To Our Nation’s Taxpayers
Since its establishment in 1949, the National Tax Agency (NTA) has administered thenation’s taxation system with the aim of achieving its mission of enabling taxpayers toproperly and smoothly fulfill their tax responsibility. With the reform of Japan’s central
government in 2001, we established and publicized implementation standards and otherregulations concerning the operations under our authority. In addition, we set performancetargets for our organization and then conducted perforumance evaluations against thosetargets and released the results to the public.
Based on the fundamental awareness that the NTA has been entrusted with theadministration 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, andpolicy measures to the people of Japan;(2) provide an efficient and high-quality tax administration tailored to the needs of thetimes by objectively evaluating all NTA operations; and(3) streamline work flow, raise the morale of tax officials, and revitalize the NTA
organization.
We continue to steadily promote reform of the tax administration today. For example, wehave created a new index called “Degree of Taxpayer Satisfaction.” This indicator is aimed
at raising the quality of taxpayer services and improving NTA operations by measuring andevaluating the level of taxpayer satisfaction at Tax Offices— the front line of tax
administration.
With the globalization of economic activities and the increasing use of information
technology (IT) in those activities today, business transactions are growing more
complicated. The NTA is taking rigorous measures, including establishing a team of
specialists, to address malicious tax evasion via international tax avoidance schemes＊1 andtax shelters＊2 and tax evasion via electronic commerce.
This is the NTA’s first annual report. National Tax Agency Report 2004 was compiled forthe 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.
Because this is our first such report, improvements or additions may be needed. We
welcome your comments or suggestions via our Japanese-language website(http://www.nta.go.jp).
The NTA’s mission is to enable taxpayers to voluntarily and properly fulfill their tax
responsibility under the self-assessment system. I hope that this National Tax Agency Report
2004 deepens taxpayers’ understanding of their taxes.

Tatsumaro Terazawa
Commissioner
National Tax Agency

June 2004＊1 A tax avoidance scheme is a technique to evade tax by creating fictional frameworks that appear to be legal orby taking advantage of either the differences in nations’ tax systems or the tax treaties among nations in order toalter the tax treatment of transactions.
＊2 A tax shelter is a financial instrument that is designed to alter tax treatment and is offered to taxpayers in theform of an investment.

NATIONALTAX
AGENCYREPORT2004

To Our Nation’s Taxpayers

1Mission of the National Tax Agency

3

1. Earning Taxpayer Understanding and Trust
2. Evaluating Our Performance
3. Disclosing Information

4
5
6

Self-Assessment System

9

1. Taxpayer Services: (1) Public Relations, Tax Consultations, and Information Provision

10

Tax Education
Taxpayer Briefings
Tax Consultations at Tax Counsel Offices
Responses to Taxpayer Inquiries
2. Taxpayer Services: (2) Making the Filing of Returns More Convenient 13
Encouraging Taxpayers to Complete Their Own Returns
Touch-Screen Computers
Filing Assistance on the NTA Website
e-Tax
Weekend Tax Consultations
3. Follow-up and Examinations
17
Information
Follow-up
Strict Treatment of Malicious Taxpayers
Corporate Groups Engaged in Wide-Area Transactions
International Tax Avoidance Schemes
Types of International Taxation Avoidance Schemes
Transfer Pricing Issues
Electronic Commerce Transactions
Criminal Investigations
4. Payment of Taxes
25
Fostering a Cooperative Attitude regarding Voluntary Payment
Measures to Address Tax Delinquency
Tax Payment Call Centers
Efficient Management of Tax Claims and Liabilities
5. Cooperation with Private Organizations
28
Certified Public Tax Accountants
Cooperative Private Organizations

Remedy for Infringement of Taxpayer Rights

31

Requests for Reinvestigation
Requests for Reconsideration
Litigation
Case Trends

Administration of the Liquor Industry

35

Conducting Rigorous Licensing Inspections
Responding to Society’s Demands
Ensuring a Fair Trade Environment
Supporting Management Revitalization

An Eye to the Future37

1. Revised Consumption Tax Law
2. Tax Administration in the Era of Globalization

37
38

Developing Common Tax Rules
Preventing International Double Taxation
Addressing International Tax AvoidanceOffering Intellectual Support to Developing Countries

Statistics

43

Mis sion of the National Tax Agency
Enabling Taxpayers to Properly and Smoothly Fulfill Their
Tax Responsibilities

