunity to develop the skills to identify tax issues them-holding agents; briefings on tax law revisions, and briefings for

Education Section of the NTA Website

newly formed corporations. These various briefings are held asneed to ensure that the information needed to follow tax procedures is provided at the required times.

Present

Number of Briefings and Participants(first half of the 2004 business year)(briefings, thousand persons)Wide-Area Tax Refund Center

11

Consultation in a Tax Office“Tax Space Ueno” at the Tokyo-Ueno Tax Office

Taxpayer Briefings

Of Which, Briefings on the
Revised Consumption Tax Law

Number of Briefings

24,0289,113

Number of Participants

1,312

252

12

Self-Assessment
Systempays tax based on the income and other information he or she submits to the Tax Office. For local taxes, however, theJapan employs the self-assessment system for its national taxes. Under this system, the taxpayer determines andTax Consultations at Tax Counsel
Offices in Fiscal 2003

Responses to Taxpayer Advance Inquiries
The NTA provides information about the general interpretation and handling of tax law through tax consultations at Tax
who have questions about the detailed application of the tax

Telephoneand In-Person

2,986
12.7%
Total

23,457

Telephone
Recordingand Facsimile

491
2.1%

Internet

19,98085.2%

law to their particular transactions may inquire in advance at
the Tax Office and receive an oral answer.
In September 2001, the NTA began to make and publish
written responses to inquires about tax-related treatment of

The number of taxpayers who filed a final income tax return for 2004 reached 21.67 million, meaning one in every six
Japanese citizens filed such a return. More than 10 million filed a return for refund, accounting for more than half of all final
returns submitted.
To respond to the increase and diversification of the number of income tax filers and to increase the satisfaction of taxpayers, the NTA attempts to reduce the costs related to filing as much as possible and to provide even higher quality services than
before.

individual transactions and facts as part of its taxpayer services.
In the beginning, such written responses had excluded
responses to inquiries from specific taxpayers on specificPromoting Self Completion of Tax Returns

e-Taxcases. In order to increase the predictability of tax law applica-

Under the self-assessment system, it is crucial that taxpay-

The final tax return filing period for 2004 was the first since

tions to transactions planned by taxpayers, the NTA in Marchers understand the tax framework and pay their taxes. At tax

the e-Tax online tax return filing and tax payment system was

In order to answer and accomodate taxpayers’ questions

2004 began to make and publish written responses to specificconsultations, NTA officials encourage taxpayers to complete

expanded to cover the whole of the nation. As many taxpayers

and inquiries, the NTA has placed tax counselors and staff with

taxpayers’ inquiries about specific cases unless they fall under

their own forms. To further encourage taxpayers to fill out theirwere expected to intensively use the system in the period, thevast experience in all aspects of tax at Tax Counsel Offices

regarding the prevention of information abuse. As for inquiries

own forms, we completely revised the tax form starting with the

NTA did its utmost to secure the system’s safety in a bid to earn

throughout the nation to provide telephone and in-person tax

common to plural parties within the same industry group or2001 final return form and simplified the items to be entered.

taxpayer confidence. Regarding the expansion of e-Tax opera-

consultations. Consultations in English are provided at the Tax

category, the NTA, at the same time, introduced a procedure

As the number of final returns filed is expected to further

tion hours as requested by many users, the NTA increased dailyCounsel Offices of the Tokyo, Nagoya, and Osaka Regional

to make general responses to inquiries from industry groups orincrease, we are encouraging more taxpayers to voluntarily andservice hours by two hours to 14 hours between 9 a.m. andTaxation Bureaus. In addition to telephone and in-person con-the like, on certain conditions.

properly file final returns. We are actively taking various mea-

11 p.m. for each weekday during the period. Furthermore, theTax Consultations at Tax Counsel Offices

sultations at Tax Counsel Offices, the NTA also provides Tax

Under the new procedures for written responses, the NTA

sures to make it easier for taxpayers to prepare and file theire-Tax system was made available between 9 a.m. and 9 p.m.

Answer Service which provides information by Internet, tele-has positively responded to highly specific individual inquiries

final returns on their own such as the introduction of e-Tax andeven on Sundays (see Page 9).

phone recording, and facsimile. Tax Answer can be accessedthat had not been subject to written responses, as well as

the establishment of the Filing Assistance on the NTA web-by Internet in Japanese at http://www.taxanswer.nta.go.jp

inquiries from central government agencies. As a result, thesite and touch-screen computers. As to enhance satisfaction

or in English at http://www.taxanswer.nta.go.jp/gaikoku.htm.

number of written inquiries and responses has recently posted

for taxpayers who require consulting services, we consider it

As for the above-discussed “the Filing Assistance on the

The telephone number and information access codes for thea substantial increase.

important to control tax collection costs and to process returns

NTA Website,” the NTA enhanced functions for preparation ofefficiently with our limited number of officials.

final consumption tax returns and financial statements for blue

Japanese-language telephone recording and facsimile services

Filing Assistance on the NTA Website

returns in the final tax return filing period for 2004, in response

are available at any Tax Office or city or town hall.

to opinions and requests from taxpayers (see Page 9).

Responding to the Certified NPO System
As the birthrate declines with the population aging and society becoming more diversified, private nonprofit services of nonprofit organizations have grown more important. In order to support NPO services by allowing NPOs to accept external funds
for their operations more easily, a special tax measure was created under the fiscal 2001 tax system reforms to deduct donations made to NPOs that are certified by the National Tax Agency Commissioner as meeting certain conditions. Such NPOs arereferred to as “certified NPOs.”
The certification conditions were relaxed under the fiscal 2002 and 2003 tax system reforms. As greater consideration wasgiven to the environment surrounding NPOs, the conditions were further relaxed under the fiscal 2005 tax system reforms.
In a bid to secure the proper and smooth enforcement of the special tax measure, the NTA has distributed guidebooks andleaflets about application procedures and certification conditions and put a list of certified NPOs on its website. The agency has
13also set up counters at Regional Taxation Bureaus throughout the nation and the Okinawa Regional Taxation Office for consulta-

tions about applications for such certification.
13

Final Income Tax Return

Filing Assistance for Consumption Tax on the NTA Website

14

Self-Assessment
SystemCounsel Offices and through the issuance of notice. Taxpayers(thousand cases, %)2 Taxpayer Services:  Making the Filing of Returns More ConvenientTouch-Screen Computers
For taxpayers who are not able to use e-Tax or the assistance on the NTA Website, touch-screen computers for pre-(computers, thousand returns)

computer panel in accordance with the instructions that appear

4,756

5,000

know how to calculate their income or tax amount can com-

4,000

forms by themselves at the Tax Office, and they are contributing to the improvement of taxpayer services, including easing
the congestion in the consultation area.

about the weekend consultations held during the 2004 tax

sultations should be made available on weekends.” In response

return filing period and announce futures plans before the 2005

to such request by taxpayers, the NTA offered tax return consul-

final tax return filing period.

during the final tax return filing period for 2003. This was the firstever such offer for a final tax return filing period.

3,000

In the final tax return filing period for 2004, the NTA reviewed
Tax Offices available for such weekend services based on

2,000

plete their tax form without difficulty. Touch-screen computers
are now the main method that taxpayers use to complete their“Tax consultations on weekdays only are insufficient. The con-tation and reception services on two Sundays in February 2004
4,072

on the screen, like a bank ATM. Thanks to the calculation function on the touch-screen computer, even taxpayers who do not

The NTA would like to fully review the information gathered

Self-Assessment
Systemparing tax returns have been installed at Tax Offices making it
possible for them to complete a tax return simply by touching aWeekend Tax Consultations

Touch-Screen Computers

1,000

results for the previous period and offered final return consulta-

1,260
420

0

Number ofcomputers■For 1998 Returns (first year of service)

Number of Tax
Returns Prepared■For 2004 Returns

tion and reception services at 211 Tax Offices, three temporary
service sites, and two wide-area self-assessment consultation
centers on two Sundays in February 2005.
A questionnaire survey on the two Sundays’ services indi-

Touch-screen computers were introduced starting from thecated that many taxpayers including salaried persons used thefinal return filing period for 1998 returns. In the first year, 1,260

services to consult with tax officials on medical expense andcomputers were installed throughout the nation, and approxi-

housing loan deductions and that users welcomed and gave

mately 420,000 returns were completed using them. In thehigh ratings to the weekend services.

final return filing period for 2004, the number of computers had

Poster for 2004 Final Tax Returns

risen to 4,756, and a total of approximately 4,070,000 returns(about 20 percent of all returns) were prepared using them.

Preparing Tax Returns by
Touch-Screen Computers

Rising Number of Final Tax Returns Filed
Under the fiscal 2003 tax system reforms, the enterprise sales threshold for consumption tax exemption was lowered, the tax
deduction for the elderly was eliminated and the public pension deduction was changed. As these reforms took effect in 2005,
the period for 2005 tax returns is expected to see the number of sole proprietorships’ consumption tax returns increasing by
about 1.28 million and that of pension benefit recipients’ income tax returns rising by about 1.7 million.
The NTA will try to take advantage of IT to efficiently process the increased number of tax returns. The agency will also continue to publicize the reforms and hold briefings in order to allow the new tax return filers to properly submit tax returns and maketax payments in the period for filing of tax returns for 2005. In this respect, the NTA will try to implement various well tailoredmeasures in publication, consulting, and guidance, etc.

Return for Tax Refund and Request for Correction
A taxpayer who does not have to file a final tax return may file a return for a tax refund and receive the refund if a withheld tax
amount or an estimated tax payment exceeds a tax amount based on real annual income*1.
If a taxpayer finds that a filed tax return includes an excessive tax amount or a short tax refund due to erroneous overestimation of the tax amount, the taxpayer may request a correction to the tax return*2.
The NTA properly applies the relevant laws and properly and promptly processes returns for tax refunds and requests forcorrections to tax returns.

If a Taxpayer Encounters a Disaster or the Like
(1) If a taxpayer cannot file a tax return or pay tax by the deadline for a disaster or a similar reason, the taxpayer may file an application with a competent Tax Office director. Upon approval by the Tax Office director, the deadline may be extended for up to

Cooperation with Local Tax Authorities

two months from the end of the reason(2) If an earthquake, fire, windstorm, flood or any other natural disaster damages a taxpayer’s housing or household goods, theSome local taxes are levied on the same taxpayers and have the same tax framework as national taxes. To simplify filing procedures, therefore, the national and local tax authorities cooperate closely in terms of system structure and administration.
For example, in terms of the system structure, taxpayers who have filed income tax returns are not required to submit returns
for sole proprietorship tax or individual inhabitant tax, both of which are local taxes. Moreover, taxpayers can file their consumption tax and local consumption tax returns through a single procedure. In terms of administration, many municipalities offer consultations on income tax, and services related to national tax. In addition, the national tax and local tax authorities together holdbriefings on tax return filing and conduct tax PR.
Cooperation in the area of administration is conducted based on consultations between the national tax authorities and thevarious local authorities, including prefectural and municipal officials. In actuality, there is considerable disparity among regionsin terms of the level of cooperation. To improve taxpayer services, the national tax authorities aim to develop closer cooperation
with the local tax authorities, particularly those in urban areas.
15

taxpayer may choose (a) the deduction for casualty losses under the Income Tax Law or (b) the tax reduction or exemption asprovided in the “Law Relating to Tax Reduction and Postponement of Collection for Disaster Victims,” whichever is favorable,
to get relieved of all or part of income tax.
(3) If a disaster or the like damages a taxpayer’s assets considerably or makes it difficult for a taxpayer to pay tax in lump sum
immediately, the taxpayer may file an application with a Tax Office director for the postponement of the tax payment deadline
and may be given a tax moratorium for a certain period of time.
*1 Additional refunds may be made if certain conditions are met.
*2 A taxpayer may make such request by submitting a written request specifying errors.

16

Results of a Questionnaire on Weekend Tax Consultations

2. Details of Self-Assessment Consultations

3 Promotion of Proper and Fair Tax Administration
To ensure proper and fair taxation, the NTA provides guidance regarding tax returns and payment and implements rigorous
examinations from various angles on taxpayers who attempt to evade their tax obligations. In selecting taxpayers for examina-

Others(part-timers, etc.)tion, we analyze their income tax and corporation tax returns entered into the KSK System from the viewpoint of their industry

OthersGift Tax 5.5%

11.2%

type, business category, and business scale.

3.0%

PensionBenefit
Recipients

MedicalExpense
Deduction

Capital Gains

8.2%

12.8%

23.3%
Self-EmployedBusiness
Income, etc.

7.4%

Housing
Loan
Deduction

9.7%

14.4%

Company Employees

73.2%

Pension
Mid-Career Retirement

11.8%

5.8%
Employment Income, Others

13.8%

3. Reasons for Sunday Tax Office visits
Had to Visita Point Close toa Filing Center

4. Weekend Self-Assessment Consultations
Do NotWelcome
So MuchOthers

3.4%

0.3%

2.4%

Have MoreTime
on Sundays
Than onWeekdays25.5%

Do NotWelcome
0.2% Others

1.0%

Welcometo Some
ExtentInformation

Strict Treatment of Unscrupulous Taxpayers

The NTA collects about 140 million new pieces of information

To facilitate the smooth operation of the self-assessmenta year, and we manage this information together with tax returnsystem, the NTA has been granted the authority to conduct

data in an integrated fashion today inside the KSK System andtax examinations. Such examinations aim to check the content

use it for guidance and tax examinations.

of tax returns based on the taxpayer’s books and to correct

The rise in corporations’ wide-area, international businessany mistakes found. We give higher priority to the examinationtransactions and the increasing use of sophisticated informa-of unscrupulous taxpayers and make sure we invest sufficienttion technology in recent years present new information needs.

number of days on such cases.

We determine what new kinds of information are required to

The unreported income discovered through field examina-

examine these new forms of transactions and then actively

tion averaged ¥7,230 thousand per case for income tax andcollect it. For example, to respond to the increase in transac-¥11,650 thousand for corporation tax in 2003. Comparing

tions with overseas entities accompanying the advancement of

this to 1985 figures, it is clear that the amount of unreported

internationalization recently, we actively exchange information

income per examination case is on the rise.

with foreign tax authorities and use it to check returns related

3.6%

to overseas transactions.

Could Visita Tax
OfficeOnlyon Sunday

Information substantiating off the book or fictitious transactions and specific information relating to individual or corporate

68.7%

transactions are particularly helpful in examinations.

Unreported Income Tax and Corporation
Tax per Examination Case

Welcome94.9%(¥ thousand)Guidance
The Tax Office checks whether the information reported in a

5. Would It Be Convenient for Weekend Consultations Next Year to Be Held on
Saturday, Sunday, or a Combination of the Two?
(In your response, please assume that weekend consultations will be offered on two days next year)

11,65012,000tax return is complete and correct using information gatheredfrom various sources. If unreported or errors in reported information have been found, the Tax Office requests the taxpayer

196.5%

8,000

7,230

by telephone or in writing to submit an amended return. If the
taxpayer refuses to comply, then correction* or determination*
12

205.4%

4,000

5,930

3,520

by official assessment will be made under the authority of the
district director of the Tax Office.

Once
on Saturdayand Once on
Sunday29.9%

The Individual Taxation Division handles about 700,000
On Sunday
Both Times

cases a year of this kind of brief guidance with taxpayers.

0

Income Tax

Unreported Income per Field
Examination Case
■ 1985 ■ 2003

Corporation Tax

Unreported Income per
Examination Case

65.2%
On Saturday
Both Times*1 If the tax and other figures declared in the tax return are too high or too low, a correction is issued by the tax authority in charge of the case.
*2 If a taxpayer who must submit a tax return fails to file by the deadline, a determination confirming the amount of tax is issued by the tax authority in charge of the case.

4.9%

17

18

Self-Assessment
System

1. Occupation

Number of respondents: 61,285

thereby constantly keeping such unscrupulous taxpayers under

to ensure a sufficient number of examinations for proper andour watchful gaze, we believe that conscientious taxpayers’

fair taxation. By singling out and conducting examination on

willingness to pay tax could be enhanced leading to better tax-

taxpayers who are believed to be filing improper returns, andpayer service overall.

Strict Information Control
Self-Assessment
SystemIn light of this situation, the NTA believes that it is essential

Revenue, sales, expenses, and other information involving taxpayers’ privacy are necessary for tax calculation. Information
about taxpayers’ trading partners may sometimes be required for tax examinations. If taxpayers’ privacy and information areleaked easily, taxpayers cannot be expected to cooperate with the NTA. This may negatively affect smooth tax examinations.

In order to ensure proper and fair taxation, the NTA endeavors to conduct smooth tax examinations through various
efforts to properly deal with taxpayers and strictly manage taxpayer information.

Tax officials who have leaked confidential information they obtained through tax examinations are subject to a criminal penalty (up to two years in prison or up to ¥300,000 in fine) under tax law that is heavier than the penalty (up to one year in prison
or up to ¥30,000 in fine) under the National Public Service Law. The NTA conducts regular training of tax officials to thoroughly inform them of such penalty provisions. When interviewing taxpayers, tax officials give considerations to their privacy andrefrain from interviewing them at their shopfronts or at the front door of their homes.

Advance Notification of Tax Examination

As the “Act for Protection Computer-Processed Personal Data Held by Administrative Organs” took effect on April 1, 2005,
the NTA has further enhanced its strict control of taxpayer information that it holds.

In principle, taxpayers are notified in advance of the date for the tax examination by phone so that we can confirm the taxpayer’s availability. In cases where we must confirm the actual state of the business itself, however, no advance notification is
given. Advance notice is given in approximately 80 percent of income tax examinations and about 90 percent of corporation

Treatment of Penalties and Exemption from Delinquent Tax

tax examinations.

To encourage taxpayers to file tax returns and pay taxes properly, delinquent tax is imposed if tax returns are not filed or taxes

Tax Examination
When a tax official visits the residence or office of a taxpayer to conduct a tax examination, the official presents a photo
identification card that clearly show his or her name and identity as a tax official. An examination proceeds quickly andare not paid by the due date. There are also cases where either a penalty for understatement, a penalty for failure to file, or afraud penalty is imposed.
DelinquentTaxsmoothly if the taxpayer cooperates by presenting books and other documents that track daily transactions to the tax official
in charge and responds accurately to questions regarding the tax return and books.
To minimize the burden on the taxpayer, we make every attempt to conduct the examination as speedily as possible.

Up to two months from the day after the due date

Annual rate of 4.1% (in 2005)* The annual rate may change due to financial and other conditions.

After two months from the day after the due date

Annual rate of 14.6%

Additional

Whether the Tax Return was Filed by Due Date

Tax

Return is filed by due date,but tax amountis understated

For understatement (10% or 15%)35%

Return is not filed by due date

For failure to file (15%)

40%

In principle, tax examinations are conducted in the presence of the taxpayer. The taxpayer may also have his or her CPTA

Regular Case

Case of Fraud, etc.

designated as tax proxy attend the examination.
Where errors are not attributable to the taxpayer and a legitimate reason is found, then additional tax for understatement, additional tax for failure to file, or aggravated additional tax may not be imposed.

Measures after Tax Examination

In cases where certain requirements are met, for example, a taxpayer may have been given a tax payment grace period after adisaster, or may have failed to file a return or pay a tax due to an erroneous guidance given by NTA officials, the taxpayer may be

When an error is found in the tax return, the Tax Office explains to the taxpayer the error and the amount of tax that shouldbe paid, and recommends that the taxpayer amend and refile his or her return after the due date. If a return is amended, no

exempted from all or part of a delinquent tax corresponding to the grace period.
The NTA has set up the rules for the cases where no penalty is imposed and has published the rules on its website (Japanese only)*.

request for reinvestigation or reconsideration may be allowed (see Pages 35~37). In addition to the tax amount due, a delinquent tax may be imposed. Furthermore, additional tax for understatement, for failure to file a return, or a aggravated additional
tax may be imposed. When recommending a taxpayer to amend his or her return, the Tax Office provides written explanations.
If the taxpayer does not cooperate with the Tax Office’s request for an amended return, etc., the Tax Office district director
makes a correction, etc., and sends a Notice of Correction or Notice of Determination by official assessment to the taxpayer.
When no error is found in the tax return, the Tax Office performs the following:a. If there is no need for submission of an amended return, but guidance is needed regarding future tax returns or record
keeping, or maintenance and storage of books and documents, the Tax Office provides the taxpayer with an explanation.
The Tax Office also clearly communicates that the tax examination is closed.
b. If no error is found in the return and no guidance is needed, the Tax Office sends a written notification of tax examination

Enterprise Groups Engaged

In examining a enterprise group, it is important that thein Wide-Area Transactions

NTA must first gain an overall picture of the group, grasp the

Corporations endeavor to engage their business in wide area

actual activities, and ascertain whether the group is conduct-

or cross regional activity by setting up subsidiaries and branch-

ing improper tax accounting by using intra-group transactions.

es, the NTA is being called upon to adapt its tax examinations

For overseas subsidiaries, the NTA must consider international

accordingly.

tax issues. The state of the local economy and the subsidiaries’* On the NTA website, see http://www.nta.go.jp/category/tutatu/jimu/jimu.htm for penalties and “Exemption from delinquent tax for tax payment moratorium related to Article 63” in http://www.nta.
go.jp/category/tutatu/kihon/tyousyu/general/mokuji.htm for the delinquent tax (Japanese only).

findings to the taxpayer.
19

20

ties with the community are valuable information to the NTA totion are examined by maintaining close communication andfully ascertain the true situation of the subsidiaries.

coordination among the national network of Regional Taxation

The consolidated taxation system was introduced in August

Bureaus and Tax Offices.

International Tax Avoidance Schemes
As cross-border business activities expand, complex interna-

endeavors to identify these schemes, uncover the facts, andacquire information about financial assets held overseas.

2002. The enterprise groups that file consolidated tax returns

Business are rapidly expanding their area of activity in recent

tage of differences between national tax systems and between

To improve the capabilities of our tax officials, the National

are one form of the actual enterprise groups, and the need toyears along with internationalization and the increasing use oftax treaties, and utilize anonymous association contracts, part-Tax College provides training courses on international taxa-

ascertain intra-group transactions and the importance of local

IT. The NTA considers examinations of enterprise groups andnerships* , limited liability companies* and other entities, andtion, foreign tax law, tax conventions, derivatives*3, and foreign

information remains basically the same.

consolidated groups as an important issue for the future as

new financial means for international tax avoidance.

languages. In addition, the Regional Taxation Bureaus offer

In examining enterprise groups and consolidated groups

well.

1

2

To realize proper and fair taxation, to prevent the unfair ero-various practical training courses regarding examinations ofinternational transactions.

engaged in wide-area transactions, the NTA implements coor-

sion of the nation’s tax base, and to protect conscientious tax-

dinated examinations on a nation wide scale where parent

payers from being forced to carry the burden of the tax avoided

To prevent the loss of the nation’s tax base, the NTA

companies and those subsidiaries that require close atten-

by these schemes, the NTA implements tax examinations andrequests that tax system revisions be made regarding schemes

other measures to ascertain the actual situation of transac-

that cannot be properly handled through the interpretation oftions, clarify the facts of complicated schemes and collect evi-current tax law. The fiscal 2005 tax system reforms included

dence for proper taxation.

revisions to address tax avoidance schemes utilizing partner-

Consolidated Taxation System
With the dramatic changes in the business environment surrounding Japanese enterprises, the Commercial Law and other

Expertise in international taxation and examination know-

laws and regulations have been adjusted to facilitate corporate reorganization and thereby to ensure that businesses remain

how are required to address these international tax avoidancecompetitive and can fully demonstrate their vitality. In the amendments made to the Corporation Tax Law as part of the fiscal

schemes. In this respect, the NTA has endeavored to expand

2001 tax system reforms, necessary adjustments were also made, including the revision related to corporate spin-offs and merg-and enhance the examination setup by increasing the number

ers. Moreover, a consolidated taxation system was introduced as part of the fiscal 2002 tax system reforms in response to theof senior examiners (international) who specialize mainly insituation today where corporations are expanding their operations as enterprise groups and corporate disclosure is primarily per-examining international transactions of corporations at Regional

formed via consolidated financial statements.

Taxation Bureaus. In recent years, small and medium-sized

The consolidated taxation system was introduced in August 2002. This system views a enterprise group as a single corporation in the levying of tax. The NTA is improving the administrative framework for responding to advance inquiries, and examining
applications for approval so that approval applications and consolidated tax returns are submitted properly. When examining
consolidated enterprise groups, a competent Tax Office for parent companies, and ones for subsidiaries, and the Examination

ships.

enterprises and wealthy individuals have come to be involved
in international tax avoidance schemes. In response, the NTA
established the Project Team to Deal with Internationalization

Department of the Regional Taxation Bureau try to maintain close communication and cooperation to conduct integrated examinations. In business year 2003, examinations covered 79 enterprise groups.

Applications for Approval on
Consolidated Taxation

Consolidated Taxation Returns

Types of International Tax Avoidance Schemes(For business year 2003, ending in June 2004)(Cumulative total of applications)

There are two types of international tax avoidance schemes. One is the made-to-order type, in which corporations or individuals form schemes in line with their business activities. The other is the ready-made type, in which those who develop schemes

800

8,000

6,383
600

Number of Returns

239

Returns

Percentage of Returns Declaringa Surplus (%)

20.1

6,000

5,096
3,891

400

2,896
200

Consolidated

548
4,000

384

282
2,000

164

Reported Income (¥ billion)
Reference0

Non-Consolidated Income (¥ billion)

65.7
120.24sell them to any number of enterprises.
Made-to-order type schemes include cases where foreign corporations doing business and investment in Japan attempt to
avoid Japanese tax by investing through shell companies established to abuse tax conventions.
Ready-made type schemes include transactions in which corporations or other entities utilize partnerships for purchasing andleasing aircraft, recommend investment in the partnerships as a “tax-saving product” to highly profitable small and medium-sizedenterprises and wealthy individuals, and distribute booked losses on aircraft to investors. In aircraft leasing transactions, depreciation costs exceeding leasing income can be frontloaded.

0

September
2002

December
2002

September
2003

September
2004■ Number of applications (left scale)  Number of parents and subsidiaries (right scale)*1 A partnership is an organization of two or more persons who carry on a business as co-owners for profit. Partnerships are widely used to set up joint ventures mainly in the U.S. There are generally
two types of partnerships: (1) general partnerships, which consist of two or more general partners with unlimited liability, and (2) limited partnerships, which consist of one or more general partners
who manage the business and have unlimited liability and one or more limited partners who do not participate in management and have limited liability.
*2 A limited liability company (LLC) is a business entity organized based on the limited liability company law in the U.S. state where the company is located. LLCs consist exclusively of members who
have limited liability.

21*3 Derivatives are new financial products based on bond, stock, exchange, and interest rate transactions. Futures, options, and swaps are types of derivatives.

22

Self-Assessment
Systemtional tax avoidance schemes are emerging. They take advan-

at key Regional Taxation Bureaus in business year 2002 andTransfer Pricing Issues

to the application of the Transactional Net Margin Method

Tax Criminal Investigations

In fiscal 2004, the NTA commenced 210 criminal inves-(TNMM)* introduced through the fiscal 2004 tax system reforms.

General tax examinations are so-called voluntary examina-

tigative examination cases and referred 152 cases to theing issues have become important in the field of international

To ensure the proper and smooth enforcement of the transfer

tions and are conducted in principle with the consent of theprosecutor. Total tax evaded was about ¥28.2 billion, with antaxation. For example, if a Japanese parent company sets a

pricing tax system, the NTA endeavors to reduce the adminis-

taxpayer. To impose correct taxation on taxpayers who inten-

evaded tax sum of ¥162 million per case. Although the num-

low price when it exports products to its overseas subsidiary,

trative burden on corporations and ensure the predictability oftionally evade tax using illegal means and to pursue criminal

ber of cases commenced, closed, and referred to prosecutors

income is transferred overseas. The transfer pricing tax system

taxation on business activities regarding the system by offering

responsibility for antisocial behavior, however, the NTA con-increased over the previous fiscal year, the percentage of refer-

has been developed to address such issues.

an Advance Pricing Arrangement (APA) to confirm in advanceducts examinations using methods assimilating those usedence to prosecutions, total evaded tax amount, and amount of

the method used to calculate transfer prices.

in criminal investigations conducted by police. Based on the

tax evaded per case decreased.

findings, we request the public prosecutor to charge and pros-

Notable tax evasion methods in fiscal 2004 were intentional

ecute the person. This is known as the tax criminal investiga-

concealment of sales and recording of costs at unreasonably

Transfer pricing issues also lie at the heart of transactions,
namely, the setting of prices for transactions between relatedcompanies in a multinational enterprise group. At the same

Electronic Commerce Transactions

time, transfer pricing issues are related to multinational corpo-

As means of communication have become more sophisticat-

tion system, and it pursues the criminal responsibility of large-

high figures. In addition, tax evasions regarding overseas trans-

rations’ management policy. Moreover, transfer pricing exami-

ed and communications costs have declined, use of the Internet

scale and malicious tax evaders. Taking advantage of the factactions and corporate groups were seen.

nations generally require a large volume of documents andhas increased dramatically, and transactions with individual con-that punishing one serves as a warning to others, this system

In 2004, 171 cases were resolved at the court of first instance,

considerable time to calculate the appropriate price. If we con-sumers via virtual shopping malls on the Internet are spreading.

plays an important role as the ultimate means for protecting theand in all of the cases, a guilty ruling was handled down. The

self-assessment system.

average fine was about ¥27 million per case, and the averagesider the costs required to resolve double taxation that arises

To collect information about the state of these kinds of elec-

from transfer pricing taxation, this issue has a tremendous influ-

tronic commerce transactions and to ascertain the parties

As transactions become more cross regional, international,

prison sentence was 15.3 months. There were eleven cases withence on corporations.

involved in the transaction, the NTA has set up a Professionaland IT oriented, tax evasion methods have grown more complex

no suspended sentence. Prison sentences without probation

In recent developments regarding transfer pricing issues,

Team for E-Commerce Taxation (PROTECT) at each Regionaland diverse in recent years. By enhancing and strengthening

have been handed down every year since 1980.

Japanese companies have increasingly transferred their pro-Taxation Bureau. This team collects information in both spe-

our information and conducting efficient examinations, the NTA

duction bases overseas and provided their overseas manufac-

cialized and cross-sectional ways from e-commerce service

endeavors to actively pursue criminal charges and prosecuteturing subsidiaries with such intangible assets as production

providers and others, conducts tax examinations based on thelarge-scale, malicious tax evaders.

technology and know-how, as well as management guidance,

information collected, and develops and accumulates exami-

operations management, and other services. This means thatnation methods. It also provides officials of each Regional Tax

Japanese parent must receive fair prices for intangible assets

Bureau and Tax Office with information collected and various

provided to overseas manufacturing subsidiaries. Regarding

examination methods.

Tax Criminal Investigations

such intangible assets transactions, the NTA endeavors to

FiscalYear

Number of Cases
Commenced

Number of Cases
ClosedNumber of Cases
Prosecuted

Total Tax Evaded(Number in parentheses
is total tax evaded
in prosecuted cases)(¥ million)

2004

210

213

152

28,224 (24,680)

accumulate know-how for smooth tax enforcement with a viewTax Evaded per Case
(Number in parenthesesis tax evaded perprosecuted case)(¥ million)
133 (162)

Note: Tax evasion figures include penalties.

Judgments Handed Down in Tax Criminal Investigation Cases

CalendarYear(1) Number ofJudgments(2) Number ofConvictions

2004

171

171

Number of(2)/(1) Percentage Convictions withof Cases
Prison Sentences
Convicted
without Probation
100.0 %

11(3) Amount of Tax (4) Average Prison
Evaded per Case
Sentence per(¥ million)
Person (months)
111

15.3

(5) Average Fine
per Case(¥ million)
27

Notes: 1. The number of convictions with prison sentences without probation and (3)-(5) figures exclude those combined with non-tax crimes.
2. The “Amount of Tax Evaded per Case” is the amount of tax evaded through fraud and other illegal activities.

* The TNMM is used to calculate transfer prices by comparing a corporation’s operating profit margin with that of another corporation in the same industrial category.

23

24

Self-Assessment
SystemWith the globalization of corporate activities, transfer pric-

4

For taxpayers who are having temporary difficulty with their

Initiated Tax Payment

tax payment because of natural disaster, sickness, or the sus-

Reported tax becomes tax revenue only when it is actuallypension or closedown of business operations due to economic

paid to the national treasury. In fiscal 2003, about ¥46 trillion

circumstances, however, we respond appropriately to the tax-of the ¥47 trillion in national tax reported to the Tax Office werepayers’ situation. For example, we may allow an installment

paid by year-end. This means that approximately 97.4 percent

plan for tax payment, as a measure to lighten the burden of tax

of taxes were paid.

payment.

For national taxes, taxpayers file a tax return themselves and

The NTA has designated the clampdown on tax delinquency

pay the tax by the filing due date using a tax payment slip on

as a top-priority issue since 1999. The entire NTA is working

which they write in the tax amount themselves. For this reason,

to prevent tax delinquency and to place priority on the collec-

the NTA endeavors through PR to make sure that taxpayers

tion of delinquent consumption tax which is a type of deposit

do not let the tax payment deadline pass by accident. For solereceived and the resolution of large-scale and unscrupulous tax

proprietors that declare and pay tax on an ongoing basis, wedelinquency. The NTA also utilizes the Tax Payment Call Centersuggest tax payment by transfer account from their deposit

to handle small-scale delinquency cases. The agency is thus

accounts. Moreover, we are committed to further improving

endeavoring to efficiently resolve tax delinquency.

of payments, the NTA has streamlined administrative opera-(¥ Billion)

tions by introducing payment by account transfer through the

3,000

exchange of magnetic tape for self-assessed income tax—
so-called tax payment by transfer account.* 1 We have also
streamlined operations through cooperation with financial institu-

2,000

tions and the Bank of Japan, including OCR processing*2 of tax
payment slips by the Bank of Japan. Transfer procedures to pay
refunds used to be performed through written documents from

1,000

Tax Offices, but the NTA developed paperless procedures forrefund transfers by magnetic tape in 2001 and performs most

0’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04■Newly Occurring Tax Delinquency ■Handled Tax Delinquency
Amount of Delinquency(Fiscal year)

refunds using those procedures. In these ways, we endeavor toachieve efficient and speedy processing of payments.
The introduction of e-Tax makes possible even more efficientadministrative procedures because taxes that to date could

Efficient Management of Tax Claims and Liabilities

only be paid at Tax Offices or financial institutions can now be

The NTA manages national tax claims and liabilities by pro-paid via computer or ATM. The NTA intends to have more tax-

cessing tax returns, some of which require tax payment andMoreover, the NTA requests law enforcement authorities topayers use electronic tax payment in cooperation with financial

others that require tax refund. In 1966, we initiated efforts tocharge particularly unscrupulous taxpayers who conceal or

institutions.

introduce a computer system to properly and efficiently man-

The NTA also takes steps to ensure tax receipts. Taxpayers

dispose of assets with the intent to evade the procedure for

The management of national tax claims and liabilities is theage these claims and liabilities. In 2001, the KSK System waswhose last tax payment was submitted after the due date arecollection of delinquent tax, based on the penal provisions forcornerstone of taxation and tax collection. We will continue tointroduced at Tax Offices nationwide, and tax claims and liabili-

reminded in writing of the next tax payment deadline, and tax-

evading delinquency disposition stated in Article 187 of the

strive to improve services by conducting procedures speedily

payers who missed the deadline by accident are contacted bythis integrated system.
ties are managed via
5,096

National Tax Collection Law. Under these provisions, a taxpayer

Every year, about 40 million tax payments are made, mainly

telephone prior to issuance of a demand for payment.

may be sentenced to a maximum of three years in prison or aof income tax. To date, the majority of them have been paid at

taxpayer services. From 2004, taxpayers can perform tax payment procedures at their homes or offices with e-Tax.

3,891

6,383

and accurately through the advanced application of the systemand delivering refunds to taxpayers as quickly as possible.

fine of up to ¥500,000 for such evasion. There have been fiveMeasures to Address Tax Delinquency

such cases since 1996.

Tax delinquency is failure to pay national tax by the deadline.
Delinquent tax outstanding at the end of fiscal 2004 amounted

Tax Payment Call Centers

Multipayment Network
Many banking transactions can be performed using ATMs or the Internet, but the payment of taxes and other public fees has

to about ¥1.87 trillion (provisional figure). Allowing delinquentAt Tax Payment Call Centers, tax officials make demand noti-in the past required the taxpayer to bring a payment slip or application form with the payment to a financial institution or govern-

tax to go unpaid results in unfairness between delinquent

fications to delinquent taxpayers by telephone while referring toment office. The financial institution collected the amount written on the slip or form and then took procedures to notify the fee

taxpayers and the vast majority of taxpayers who pay theirtaxpayer information that appears on a computer screen. The

collection agency in question about the payment. Most of these payment collection procedures at financial institutions and fee

national taxes by the deadline. In the end, this undermines thecalls are placed automatically by a state-of-the-art computercollection agencies were done manually, resulting in massive clerical work. In 2000, financial institutions and fee collection agen-principles of the self-assessment system, namely, self dec-

system that simultaneously displays the data for the delinquentcies (government ministries and agencies, and private corporations) started discussing the creation of a network for the collec-

laration and payment. For this reason, the NTA endeavors to

taxpayer called. This system has helped raise the efficiency oftion of tax and other public fees that would enable written information to be transferred online, in order to diversify the means ofstrictly deal with tax delinquency while taking into consideration

delinquent tax handling; the full payment rate has risen four tosettlement to improve the convenience for payers and the efficiency of work at fee collection agencies. The resulting network is

the unique situation of each taxpayer.

five times from the level for collection through written notices

If a taxpayer is delinquent in the payment of national taxes

in the past. The Tax Payment Call Center was introduced at

and fails to pay even after receiving a written payment demand

the Tokyo Regional Taxation Bureau in 2002. It was intro-

slip and an advice to pay, the NTA may seize the taxpayer’s

duced later at the Osaka Regional Taxation Bureau and theproperty. Various assets are subject to seizure, ranging from

Kanto-Shinetsu Regional Taxation Bureau. Call centers spreadreal estate such as land and buildings, claims such as deposits

throughout the nation in 2004.

and loans receivables, movable assets, and securities.

called the Multipayment Network. Payment settlement services using this network are called Pay-easy. Online
tax payments use the Pay-easy services.
The Multipayment Network commenced operation for the collection of private sector bills in October
2001. It has been available for national tax payments throughout the nation since June 2004.
*1 Tax payment by transfer account uses a method in which tax payment slips are sent from the Tax Office to the financial institution designated in advance by the taxpayer and taxes are automatically deducted from the designated account. Regarding self-assessed income tax, for which filing of returns is concentrated on a certain period, a large quantity of tax payment slips must be sent
to financial institutions, and both the financial institutions and the Tax Offices must handle a massive volume of administrative work to input and output such slips. To make such administrative
work more efficient, magnetic tape with the data necessary to carry out transfers between accounts is sent to financial institutions, and procedures for transfers between accounts are carried out.
The results of the procedures are then recorded on the magnetic tape, and the tape is returned.

25*2 OCR (Optical Character Reader) processing converts characters printed on tax payment slips into electronic data, thereby enabling paperless operations.

26

Self-Assessment
SystemFostering a Cooperative Attitude Regarding Self

financial institutions. To efficiently process such a large number

Trends in Tax Delinquency

Payment of Taxes

6 Cooperation with Private Organizations

Certified public tax accountants (CPTAs) have a public mission as tax experts to strive to promote taxpayer trust in line with

To allow taxpayers to make correct tax returns and tax payments - the cornerstones of the self-assessment system, the NTA

the principle of the self-assessment system and realize tax compliance as provided in tax law, based on their independent andendeavors to disseminate correct information about tax and to ensure a fair tax burden. It is the taxpayers who are the key

fair standpoint (Article 1, CPTA Law).

players in the self-assessment system.

In this respect, CPTAs’ services - (1) tax proxy, (2) preparation of tax documents, and (3) tax counseling - must not be provided by other people than CPTAs, even free of charge (Article 52, CPTA Law) to be provided only by CPTAs.

In reality, however, it is very difficult to communicate all the fine points of tax law to the average taxpayer. Therefore, the NTA
is receiving help from private organizations in supporting taxpayers.

For the proper and smooth operation of the self-assessment system amid a substantial increase in the number of tax return
filers, CPTAs are required and expected to play an important role in the proper performance of tax obligations by taxpayers.
Therefore, the NTA fully respects CPTAs who perform the public mission by making such efforts as the promotion of the new
system for documents attached by CPTAs to tax returns. On the other hand, the NTA takes strict measures against those who
violate the CPTA Law.

Promoting Attachment of Return Working Paper

In addition to providing tax information directly to taxpayers, the NTA also endeavors to relay information to taxpayers

associations, corporations associations, and indirect tax associations. These relevant private organizations play an importantrole in realizing correct tax filing and payment.

through relevant private organizations, including blue return

The NTA respects and endeavors to promote the new sys-

to Tax Returns

tem because the system contributes to the preparation and

The CPTA Law was revised in May 2001 (effective from

submission of accurate tax returns, the establishment of a reli-

April 1, 2002) to expand the system for hearing the opinions

able system for CPTAs, and the facilitation of tax administration.

of CPTAs and introduce a new system (Article 33-2, CPTA
Law) was introduced in which return working paper createdRelevant Private Organizations

Blue Return Associations
Set up voluntarily by sole proprietors and other blue return taxpayers, blue return associations aim to spread the blue return system and promote the submission of proper returns through honest bookkeeping. Today, there are about 4,200 blue return associations in Japan comprisedof approximately 1.09 million members. Each association provides members with instruction on bookkeeping and account settlement and dis-Fighting against CPTA Law Violations

by CPTA would be attached to tax returns. The new system

To secure the people’s confidence in the CPTA system, theallows CPTAs to attach to tax returns documents regarding

NTA endeavors to forestall malpractice by CPTAs by taking

calculation, audit, or counseling services that they provided foradvantage of consultations with CPTAs’ associations and otherthe preparation of the tax returns. If the Tax Office intends toopportunities to give a warning against malpractice.

seminates tax information through seminars and association newsletters. The associations are also conducting a wide range of activities toencourage nonmembers to use blue returns. For details, please inquire at your local blue return association.

Corporations Associations

conduct a tax examination on a taxpayer who has filed a tax

The NTA also takes strict measures against CPTAs andreturn along with such documents, the CPTA possessing theothers violating the CPTA Law, through efforts to collect vari-certificate evidencing the authority of tax proxy must be given

ous kinds of information and accurately conduct examinations

edge of tax. Today, there are 483 corporations associations nationwide, including prefectural federations, and membership stands at about

the opportunity to give his or her opinions on the items writ-

based on the law.

1.14 million corporations. Corporations associations conduct a wide range of activities to contribute to the improvement of tax awareness andten in the attached documents before the taxpayer is notified
about the tax examination.

Corporations associations are independently formed organizations that aim to improve bookkeeping practices and deepen and spread knowl-

the sound development of corporate management and society. They hold tax lectures and seminars for corporate executives, managers, andaccounting staffs and engage in activities to contribute to the local community. For more information, see the website of the National General
Federation of Corporations Associations at http://www.zenkokuhojinkai.or.jp (Japanese only).

Japan Federation of CPTAs’ Associations
The Japan Federation of CPTAs’ Associations is an organization that is required by the CPTA Law to be established to undertake guidance,
liaison, and supervision services for CPTAs’ associations and their members and perform the registration of CPTAs in order to contribute to
CPTAs’ compliance with their obligations and improvement of their services in view of their mission and duties. The federation consists of 15
CPTAs’ associations covering about 69,000 CPTAs and about 900 CPTA firms.
Each association of CPTAs provides a wide range of services including (1) training to contribute to the advancement of members’ qualifications
and the improvement and development of their operations, (2) social contributions through the external audit system for local governments andpublic services such as tax and accounting advisory services for nonprofit organizations, and (3) free-of-charge counseling services for smallscale taxpayers and the like.
For details, see the federation’s website at http://www.nichizeiren.or.jp (Japanese only).
27

Indirect Tax Associations
Indirect tax associations aim to contribute to the dissemination of knowledge about indirect taxes and the realization of fair taxation and propertax administration through the self-assessment system. Today, there are 538 indirect tax associations in Japan, and total membership stands
at about 105,000 and is composed mainly of taxpayers of consumption tax and other indirect taxes. Indirect tax associations make proposals to the government on ways to enhance the indirect tax system and its enforcement. The associations also conduct activities to disseminate
knowledge about consumption tax and prevent consumption tax delinquency. For more details, please see the website of the National General
Federation of Indirect Tax Associations at http://www.kanzeikai.jp (Japanese only).

28

Self-Assessment
System

5 Roles of CPTAs

Tax Administration in the Era of Globalization
The NTA promotes tax administration including cooperation with foreign tax authorities to meetthe era of globalization.

Tax Payment Associations

As multinational enterprises and the like conduct various cross-border economic activities with growing economic

Established under the jurisdiction of the Tax Offices under the Osaka Regional Taxation Bureau, tax payment associations
conduct the same activities as the above-mentioned blue return associations and corporations associations. These associations

and social globalization, one country’s taxation system and tax administration can have a great impact on othernations’ taxation systems and enforcement. The environment surrounding tax administration has thus changed dra-

aim to disseminate knowledge about taxes, promote proper tax filing and payment, and enhance compliance. There are 83 tax

matically. The elimination of international tax avoidance and double taxation risks emerging from such environmental

payment associations nationwide which together boast membership of about 310,000 individuals and corporations. Each tax

change has become a major issue for tax authorities in all nations. In this respect, bilateral and multilateral talks on

payment association conducts a wide range of activities to disseminate information about tax, including PR activities, briefings

tax issues have increased for the development of common rules on international transactions and for the cooperationand lectures tailored to the needs of members, and bookkeeping classes. For more details, please consult the website of theFederation of Tax Payment Associations at http://www.nouzeikyokai.or.jp (Japanese only).

and sharing of experiences between tax authorities.

Developing Common Tax Rules

tional transactions via the Internet.

To fully pay tax by the deadline, it is important to think about cash flow and endeavor to systematically save funds to use forToday the number of international transactions is increas-

tax payment. Saving-for-tax associations are formed by and of taxpayers who strive to pay all their taxes on time every year bying and transaction formats are diversifying with IT and other

To attract foreign capital, some countries implement exces-saving for tax payment on a daily basis. Established based on the Saving-for-Tax Associations Law, these associations number

developments. Taxation rules, however, sometimes differ fromsive tax reductions (tax incentives) on their financial and ser-one country to another. For example, if tax administration fails

vices industries. Comparatively heavy taxation on labor, assets,

to eliminate the risk of double taxation, it may block the flow

and consumption in other nations’ results. This has a negativeof transactions and in turn make it difficult to maintain the tax

influence on the fiscal base of the other nations and also gives

compliance of taxpayers engaged in global transactions. Thatrise to distortions in corporate investment behavior. The OECDis why the NTA is working with tax authorities around the world

Committee on Fiscal Affairs endeavors to rectify this problem

to develop common tax rules for international transactions.

by issuing a list of countries and jurisdictions that offer extreme(1) Review of the Model Tax Convention

tax reductions.

78,000 today. The associations encourage tax payment by transfer account for income tax for individuals and for consumption tax and local consumption tax for sole proprietors based on savings set aside as funds for tax payment, and promote thefull payment of consumption tax. Moreover, the associations conduct a wide range of activities to spread tax information andraise tax awareness, including holding seminars on tax law and holding an essay contest on tax for junior high school students.
For details, please consult the website of the National Federation of Saving-for-Tax Associations at http://www.zennoren.jp(Japanese only).

Enhancement of Coordination and Cooperation among Private Organizations(3) Elimination of Harmful Tax Competition

Mainly at the OECD Committee on Fiscal Affairs, tax authorities have been reviewing a model tax convention clarifying

The Regional Taxation Bureaus and Tax Offices have established liaison councils and the like to promote coordination andcooperation between private organizations. As an increase has been seen in the coordination regarding the revised Consumption
Tax Law, the diffusion of online tax return filing and other activities whose efficiency can be improved through the integration of
resources at private organizations, the Regional Taxation Bureaus and Tax Offices are backing up joint activities of private organizations such as cosponsoring of various events for the “Think-Your-Tax” week campaign in a bid to enhance coordination andcooperation between relevant private organizations.

common interpretation or standards and developing new rules
for bilateral tax conventions. In cases where an international
company based in a country has subsidiaries and branches
located in other countries, the national attribution of the income
made by the subsidiaries and branches involves the allocationof tax revenue among countries and double taxation may arise.
The OECD Committee on Fiscal Affairs explores how best to
design rules to address such issues.
(2) Taxation of Electronic CommerceWith the increasing use of IT, international transactions via
the Internet are expanding rapidly. In the case of e-commerce,
consumers can place orders directly with a company’s head
office in a foreign country and settle their transactions by withdrawing payment from bank accounts. The OECD Committee
on Fiscal Affairs and other related international conferences
examine international taxation rules for these kinds of interna-

e-Tax Briefing Held by a Youth Group of a Corporations
Association

29

Ad for the “Think-Your-Tax” Week Campaign

An International Meeting30

Tax Administration in the
Era of Globalization

Saving-for-Tax Associations

Discussions at OECD on Calculation of Income Attributed to Permanent Establishment (PE)Regarding taxation on branches or the like of foreign corporations, there is an established rule that income attributed to a PE
will be the taxable income of that branch and that the amount will be determined under the arm’s length principle.

Preventing International Double Taxation—

for Japan’s competent authority consultations with China and

Implementation of Mutual Consultations Basedother Asian countries that have experienced few consultations

on Tax Conventions

with Japan in the past. Cases for Japan’s competent authority

When countries differ in viewpoint on the attribution of

consultations with China are expected to increase in future.

Since the arm’s length principle regarding attribution of income to PEs is interpreted differently among nations, however, theincome earned through international transactions, the risk that

To properly and quickly resolve cases for such consultations,OECD has launched a project on calculation of taxable income at PEs. Discussions have been under way on the developmenta corporation will be subject to double taxation through trans-

the NTA endeavors to further deepen cooperative relations withof common rules. Specifically, the OECD is considering calculating taxable income of PEs by allowing the OECD transfer pricing

fer pricing taxation or withholding income tax would increase.

foreign tax authorities and improve the efficiency of such con-guideline for the arm’s length principle in the transfer pricing system to be applied for attribution of income to PEs.

Such double taxation is resolved through Mutual Agreement

sultations.

An interim reports on these discussions are available on the OECD website (http://www.oecd.org).
The fruition of the project will be final report published by January 2007. Revisions reflecting the discussions will be made to theDiscussions on Development of Common Taxation Rules and Tax Enforcement
Problems - Participation in International Meetings between Tax Authorities
Japan has positively participated in international meetings on tax administration to ensure cooperation and sharing of experiences between tax authorities regarding their common issues including international taxation problems such as double taxationand tax avoidance schemes, as well as the improvement of taxpayer services and compliance. Key multilateral and bilateraltions.

To deepen taxpayers’ understanding about Japan’s APA
system and promote the utilization of the system, the NTA

The risk of international double taxation increases as corpo-

published an APA report (available on the NTA website) inrate activities become more global, and the number of cases

September 2004 following another in 2003 and intends to stepusing Mutual Agreement Procedures is increasing every year.

up the provision of information to taxpayers.

Recently, there are increasing cases have involving the Bilateral
Advance Pricing Arrangement (BAPA) aimed at ensuring taxpayers’ predictability and avoiding double taxation risks concerning transfer pricing. The number of countries for bilateral
consultations has also risen. Particularly, cases have emerged

meetings include the following:
Study Group on Asian Tax Administration and Research (SGATAR)
SGATAR was established in 1971 with the aim of promoting international cooperation in tax administration in Asia and fostering
the exchange of views on common issues. Today SGATAR is composed of the tax authorities of 13 nations and regions. To provide information to member and nonmember countries alike, basic information on the tax administration of member countries was

Number of Mutual Agreement Procedure Cases by TypeEnd of June 1999
(Number, %)End of June 2004
(Number, %)compiled in a uniform format through a project proposed by Japan. This information is available in English on the NTA website.
The latest SGATAR meeting, which was the 34th, took place in Australia in November 2004.
Pacific Association of Tax Administrators (PATA)
A meeting of the tax authorities of four Pacific Rim countries (Japan, Canada, the United States, and Australia), PATA was established

25
21.2%

in 1980 with the aim of fostering the exchange of views on common tax issues. As one of its accomplishments, PATA in March 2003
developed and released a unified list of documents regarding international transactions (a common list of transfer pricing examination
documents submitted by the tax authorities of the PATA member countries) to facilitate the PATA members’ transfer pricing examinations. In June 2004, PATA also released the Mutual Agreement Procedures guidance and the Bilateral Advance Pricing Agreement guid-

OthersOthers

APA

42
35.6%

Total:
118

Transfer
Pricing
Taxation

51
43.2%

26
12.8%

APA

Total:
203

Transfer
Pricing
Taxation

48
23.7%

129
63.5%

ance to facilitate Mutual Agreement Procedures between the member countries. These are available in Japanese on the NTA website.
The latest PATA meeting, which was the 26th, took place in October 2004.
Meetings Related to the OECD Committee on Fiscal Affairs
The OECD performs a central role in developing international common tax rules. In addition, it encourages the sharing of experiences among countries by organizing study groups on various tax issues and fostering exchange of opinions among experts
from member country administrations. In January 2005, the OECD held a meeting of the Tax Administration Advisory Board in
Arizona, where commissioners from major countries participated and actively exchanged opinions on the evaluation and measurement of taxpayer compliance levels, and also shared knowledge and experiences regarding the IT-utilizing improvement oftax administration and taxpayer services.
Japan-People’s Republic of China Tax Administrators’ Meeting and Japan-Republic of Korea Tax Administrators’ Meeting
Bilateral commissioner-level meetings are held every year with the tax administrations of China and South Korea, two of Japan’s neighbors with which it has strong economic ties. At the conferences, the commissioners exchange opinions about matters ofconcern related to tax. In this way, mutual understanding and cooperative ties are promoted regarding tax administration.
The latest meetings of this kind took place in Beijing and Tokyo in April 2005.
31

32

Tax Administration in the
Era of Globalization

OECD model convention commentary.

Procedures between the tax authorities based on tax conven-Addressing International Tax Avoidance—cooperate in this kind of international information exchange, theOffering Intellectual Support to Developing Countries

Exchange of Information Based on Tax Conventions

NTA was newly given the authority to inquire and inspect under

As the risk of double taxation in international transactions

the fiscal 2003 tax system reforms so that the NTA also canheightens, taxation loopholes where income is not taxed in

respond quickly to requests for information from Japan’s treaty

Improving and enhancing the tax system and administration in developing countries contributes to the economic developmentof those countries by strengthening their fiscal base. Moreover, fostering a common understanding of taxation rules between

any country arise through tax avoidance schemes that abuse

partners based on its tax treaties.

the tax authorities of developing countries and Japan is expected to help forestall international taxation problems and facilitate

In the past, international taxation issues were a question of

tax avoidance and to secure their taxation rights, countries areadjusting each nation’s right of taxation by determining whichstrengthening their measures regarding international taxation.

country had the right to levy tax. Today, however, respond-

As economic activities grow more global, it is crucial that infor-

ing to tax avoidance schemes in which no country is levying

mation outside the country can be gathered to ensure appro-tax is an important issue. International conferences of taxation

priate taxation. Each country’s tax authorities are making efforts

authorities are of one accord that sophisticated tax avoidance

to deepen cooperative relations, including providing each otherschemes must be handled through international cooperation

with information requested based on tax treaties. To actively

just like the issue of double taxation.

speedy Mutual Agreement Procedures. For this reason, Japan actively provides intellectual support to developing countries,
including dispatching experts to the People’s Republic of China and ASEAN nations and holding training programs in Japan.
1. Dispatching Experts(1) Dispatching Experts for Long-Term Stationing
To introduce the NTA’s operations and experiences and implement intellectual support including the provision of advisories on
the improvement of tax administration in developing countries, NTA officials are dispatched as experts of the Japan International
Cooperation Agency (JICA) for long-term stationing at tax authorities of developing countries. One such expert has been dispatched to Indonesia since 1996 and to Malaysia since 2002. This year, the NTA plans to dispatch one each to the Philippines
and Vietnam.
(2) Dispatching Experts for Short-Term Stationing

New Japan-U.S. Tax Convention
When corporations engage in international business transactions, double taxation sometimes arises due to differences
between nations’ tax systems. Countries conclude tax conventions to eliminate such double taxation. Japan has concluded 45
such treaties to date.
The new Japan-U.S. tax convention ratified in March 2004 is a comprehensive revision of the old tax convention. With theclose economic ties that Japan and the U.S. enjoy, the convention aims to promote active investment exchange and at the sametime stipulates measures to prevent tax avoidance.
For example, dividends received by a Japanese resident from a U.S. subsidiary or royalties received from a U.S. corporation havebeen subject to withholding tax in the U.S. to date. Based on the philosophy in the OECD Model Tax Convention on Income andon Capital, such dividends and royalties are exempted in the new convention from taxation in the country in which the investment ismade. The new Japan-U.S. tax convention also includes new provisions not seen in Japan’s other tax treaties, including provisions
to prevent abuse of the treaty by residents in a third country, to whom the treaty was not originally intended to be applied.
The new Japan-U.S. tax convention has been applied to withholding tax on income paid as from July 1, 2004, and to tax on
self-assessed income from the tax year starting after January 1, 2005. The NTA believes that the appropriate enforcement of thisconvention is very important for proper and fair taxation.

At the request of tax authorities in developing countries, the NTA dispatches officials for short-term stationing to lead theimprovement of tax administration and the like. In the current fiscal year, the NTA dispatched such experts to China, Cambodia,
Malaysia, Laos, etc.
2. Implementing Training Programs in Japan(1) International Seminar on Taxation (ISTAX)
As part of JICA group training programs subject to official development assistance, the NTA implements international seminars
on taxation for tax officials from Asia, Africa, Latin America, the Middle East, Oceania and Eastern Europe. The ISTAX seminars
include the general course (established in 1968) and the senior course (established in 1974) to cover lectures, discussions,inspection tours, etc.
The ISTAX aims at transferring the expertise and know-how regarding Japan’s tax system and tax administration to developing
countries for the improvement of their tax systems and tax administration and nurturing people’s understanding of Japan’s tax
administration in these countries so as to promote mutual friendship.
(2) Short-Term Seminar for Foreign Tax Officials (Tax Administration Seminar)
In response to the request of foreign tax authorities, the NTA, in cooperation with JICA and the like, implements short-term
seminars to introduce Japan’s tax administration and tax system to tax officials from China, Vietnam, Mongolia, Cambodia, etc.
are held on a nation-by-nation basis.
(3) NTA Practical Training Courses
The NTA implements practical training courses at the National Tax College mainly for tax officials from developing countries
who are enrolled in master’s courses at graduate schools of Keio University, Yokohama National University, the National Graduate
Institute for Policy Studies, Hitotsubashi University, and Waseda University, under World Bank and other scholarships. These
training courses have been open since April 1996 to help these officials learn knowledge and skills regarding public finances,taxes, tax administration and the like and to contribute to the improvement of tax administration in their countries.

33

34

Tax Administration in the
Era of Globalization

tax convention privileges. To prevent this kind of internationalRemedy for Infringement of Taxpayer Rights
Requests for Reinvestigation, Requests for Reconsideration, and Litigation: Japan’s Systems to Address
Infringement of Taxpayer Rights and Interests
When a taxpayer disagree with the Tax Office about a correction made during a tax examination and wants toRelationship between the Appellate System and Litigation

appeal, there is an appellate system that allows for an administrative review before lodging a lawsuit directly with thecourt. This review system provides simple procedures to promptly remedy infringement of taxpayer rights and interests and is composed of requests for reinvestigation and requests for reconsideration.
If a taxpayer is not happy with the Tax Office’s handling of a case, he or she will first submit a request for reinves-Taxpayertigation to the district director of the Tax Office. If the taxpayer is still dissatisfied after receiving the outcome of therequest for reinvestigation, he or she can submit a request for reconsideration to the president of the National Tax
Tribunal, a specialized institute which is independent from the district director of the Tax Office. In addition, if a taxpayer wants to appeal the disposal of his or her case after a decision has been given by the president of the National

Correction/
determination,delinquency
disposition, etc.

Request for reinvestigationmust be lodged within
2 months.

Tax Tribunal, the taxpayer may lodge a lawsuit in court as in other general administrative cases.

Request for reinvestigation
Requests for Reinvestigation

ascertain and involve laws that are difficult to interpret. To
respond to this situation, the National Tax Agency (NTA) has

administrative dispute procedures regarding dispositions con-established Review Divisions (Examination) with review offi-

cerning national tax. To appeal a correction/determination orcers at each Regional Taxation Bureau. In addition, we are

seizure made by the Tax Office district director or other official,endeavoring to develop a system to appropriately and promptly

a taxpayer lodges a request for reinvestigation with the district

process requests for reinvestigation including various training

director or other official to request the ruling be revoked orprograms to develop experts in conducting reviews as well aschanged.

examinations.

In recent years, reinvestigation request cases have grown

The NTA endeavors to conduct reinvestigations properly andincreasingly complicated as enterprise groups conduct inter-

uniformly throughout the nation based on an accurate interpre-

prefectural and international business transactions. With this,tation of tax law so that taxpayers throughout the country are

more and more of these cases require facts that are hard toproperly and fairly taxed at the examination stage.

Percentage of Reinvestigation Request
Cases Processed within Three Months
and Number of Reinvestigation Request
Cases Processed

4,800

81.0

79.6

84.7

86.1

100

80

4,124
60

3,600

5,279

5,265

4,713

4,379

plaints, requests, and criticisms from taxpayers regarding

40

1,200

20

endeavors to respond promptly and properly by taking thestandpoint of the taxpayer because we believe that respond-0

FY2000FY2001

FY2002

FY2003

FY2004

National Tax Tribunal President
Instruction

Opinions

Decision onrequest forreconsideration

 No decision on request forreconsideration after
3 months

ReportReferralNational Tax Council
Litigation must be
instituted within
6 months.

 In cases where a decision interprets laws or
regulations differently from directives
 In cases where a decision will become
an important precedent

understanding and trust of taxpayers. Moreover, in July
2001, the position of taxpayer support officer was created,
and the position’s duties include explaining procedures for

FY1999Request for reconsideration

tax officials’ attitude or manner of examination. The NTA

ing forthrightly to taxpayer grievances is crucial to earn the

5,198

2,400

0

Request forreconsiderationmust be lodged
within 1 month.

NTA Commissioner
ing corrections, the NTA also sometimes receives com-

89.7

 No decision on request forreinvestigation after 3 months(Taxpayer is informed of right tofile request for reconsideration).

Responding to Taxpayer Grievances

In addition to receiving requests for reinvestigation regard6,000

Decision onrequest forreinvestigation

Remedy for
Infringement of
Taxpayer Rights

Requests for reinvestigation represent the first stage of

87.8

District Director of Tax Office

Litigation

Court

remedy of infringement in cases where taxpayer rights orinterests have been infringed.

■ Number of Tax Cases Processed ● Percentage of Cases Processed3536Administration of the Liquor Industry
Ensuring the Sound Development of the Liquor Industry
Requests for Reconsideration

Decisions by the president of the National Tax Tribunal would

Liquor tax has been a major source of government revenue alongside land tax since the Meiji Restoration of 1868.

Taxpayers who wish to appeal the decision of the district

not be more disadvantageous to the taxpayer than the dispo-

director of the Tax Office in relation to their request for reinves-

sitions made by the Tax Office district director. Moreover, thetigation can lodge a request for reconsideration with the presi-

district director cannot institute a lawsuit even if he or she dis-

subsequently income tax, corporation tax, and other direct taxes have come to make up a greater proportion of total

dent of the National Tax Tribunal.

agrees with the ruling, because the ruling by the National Tax

revenue. In fiscal 2004, liquor tax amounted to ¥1.657 trillion and accounted for 3.6 percent of total tax revenue.

Tribunal president represents the final decision of the NTA.

Liquor tax is a stable form of tax revenue because it is not easily affected by fluctuations in the economy. For this rea-

The National Tax Tribunal is an impartial body, independent
from Regional Taxation Bureaus and Tax Offices, and provides
relief to infringement of taxpayer rights and interests. Appealsson, liquor tax continues to play an important role in Japan’s tax system today.

Litigation

judges, associate appeals judges, and tax tribunal examiners

Taxpayers can institute a lawsuit at a court of law if they

with specialized knowledge and vast experience examine andwish to appeal the decision by the president of the National

review the case from a neutral standpoint. Justices and public

Tax Tribunal. The NTA accepts the decisions of the court andprosecutors are appointed president of the National Tax Tribunal

reflects them in its administration of tax particularly as regards

and chief appeals judges at the Tokyo and Osaka Branch

new tax matters that arise due to today’s constantly changing

Offices of the Tribunal and other key positions.

social and economic situation.

The National Tax Tribunal promptly clarifies the points at
issue in a case by drafting a chart outlining the positions of

Liquor tax even surpassed land tax revenue at one point to become the primary source of national tax revenue. But

The liquor industry is composed of 2,838 manufacturers and 163,221 distributors (as of the end of fiscal 2003), morethan 95 percent of which are small or medium-sized enterprises.
The environment surrounding the liquor industry is changing dramatically due to the falling birthrate and the aging
population, citizens’ growing interests in food safety, diversification of lifestyles, measures against minors’ alcoholic
beverage consumption and the deregulation of liquor sales licenses.
The NTA endeavors to respond to these social and economic changes and promote the sound development of theliquor industry from a broad viewpoint covering liquor consumers, manufacturers, and distributors.

Case Trends

each party after fully ascertaining their perspectives by contact-

The NTA endeavors to process every request for reinves-ing the party requesting reconsideration and the Tax Office. The

tigation within three months. In recent years, around 80% of

Tribunal endeavors to quickly and speedily remedy any infringe-

these requests were processed in this way. The number ofment of the rights and interests of the taxpayer by listening fully

requests for reinvestigation regarding taxation totaled 4,124 into the views and positions of each party and conducting its

fiscal 2004. In some 14.8% of the request cases, taxpayers’

In order to revitalize the liquor industry, it is important for liquor

To revitalize the management of the small and medium-own examination when necessary.

claims were totally or partially endorsed due to new findings.

manufacturers, distributors, and the government to work together

sized enterprises in the liquor industry, the NTA conducts mea-

The National Tax Tribunal endeavors to make a decision on

in ensuring production of good-quality and safe liquors, theirsures to support liquor retailers in implementing management

every request for reconsideration within one year. The number

appropriate quality control in the distribution stage, and to offer

improvement plans and smoothly closing down or changing

of requests for reconsideration regarding taxation totaled 3,146

the product, based on the viewpoint of consumers.

their business domain if needed. The NTA has created a low-claims were totally or partially endorsed.

Percentage of Reconsideration Request
Cases Processed within a Year andNumber of Reconsideration Request
Cases Processed

As for litigations regarding taxation, 457 lawsuits were instituted in fiscal 2004. Of them, 387 lawsuits were processed. In
some 14.0% of the processed lawsuits, taxpayers’ claims weretotally or partially endorsed.
To gain taxpayer understanding regarding the system for
100

5,000

82.2
80

4,000

46.0

48.9

2,661

2,782

54.6

56.9

3,032

3,206

National Tax Tribunal provide information in Japanese on casedecisions via the NTA website.

65.5
3,000

remedy of infringement of taxpayer rights, the NTA and the

3,146

60

Supporting Management Revitalization

In this respect, the NTA actively listens to the voice of con-interest financing system for equipment and facility purchases

sumers, provides information to the liquor industry and con-and has set up a website for consultations to support com-ducts label, quality and safety checks on liquors in the retailpanies in such endeavors as entering a new industry. We also

stage.

hold training programs and consultations and award superior

As overseas demand for Japanese liquors has increased due

companies with the designation of “model business.” For saketo growing interest in Japanese foods, the NTA supports the

manufacturers and liquor wholesalers, the NTA provides vari-

expansion of Japan’s liquor exports by providing export proce-ous forms of support for their efforts to strengthen their man-dures and other relevant information to liquor businesses.

agement base in line with the Small and Medium Enterprises

The NTA also has programs that allow liquor businesses toBusiness Innovation Support Law.

identify their own management problems and to provide information on business success cases.

40

2,000

3,508
20

1,000

0

0

FY1999FY2000FY2001

FY2002

FY2003

FY2004■ Number of Tax Cases Processed ● Percentage of Cases Processed

37

38

Administration of the
Liquor Industry

in fiscal 2004. In about 15.5% of the request cases, taxpayers’Liquor Industry Revitalization EffortsEnsuring a Fair Trade Environment

retailers must endeavor to have their liquor sales manager

To ensure a fair trade environment in the liquor industry* , theattend liquor sales management training. Stores are also

NTA works in cooperation with the Fair Trade Commission ofrequired to place a “Liquor sales area” sign and a “Drinking by

Japan (JFTC) to publicize the NTA’s Guidelines for the Sound

minors is prohibited by law” sign wherever liquor is displayed.

1

National Research Institute of Brewing1

The NRIB was established in Tokyo’s Takinogawa area in 1904, as a national research organization of technology for alcoholic

Development of the Liquor Industry through Fair Competition

The efforts not only of the liquor industry but also of families,

beverages within the Ministry of Finance. The NTA brewing research institute transitioned to an independent administrative agen-and the JFTC’s Guidelines Concerning Unfair Price-Cutting andschools, communities, and the government are crucial to suc-cy in April 2001. As Japan’s only comprehensive research institute regarding liquors, the institute undertakes advanced analy-

Discriminatory Pricing in the Distribution of Liquors.

cessfully address this issue. The NTA is cooperating and coor-

ses and examinations for proper and fair taxation on liquors, research and surveys on liquors, training programs for small anddinating its efforts with the related government ministries andmedium-sized liquor manufacturers, seminars for consumers, etc. It also issues an information magazine, “Liquor Stories,” which

agencies, members of the liquor industry, and others.

explains to the general public about liquor product information as well as how to make liquors including sake, shochu, wine and

The liquor industry is also taking measures; it independently

has announced it will comply with fair trade businessother liquors, in an easy-to-understand manner. For details, see the NRIB website at http://www.nrib.go.jp.

practices and has released its own evaluation of the industry’s
performance.

Conducting Rigorous Licensing Inspections

To support the sound development of the liquor industry, it

A licensing system is adopted in the liquor industry to ensure

is important to secure a fair trade environment. In this respect,

proper collection of liquor tax and smooth passing of the tax

the NTA endeavors to actively publicize the NTA and JFTC

burden onto consumers. In recent years, the liquor industry

Guidelines and expand fact-finding surveys on transactions.

has been deregulated to enhance consumer convenience.

Associations Based on the Law Concerning Liquor Business Associations andMeasures for Securing Revenue from the Liquor Tax

Based on the Three-Year Program for Promoting Deregulation
Liquor manufacturers and distributors have organized associations based on the Law Concerning Liquor Business

Brewing (NRIB)*2

distance criteria*3 for the issuance of retail licenses was dis-

Associations and Measures for Securing Revenue from the Liquor Tax, which aims to secure the liquor tax and stabilize liquor

Office of Analysis and Brewing Technology at each Regional

continued in January 2001, and the population quotas*4 weretransactions. Each association cooperates with the NTA, the Regional Taxation Bureau and the Tax Office to undertake projects

Taxation Bureau conducts technical guidance for liquor manu-

gradually relaxed and finally abolished in September 2003.

for securing the liquor tax and implements various projects for promoting members’ common interests.

facturers and safety checks on liquors. In addressing brewing

In line with these deregulations, regions that have a marked

technologies for improving liquor quality, and ensuring safety

overcapacity to supply liquor in relation to the regions’ demandof liquors, research and development of analytical methods

for liquor have been designated as “regions requiring emer-

and other highly technical problems that the NTA alone cannot

gency adjustment of liquor demand and supply,” based on theaddress, the NTA exchanges information and cooperates with

Emergency Measures Law Concerning Improvement, etc., of

the NRIB for the sound development of the liquor industry.

the Management of Liquor Retailers, which was established

Administration of the
Liquor Industry(passed by the Cabinet in March 1998), the geographicalCooperation with the National Research Institute ofto restrict the issuance of retail licenses in license years*5 2003

Responding to Society’s Demands

and 2004.

To respond to society’s demand to prevent the consump-

Before issuing licenses in response to retail license applica-tion of alcohol by minors, every liquor retailer is required totions, the NTA conducts rigorous and accurate examinations

appoint a liquor sales manager with the 2003 revision of theon the violation of the Law for Prohibiting Liquors to Minors, as

Law Concerning Liquor Business Associations and Measuresrequired by the 2003 revision of the Liquor Tax Law.

for Securing Revenue from the Liquor Tax. In addition, liquor*1 ”To ensure a fair trade environment in the liquor industry“ means to provide guidance and other support to promote free and fair competition by eliminating unfair trade practices such as ”unfair
price-cutting,“ which is to trade goods at prices lower than procurement prices or at unreasonably low prices, and ”discriminatory pricing,“ which is to trade goods at unreasonably advantageousconditions only to certain business partners.
*2 The NRIB is Japan’s only independent administrative institution engaged in activities regarding liquors. It conducts research on liquors, liquor quality evaluation, provision of liquor information, liquor
seminars, etc.
*3 With the geographical distance criteria, new licenses were only issued if there were a certain distance between the location where the license applicant intended to sell liquor and existing liquor stores.
*4 With the population quotas, new licenses were only issued if the resident population per existing liquor store reached a certain level.
*5 A license year begins on September 1 and ends on August 31 of the next year.

39

40

Current Situation and Forecasts of the Liquor Industry
Current Situation

Efforts by Government and Industry

Growing interest in health and safety

Changes in lifestyles▼

Changes in diet▼

● Problems with securing quality levels- An increase in low-cost, low-priced liquors● Structural and business management problems- Existence of small, vulnerable manufacturers- Overcapacity- Excessive competition

Manufacturers

Manufacturers

Manufacturers

Changes in Social Situation

Vision● Measures to secure and improve quality levels- Studying measures to increase value added- Considering a quality evaluation system allowing consumers to selectproducts easily- Supporting establishment of regional brands● Measures to address structural and business management problems- Eliminating overcapacity- Giving guidance on self-diagnosis and analysis of management- Promoting exports▼

Change in Social and Economic Situation in Japan

Manufacturing high-quality liquorwith higher value added
Appropriate management strategies

Shifting priority
from quantity toqualityAge of shrinking population
Wholesalers▼
Retailers▼▼Differentiation through provision ofdiversified services
Sales control meeting social
requirements▼

Globalization

Administration of the
Liquor Industry

Deflation and slack wage growth● Measures to solve problems with distributors- Promoting fair transactions- Improving quality control, services, etc.
- Expanding and promoting utilization of management support measures- Responding to social requirements for prevention of minors’ liquor
consumption, etc.
(Stricter liquor sales control, liquor labeling standard reform, elimination of liquor vending machines, thorough age identification)

Securing appropriate profit margins
through utilization of wholesale functions and developing relevant markets

Retailers

Wholesalers/Retailers● Growth of organized retailers● Decline of general liquor shops● Participation of inexperienced retailers

Progress in deregulation● Guidance covering manufacturing, wholesale, and retail layers- Promoting fair transactions- Enhancing quality checks on liquor on the market- Training by experts- Holding meetings for exchange of views▼● Falling profit margins (changes in profit structures)● Declining functionality

Changes in Economic Situation

Wholesalers

Manufacturers/Wholesalers/Retailers● Doubts about quality and prices

41▼

Consumers

Restaurants● Measures taken from consumers’ viewpoints- Information and education activities regarding proposals on ways toenjoy liquor safely- Finding facts regarding quality control at restaurants and bars
- Liquor quality checks and labeling based on consumers’ viewpoint- Offering consultation to consumers- Holding liquor-tasting events▼

Restaurants/Consumers

Providing safe, delicious liquor
Providing appropriate productinformation
Information regarding ways toenjoy liquor

Consumers▼● Inappropriate handling of liquor● Lack of product information▼

Restaurants

Correct knowledge about liquor
Consciousness about cultural
aspects of liquor
42Future Challenges
Responding to Changes in Environment Surrounding Tax Administration

At present, Japan sees its birthrate declining and its population aging at an unprecedented high pace. The sav-quent tax more effectively and efficiently. In this regard, the NTA

develop a work environment where a balance can be achieved

ing rate is falling dramatically as the population ages. The demographic trend indicates that the population will likely

is enhancing its capacity to address advanced areas such as

between work and childcare. It is also reforming training pro-international tax avoidance schemes and electronic commercegrams in response to work environment changes.

peak this year and trend down continually from next year. Constant economic growth has ended. Taxation reforms arebeing conducted to support such a changing society.
Businesses and families have also changed dramatically. Traditional Japanese-style employment practices haveand is overhauling tax examination and tax collection throughout its organization.

To promote the aforementioned measures, the NTA is

In view of CPTAs’ public mission to support the self-assess-endeavoring to attain the optimum allocation of the limited staff

ment system, the NTA also endeavors to foster the system forresources, budget distribution based on quantitative results

Economic development of countries in Asia and economic globalization have prompted people and businesses to

CPTAs to attach working papers to tax returns under the CPTA

and the placement of the right people in the right jobs.

increase cross-border activities. While inward and outward direct investment is increasing, international tax avoidance

Law*. At the same time, the NTA is improving responses toschemes are growing more complex.

taxpayer inquiries and the utilization of advance pricing arrange-

been shaken. Working styles and family structures have been diversified.

Staffing levels at the National Tax Agency has remained tight due to continued administrative reforms. As the sales
threshold for exemption from the consumption tax is lowered while the pension taxation is being reformed, the numberof tax return filers is increasing. Tax examinations and collections are becoming more complicated and difficult. The
NTA’s work environment is changing. The environment surrounding the tax administration is growing more difficult.
In order to continuously fulfill the mandate of the people under these difficult circumstances, the NTA may have toments regarding transfer pricing in order to increase the predictability of tax matters for taxpayers’ economic activities.

Improving NTA Officials’ Work Environment
The NTA is developing a work environment where its officials
are encouraged to perform their duties with enthusiasm. In
this respect, the NTA is promoting its action plan prepared todevelop a work environment where tax officials can work actively to more effectively and efficiently tackle the NTA’s
mission to promote the proper and fair tax administration and improve the tax payment environment.
In this respect, the roles of the national tax authorities, taxpayers under the self-assessment system, and certified
public tax accountants with public missions should be realigned to allow the NTA to implement priority-oriented tax
administration while allocating the limited resources effectively and efficiently. We believe that we should make such

Support for a Balance between Childcare and Workefforts in order to secure sufficient tax examination and collection, maintain and improve taxpayers’ compliance with
Based on the basic philosophy of the Law for the Promotion of Measures to Support the Fosterage of the Next Generation, as

law and give considerations to taxpayer services.

established in July 2003, the NTA has worked out an action plan to develop a work environment to promote a balance between
childcare and work. It released the action plan (on the NTA website) on February 10 this year for implementation on April 1.
In Japan, where the birthrate has been falling at one of the fastest paces among industrial countries, the working population is expected to peak out in 2005. As the population increasingly ages, Japan is expected to become an aged society where

Specifically, the NTA has been implementing the following reforms:

Improving Tax Payment Environment
In response to the increase in the number of tax return filers,Overhauling Backoffice Operations
Inside Tax Offices

about one in every three persons will be aged 65 or older. This means that Japanese people, whether they are men or women,
will have to work in society as long as possible over a lifetime. Given the fact that the proportion in women around the age of 30
working in Japan is far lower than in other industrial countries, Japan will have to develop a work environment where women can

While giving full considerations to the fact that the NTA’sof self-assessment system under which taxpayers calculate andoperations have a direct bearing on the rights and obligations

declare tax amounts and pay taxes on their own. In this respect,of taxpayers, the NTA is improving the efficiency of backoffice

Women’s proportion in the NTA’s staffing has been rising year by year. If the NTA develops a work environment where a balance

the NTA is expanding tax information services for taxpayers

operations inside Tax Offices by reforming duties through grow-can be achieved between childcare and work, it may have a great impact on Japan’s realization of a gender-equal society.

through the improvement of its website and diversifying tax

ing IT utilization (integration and rationalization of duties, inte-

return filing and tax payment means by promoting the utilization

grated processing of paperwork, etc.) and by outsourcing workof IT for tax return filing and tax payment through the expansionthat can be done by non-tax officials.

of the e-Tax online tax return filing and tax payment system andOverhauling Tax Examination and Collection

the Filing Assistance on the NTA website. The NTA is also con-

To maintain and improve taxpayers’ compliance with law, thesidering developing an efficient tax consulting service system.

NTA must implement tax examinations and collection of delin-

give birth to children and achieve a balance between childcare and work, in order to maintain its economic and social vitality.
Women account for about 13% of the NTA’s 56,000 officials. They represented some 30% of the NTA’s recruits in fiscal 2004.

Acknowledging that the effective promotion of the NTA action plan to achieve a balance between childcare and work is its
social obligation, the NTA would like to steadily implement the action plan.

* See “Roles of CPTAs” on Page 27.

43

44

Future Challenges

the NTA must rebuild taxpayer services in line with the principles

Changes in Environment Surrounding Tax Administration

and NTA’s Responses to Such Changes

Japan’s fast demographic structure changes = population-declining society, ultra ageing society
Decline in working population

Economic development of countries in Asia, globalization of accounting standards

Drop in the household savings rate▼▼

Japanese-style employment practices are being shaken
and working styles are diversifying
Family structures are diversified

The above-mentioned environmental changes accelerate the following changes further: Staffing difficulties

Improving The Tax Payment Environment Basic stanceTaxpayer services should be rebuilt in line with therising number of tax return filers and with the objectives of the self-assessment system.

Overhauling Backoffice Operations (including general services) Basic stanceWith consideration given to ensuring appropriate operations, the tax authorities should promote
operational reforms responding to IT development
and outsourcing of work that can be done by
non-tax officials.

(1) Increasing the efficiency of backoffice operations
Considering increasing the efficiency of backoffice operations
through their centralization and bureau-level integration(2) Increasing the efficiency of general services
Promoting IT utilization for, centralization of, and outsourcing ofaccounting, health and welfare, and remuneration-related work

To promote the measures above, the NTA endeavors to attainthe optimum distribution of the limited staff resources,
whole of the government, the NTA will prepare theand implement the plan
45

Taxation and tax collection grow more complicated and difficultand child-raising officials are increasing and young officials’ attitudes are changing) Regarding measures that should be implemented
by the tax authorities, the NTA, Regional Taxation
Bureau (Bureaus) and Tax Office (Offices) should
rebuild their respective functions

 The tax authorities should promote operational
reforms responding to IT development and outsourcing of work that can be done by others than tax officials

Overhauling tax examination and tax collection duties
 Basic stance

To maintain and improve taxpayers’ compliancewith law, the tax authorities should overhaul tax
examination and tax collection systems to implement tax examination and tax collection more
effectively and efficiently(1) Improving tax examination and tax collection duties
Considering overhauling tax examination and tax collection
systems based on sharing of roles between Regional Taxation
Bureaus and Tax Offices(2) Roles of CPTAs with public missions
Promoting the new system for CPTAs to attach working papers
to tax returns(3) Addressing advanced areas
 Expanding international taxation including fighting againstinternational tax avoidance schemes
Responding to advanced information regarding corporate
activities
 Responding to the consolidated taxation system Securing taxpayers’ predictability- Improving responses to taxpayer inquires- Utilizing advance price arrangements regarding the transfer
pricing taxationbudget distribution based on quantitative results,

Developing a work environment for national tax officials
 Basic stance

The tax authorities should develop a work environment where tax officials can come to work withenthusiasm and hope.

(1) Endeavoring to realize a gender-equal society
 Promoting a personnel policy to make the most of female officials’ abilities and aptitudes
 Promoting the NTA action plan to achieve a balance between
childcare and work(2) Improving guidance and fosterage measures for young officials(3) Reforming training systems in response to changes in the environment surrounding the tax administration(4) Improving the work environment (building communicationsoriented offices and establishing separate smoking rooms)(5) Enhancing research functions at the National Tax College

and the placement of the right people in the right jobs. For the“Operation and System Optimization Plan” (by March 2006)

to replace the KSK System.
46

Future Challenges(1) Promoting utilization of IT for information services
Expansion of the NTA website and the Tax Answer system,
utilization of mail magazines(2) Promoting diversification of tax return filing means through utilization of IT
Introduction of the e-Tax system and expansion of the Filing
Asistance on the NTA website(3) Measures for the final tax return filing periodI
 Implementation of tax consulting services on Sundays(two Sundays) (services on government holidays)
 Further promotion of tax consulting services encouraging
taxpayers to prepare their tax returns on their own(4) Considering increasing the efficiency of the tax consulting
service system
In pursuit of a desirable state of tax consulting services, thetax authorities should realign and reform the scope and system
for necessary tax consulting services, including relations with
CPTAs.

To this end:
 The roles of the national tax authorities, taxpayers under the self-assessment system and certified
public tax accountants with public missions should
be realigned.

▼

In order to continuously fulfill the mandate of the people
under the above-mentioned difficult circumstances
at home and abroad, the NTA may have to develop awork environment where tax officials can work actively
and more effectively and efficiently to tackle the NTA’s
mission to promote the proper and fair tax administration and improve the tax payment environment.

▼

Changes in the work environment for national tax officials (Number of women

Increasing numbers of tax return filers▼

Progress in globalization
� Increasing inward and outward direct investment
People’s increasing cross-border movements
International diffusion of accounting standards
Sophistication of international tax avoidance schemes▼

End of constant economic growth � Requirement for further administrative reforms
Requirement for tax system reforms = The tax system supported by all healthy people(� Lowering the minimum taxable income level and the sales threshold for exemption from consumption tax, etc.)
Requirement for administrative reforms = Realizing a slim, efficient government

Statistics
administration and the improvement of operational efficiency

The NTA has always studied various tax administration

through such measures as a shift from tax item based pro-issues and endeavored to make improvements as pos-cesses to function based processes and a switch to a com-sible. Based on “the Program for the Creation of Next

puter system meeting such an operational shift.

Generation Electronic Gover nment” which had been
decided for the whole of the government in July 2003, theNTA decided to take full advantage of information technology to increase the work efficiency, improve taxpayer ser-

(2) The NTA will further promote the improvement of taxpayers’

page

convenience using IT from the viewpoint of taxpayers.
tions and processing of tax delinquency.
(4) While expending all possible means to ensure the safety,

delinquency. In this regard, the NTA finalized and publishedreliability, and security of computer systems, the NTA will

page

page

review the above three points and attempt to cut expenses.

computer systems.” (For details, see the NTA website at
http://www.nta.go.jp/category/topics/data/h17/4115/01.htm(Japanese only))
In reviewing operations and computer systems, the NTA

Based on these points, the NTA plans to finalize and publish

page

a plan by March 2006 to optimize national tax administration
operations and relevant computer systems. The plan shouldplans to consider the following four points:

include specific dates for reforms, relevant expenses and(1) To increase the efficiency of and rationalize operations,

reductions in cycle time.

the NTA will thoroughly pursue the simplification of the tax

48

Tax Revenue and Budget

49

Taxation and Status of Tax Return Filing

Tax Revenue and Budget
Budget and Actual Amounts of Tax and Stamp
Revenues for Fiscal 2003
(Million yen)

(3) The NTA will attempt to utilize IT for advancing tax examina-

vices, and enhance tax examinations and processing of tax
its “policy on reforming tax administration operations and

page

page

page

page

50
51
51

Tax Examinations

Tax Criminal Investigations

Reduction of Tax Delinquency

52

Remedy for Infringement of Taxpayers’ Rights

53

Tax Consultations

53

Item

General AccountOperation and System Optimization Plan

BudgetActualWithholding income tax

11,241,000

11,392,631

Self-assessed income tax

2,569,000

2,521,976

Corporation tax

9,114,000

10,115,194

Inheritance tax

1,351,000

1,442,531

Land value tax

1,000

298

Consumption tax

9,489,000

9,712,817

Liquor tax

1,733,000

1,684,183

Tobacco tax

917,000

903,158

Gasoline tax

2,133,000

2,182,106

Liquefied petroleum gas tax

14,00014,272Aviation fuel tax

88,00090,950Petroleum tax

450,000

478,339

Motor vehicle tonnage tax

741,000

767,086

Customs duty

808,000

802,860

Tonnage due

8,000

8,809

OthersInternational Taxation

Stamp revenue

113

1,129,000

1,165,079

41,786,000

43,282,403

Local road tax

303,500

308,731

Liquefied petroleum gas tax (transferred)

14,00014,272Aviation fuel tax (transferred)

16,00016,536

Motor vehicle tonnage tax (transferred)

371,000

383,543

Special tonnage due

10,00011,011

Crude oil custom duty, etc.

38,00042,140administration and to support online tax return filing, online tax payment, and other IT uses.

Power resources development promotion tax

368,500

366,328

The KSK System was described as a legacy system in “the Program for the Creation of Next Generation Electronic Government”

Gasoline tax

703,300

703,300

Special tobacco surtax

246,300

241,106

43,856,600

45,369,370

Ensuring the Reduction and Transparency of Computer System Costs
page

53

Taxpayer Satisfaction

The NTA has introduced the KSK System as the information and communications infrastructure to respond to the complicationand geographical expansion of economic transactions, information and other changes in the environment surrounding the tax

as determined for the whole of the government in July 2003, prompting the NTA to reform the system from the viewpoints ofcost reduction and more transparent procurement.
By April 2004, the NTA implemented the study of outside experts’ on the feasibility of reforms. Based on the feasibility study,
regarding the computer systems, the NTA has decided to make efforts to ensure (1) their improved efficiency and economy, (2) theirstability and reliability, (3) their security, and (4) the transparency of procurement. Specific measures have been taken to introduce

Subtotal—

Total
Note: For each table, the period of the statistics is shown in the title, above the table, or in
the notes. A fiscal year is the one-year period from April 1 through March 31 of thefollowing year. A business year is a one-year period starting July 1 of the given year
and ending on June 30 of the following year. A calendar year is the one-year period
from January 1 through December 31.

project managers, expand open competitive biddings, promote open computer systems, shift to general purpose products for KSK
terminals and OCR devices, and ensure security through the construction of internal networks separated from external networks.

Statistics

47

48

Withholding Agents and Withholding Income Taxation(Million yen)

General Expenditures

Item(2003 business year)

Budget(Thousand cases)

Number of persons subject to taxation

59,569

Expenses to improve convenience for taxpayers*1

10,510

Expenses related to internationalization measures

704

Expenses to improve workplace environment*2

6,890

Expenses related to tax system revisions

3,200

Expenses for various taxation forms andcommunication expenses

Interest income, etc.

43657,700

21,198Dividends

127

1,043,700

General operating expenses*3

41,579

Expenses for National Tax College

2,785

Capital gains of listed stocks held inspecial accounts, etc.

Expenses for National Tax Tribunal

483

Expenses for National Research Instituteof Brewing

1,196

Subtotal

148,115

Personnel expenses

569,512

Total NTA budget

Taxation and Status ofTax Return Filing
Income Taxpayers(2004 calendar year)(Thousand persons)(1) Total population

127,620(2) Workforce

63,160(3) Number of final returns for income tax*

21,670(4) Refund*

10,820(5) Tax payment*

7,440(6) Of (5), wage earners whose income tax is withheld(7) Number of employment income earners(8) Of (7), taxpayers for whom only year-end adjustments
are made [(7)-(6)](10) Percentage of workforce that pays tax [(9)/(2)]Number ofWithholding
Agents*Tax
Amount3,883

9,446,100

Retirement income

Remunerations, fees, etc.

—

36,7003,151

1,045,200

Total

2,308,100 million yen

Amount of tax

2,910
41,610

Examinations for Self-Assessed Income Tax(2003 business year)

87,700 million yen(Thousands)

24

372,600—

12,934,000

Note: Figures for withholding agents are as of the end of June 2004.

Consumption Tax(2003 calendar year)(Thousands)

Individual(Thousands)

Tax Payment

Tax Refund

430

15

Corporation

1,546

85

Total

1,976

100

Amount of tax(Million yen) (Thousand yen)

Total
Unreported
Number of Unreported Income per
IncomeCase
Cases

331,900

2

Income paid to nonresidents andforeign corporations

403,651

Value of property acquired

9,481,400 million yen(Million yen) (Thousand yen)

Total
Deficient
Tax

DeficientTax perCase

Field
examinations

070

506,800

7,230

107,100

1,530

Brief contact*

728

402,400

0,550

023,700

0,030

Total

799

909,300

1,140

130,700

0160

Note: “Brief contact” refers to the correction of tax return errors by speaking with the taxpayer by telephone or by asking the taxpayer to visit the Tax Office.

1,673,700 million yen

Examinations for Withholding Income Tax

717,627

Notes: *1 “Expenses to improve convenience for taxpayers” include expenses related totouch-screen computers and the development of e-Tax and the tax return preparation section of the NTA website.
*2 “Expenses to improve workplace environment” include expenses to improve facilities and health care expenses.
*3 “General operating expenses” include wages for part-time workers, travel expenses, honoraria for hired bookkeeping instructors, and PR expenses.

(9) Number of taxpayers [(5)-{(8)]Employment income (wages and salaries)

Tax Examinations(2003 calendar year)(Million yen)

KSK System-related expenditures, etc.

Income Classification, etc.

Gift Tax

Number of
Returns

NTA Budget for Fiscal 2004

Number of Corporations and Number ofCorporation Tax Returns Filed(Thousand kl)

Classification
2,920,000

Number of tax returns filed

2,727,000(Thousands)(2003 calendar year)(2003 business year)

Number of corporations*(2003 business year)

Liquor Tax and Liquor Production

Sake

Production Volume
601(Million yen)

Sake compounds

34

4,965

Shochu923

211,296

Percentage of returns declaring a surplus

30.8 %

Mirin (sake-based
cooking wine)

105

2,308

3,959

870,306

80

6,304
32,39738,896,800 million yen
28,458,500 million yen

Amount of tax

9,950,300 million yen

Note: The figure for “number of corporations” is as of the end of June 2004.

Inheritance Tax(2003 calendar year)

Number of deceased persons

BeerWine, etc.

Deficient
Tax Amount

173

45

68,400106,450

89.6 %

Amount of self-assessed loss

(Million yen)

Of Which,
Number of Illegal Cases

Amount of Tax

Percentage of corporations filing
Amount of self-assessed income(Thousands)

Number of
Cases Examined

Field Examinations for Corporation Tax(2003 business year)

Whisky and brandy

80

Spirits

47

5,418

Liquors

595

51,939Other liquors*

2,549

328,180

Total

8,974

1,619,562(Thousands)(Million yen) (Thousand yen)

Total
Unreported
Number of Unreported
IncomeIncomeper Case
Cases
All corporations
Of which,
corporations
handled by the
Examination
Department(Million yen)

Total
DeficientTax

115

1,337,300

0011,654

320,100004

0,609,100

137,521130,300

1,014,951

Number of deceased persons subject to taxation

44,438

Number of heirs subject to taxation

133,999

38,700

Taxable amount

10,358,200 million yen

46,140

Amount of tax

1,126,300 million yen

Examinations for Consumption Tax(2003 business year)(Thousands)(Thousands)

Number of
Cases with
Number of Unreported
Income
Cases

73.1%

Note: Figures for items (3), (4), and (5) are preliminary for the 2004 calendar year, and thosefor the other items are for the 2003 calendar year.

(Million yen) (Thousand yen)

Total
Deficient
Tax

DeficientTax per
Case

Individuals

34

24

16,200480

Corporations

103

54

51,000490

Field Examinations for Inheritance Tax(Thousands)(Thousands)(Million yen) (Thousand yen)

Number of
Total
Cases with Amount of Unreported
Number of Unreported Unreported Inheritance
Cases
IncomeInheritance per Case
13

49

11

386,000

34,440(Million yen) (Thousand yen)

Total
Deficient
Tax

DeficientTax perCase

84,0007,490

50

Statistics(2003 business year)

Information Returns Collected(2003 business year)

Reduction of Tax Delinquency

Remedy for Infringement of Taxpayers’ Rights

Tax Delinquency Cases of 100 Million Yen or Moreby Industry

Requests for Reinvestigation(Thousands)

Withholding record of employment income

19,407

Interest payment record

780

Dividend payment record

3,931

Withholding record of public pension, etc.

29,754

Payment record of remunerations,fees, contract payments, and prizes(%)

Others28,620Total

101,944

Tax Criminal Investigations

72

4.0

16,500

3.4

Classification

Distribution industry

120

6.6

40,100

8.3

Tax assessment

Number of Persons

500

27.6

126,900

Food and beverageindustry92

5.1

16,800

3.5

Financial industry

39

2.1

11,000

2.3

Other industries*1

451

24.9

119,500

24.7

Others*2

538

29.7

152,700

31.6

1,812

100.0

483,500

100.0(2004 fiscal year)(Million yen) (Thousand yen)

213

26.2

Notes: *1 “Other industries” includes hospitals (doctors), the service industry, and the leisureindustry.
*2 “Others” includes salaries workers and pension recipients.

Tax Criminal Investigations

210

Tax AmountReal estate andconstruction industry

Total

NumberNumberof Casesof CasesCommenced Closed(%)

Manufacturing industry

Industry

10,899(Million yen)

Number of
Illegal Cases
(1)

8,553

Payment record of consideration for transferof stocks, etc.

(%)

(%)

(as of the end of the 2004 fiscal year)(Million yen) (Thousand yen)

Numberof Cases
Prosecuted

Total
Tax
EvadedTax
Evadedper Case

Total Tax
Tax
Evaded (in Evaded per
Prosecuted Prosecuted
Cases)
Case

152

28,200132,50924,700

Seizure of Property(Million yen)

Number ofDelinquent
Taxpayers

Number of
Objects
SeizedAppraisal
Value

347

109,618

2,766

Large-Scale Cases

Movable property(2004 fiscal year)

Claims35,89048,476

151,766

Immovable
property, etc.

9,296

37,370

Others

4,750

83,659Total

50,283

279,123

Number of
Prosecuted Cases

Of Which, Number ofProsecuted Cases witha Tax Evasion Amountof 500 Million Yenor More

152

17

6

Percentage[(2)/(1)]

Number of
Cases
Processed(3)

Number ofRequests
Approved(4)

Percentage[(4)/(1)]Percentage[(4)/(3)]15.7

284,000

6,613

5,156

1.8

5,198

817

0.29

Tax collection

—

471

417

—

417

0

—

—

Total

—

7,084

5,573

—

5,615

817

—

14.6

Requests for Reconsideration(%)

Classification

Number of
Illegal Cases(1)

Tax assessment

Number of New
Number ofRequests for
Requests for
Reconsideration
Reconsideration
(2)

(%)

(%)

Percentage[(2)/(1)]

Number of
Cases
Processed(3)

Number ofRequests
Approved(4)

Percentage[(4)/(1)]Percentage[(4)/(3)]23.2

284,000

6,157

3,260

1.1

3,508

815

0.29

Tax collection

—

298

187

—

213

3

—

1.4

Total

—

6,455

3,447

—

3,721

818

—

22.0

(2003 business year)

162,370

Of Which, Number ofProsecuted Cases witha Tax Evasion Amountof 300 Million Yenor MoreNumber of New
Number ofRequests for
Requests for
Reinvestigation
ReInvestigation
(2)

(%)

Litigation(%)

Number of
Litigation
Cases

Number of the First
Instance
Newly Filed
Percentage(2)[(2)/(1)](%)

Number of
Cases
Closed(3)Classification

Number of
Illegal Cases(1)

235,460

Tax assessment

284,000

834

226

0.1

355

2,809

Tax collection

—

165

66

—

114

392,801

Total

—

1,007

297

—

473

Number ofRequests
Approved(%)

Percentage[(4)/(1)]Percentage[(4)/(3)]

48

0.02

13.5

4

—

3.5

53

—

11.2

(4)

Notes: *1 The figures for “Number of Illegal Cases (1)” are the following numbers for the 2003 business year:
In tax assessment cases: The total number of illegal cases for which field examinations regarding self-assessed income tax, withholding income tax, corporation tax, consumption tax,
and inheritance tax are conducted*2 The “Number of Requests for Reinvestigation” and the “Number of Requests for Reconsideration” are the figures for the 2003 fiscal year.
*3 The “Number of Litigation Cases” is the total number of litigation cases for each level of trial for the 2003 fiscal year.

Prosecuted Cases by Tax Item
(2004 fiscal year)(Million yen)Tax Item

Number of
Cases(Thousand yen)

Total Tax
EvadedTax Evaded
per Case

Income tax

43

5,500

126,900

Corporation tax

98

15,500

158,060

Other taxes

11

3,700

339,423

Total

152

24,700162,370

Statistics

51

52

Number of Complaints Received at
Tax Counsel Offices

Tax Consultations(Objective of Directive)(2004 fiscal year)

Number of Tax Consultation Cases Handled by
Tax Counsel Offices and via Tax Answer(2004 fiscal year)(Thousand cases)

Income tax
Tax Counsel Offices

Directive on Standard and Rules for
Implementation of NTA Duties

1,505

Article 1. The objective of this directive shall be to provide for the Standard and Rules for Implementation of NTA duties, basedon Article 16-6-2 of the Basic Law for Central Government Reform (Law 103, 1998)

Income tax

643

Corporation tax

448

Property tax

104

Consumption tax

98

Other indirect taxes

24

Article 2. The NTA shall undertake duties as provided by Article 20 of the Ministry of Finance Establishment Law (Law 95, 1999)

Tax collection88

and enforce the laws listed in the appendix table.

Others

376

Total

1,781

(NTA’s Undertaking Duties)

Corporation tax

204

Property tax

733

Consumption tax

121

Other indirect taxes

46

Collection

46

Others231

Article 3. The standard for implementation of NTA duties shall be that the NTA shall endeavor to realize the proper and fair impo-

Total

2,886

sition and collection of internal tax by improving the tax payment environment and promoting the proper and fair tax administra-

Tax ANSWER

26,962

Total

29,848(Standard for Implementing Duties)

International Taxation

tion to properly and smoothly help taxpayers voluntarily fulfill their tax responsibilities. The NTA shall also endeavor to guarantee
the sound development of the liquor industry and the proper management of CPTAs’ service.

Fraudulent Income Made throughOverseas Transactions

The Five Most Frequent Tax Consultation Topics
In-Person and Telephone Consultations (2004 fiscal year)(Rules)(2003 business year)

Article 4. Based on the standard as provided by the above article, the NTA shall make the following its rules and implement its(Thousand cases)

Ranking

Tax Item

1

Income tax

Topic
Obligation to file returns andfiling procedures, etc.

2

Income tax

Income category and calculation

3

Income tax

Preparation of tax returns, statementsof accounts, and other forms

258

Number of cases of fraudulent overseas income

00,083 cases

duties while giving considerations to the transparency and efficiency:

Amount of fraudulent income made overseas

10,900 million yen

1. Realize the proper and fair imposition and collection of internal taxes according to the following:(1) Improve the tax payment environment

136
128

4

Income tax

Medical expenses deduction

122

5

Income tax

Returns for tax refund

113

Tax Answer (2004 fiscal year)

Enforcement of Transfer Pricing

a. Publicize taxpayers of the interpretation of law and procedures regarding tax return filing and tax payment in an easy-to-(2003 business year)

understand, accurate manner

Number of cases processed

00,062 cases

Amount of taxable income

75,800 million yen

b. Respond promptly and accurately to taxpayers’ inquires and consultations
c. Endeavor to secure wide-ranging cooperation and participation by relevant government agencies and various layers of
the people in order to gain wide understanding and cooperation regarding the roles of taxes and the tax administration(Thousand cases)

Ranking

Tax Item

1

Income tax

2
3

4

5

Income tax
Income tax

Income tax

Income tax(2) Promote the proper and fair tax administration

Topic

a. Apply relevant laws and ordinances properly

Cases in which funds are spent on
medical expenses(medical expenses deduction)

898

Medical expenses subject to medical
expenses deductions

555

Special treatment that can be received
according to the spouse’s income(special exemption for spouse)

442

Special treatment for housing acquisition(special credit for loans relating toa dwelling)
Exemption for dependents

Taxpayer Satisfaction

b. Endeavor to realize proper tax return filing, and correct errors reliably by implementing accurate tax examinations andItems That Meet with High Taxpayer Satisfaction

c. Endeavor to help taxpayer pay their tax by the due date, and collect delinquent tax reliably by taking the procedure for

instructions for taxpayers whose tax returns are identified as impropertax delinquency against taxpayers failing to pay tax by the due date(2003 business year)
(%)

Item

High Satisfaction Rate

351

Attitude of officials in providing services

79.8

346

Level of convenience in using Tax Office

55.7

Evaluation regarding PR activities

27.9

Evaluation regarding activities to collectpublic opinions

59.7

Level of satisfaction with consul-

In-person

88.8

tations at Tax Counsel Offices

Telephone

67.1

Note: “High Satisfaction Rate” is the percentage of taxpayers who gave high evaluations (“good” and “somewhat good” responses on a five-grade scale between “good” and“bad”) to the item in a questionnaire survey.

d. Respond properly and promptly to taxpayers’ requests for reinvestigation to address infringement of taxpayer’s legitimate rights and interests.
2. Endeavor to guarantee the sound development of the liquor industry according to the following:(1) Endeavor to ensure the stability of the liquor industry’s business infrastructure, the research and development of brewing
technologies, and the quality and safety of liquors(2) Endeavor to ensure the effective utilization of resources regarding liquors
3. Endeavor to guarantee the proper management of CPTAs’ service according to the following:
CPTAs have a public mission as tax experts to strive to satisfy taxpayer trust in line with the principle of the self-assessment
system and realize tax compliance as provided in tax law, based on their independent and fair standpoint. The NTA should takethis into account and endeavor to guarantee the proper management of CPTAs’ service in order to help them play a key role in
the proper and smooth operation of the self-assessment system.

53(Skip Appendix Table)

54