Public services are indispensable to support thelifestyle the Japanese people enjoy today, and thenational and local governments conduct a variety of
public administration activities to provide thoseservices. Taxes provide the revenue to cover the
expenses incurred in those activities. The Constitutionof Japan stipulates that tax payment is an obligation of
the people of Japan, and the National Tax Agency(NTA) is given the authority to collect taxes so thatthese public services can be provided smoothly.
To perform this duty with which the NTA has been
entrusted by the nation’s taxpayers, the National Tax
Agency has as its mission “Enabling Taxpayers to
Properly and Smoothly Fulf ill Their Tax
Responsibilities.”
The NTA supports taxpayer understanding andfulf illment of their tax obligations and enhances
taxpayer services by providing information that
taxpayers need through tax education and other public
relations activities that explain all aspects of tax—from
the taxation system to the status of tax revenue.
At the same time, for taxpayers found not to beproperly meeting their tax obligations, the NTA
corrects taxpayer errors by providing proper follow-up
and examinations and endeavors to prevent
conscientious taxpayers from developing a sense of
unfairness regarding taxation.
The NTA thinks it is crucial that it earn theunderstanding and trust of taxpayers—the people ofJapan—regarding its mission and responsibilities byenhancing taxpayer services and implementing proper
follow-up and examinations.

National Revenue and Taxes
National revenue (general account revenue) in
fiscal 2002 was ¥87.3 trillion. Of this revenue, ¥43.8
trillion were from tax. Deducting tax and stamp
revenue from customhouses and the Postal Service
Agency (currently Japan Post), revenue from national

taxes alone amounted to ¥38.6 trillion. This meansthat the NTA collects about 88 percent of government
revenue received through taxation.
Income tax, corporation tax, and consumption tax
account for about 80 percent of tax revenue.

(¥ trillion)

National Revenue

National Expenditure
Fiscal 2002 General Account Expenditure (settled account)

Fiscal 2002 General Account Revenue (settled account)
Motor Vehicle
Tonnage Tax: 1.9%
Gasoline Tax: 4.9%

Others: 8.5 (9.7%)

Tobacco Tax: 1.9%
Customs Duty: 1.8%
Others: 1.3%

Stamp Revenue: 3.1%
Liquor Tax: 3.8%
Revenuefrom
Government
Bonds＊:
35.0(40.1%)

Total:
87.3

Tax
Revenue:
43.8(50.2%)

Withholding
Income Tax:
28.0%

InheritanceTax: 3.3%

Consumption
Tax:
Corporation
22.4%
Tax:
21.7%

Others:9.0
National
Debt
Service:
15.6

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

3

Surplus,
etc.: 3.6

Self-Assessed
Income Tax:
5.9%

Total:
87.3

SocialSecurity:
19.6

PublicWorks: 9.2

Local
Allocation
Tax Grants:
16.5

Economic Assistance: 0.8
Government
Employee
Pensions: 1.3

Education andScience: 6.7
Defense: 4.9

To earn taxpayer understanding and trust, the NTA
must properly and fairly execute its right to levy andcollect taxes (tax administration) and fully meet its
responsibility to explain taxes and the tax system to thepeople of Japan. In its day-to-day work, the NTA pays
full attention to protect taxpayer rights and ensure that
officials maintain confidentiality, handle taxpayers in a
professional and courteous manner, and appropriately

support taxpayers. Moreover, the NTA endeavors todevelop good communication with taxpayers andconduct operations in a fair and just fashion. By
minimizing the burden placed on taxpayers regarding
tax payment and providing services that are of as high aquality as possible, we endeavor to raise the level of
taxpayer satisfaction.

Mission of the National Tax Agency

1. Earning Taxpayer Understanding and TrustProtecting Taxpayer Privacy
Calculating taxes requires taxpayer’s private
information, including revenue, sales, and expense
data. Moreover, information about transaction
partners is sometimes needed for tax examinations.
If taxpayer privacy is violated and information isleaked, the NTA cannot expect taxpayers tocooperate.
For this reason, tax officials who divulge secrets
learned in the course of an examination are subject

to the criminal punishment stipulated in the tax law(imprisonment of up to two years or a fine of up to¥300,000), which is more stringent than that provided
in the National Public Service Law (imprisonment of
up to one year or a fine of up to ¥30,000). Moreover,
the NTA regularly holds training programs for its
officials to ensure that they are fully aware of thesecriminal penalties.

Providing professional and courteous services to taxpayers

4Mis sion of the National Tax Agency
2. Evaluating Our Performance
One way that the NTA assesses whether it is fullyand efficiently performing its responsibilities is to set
performance targets and nine action targets under these
performance targets for each business year (July 1
through June 30 of the following year). To measure thedegree to which we have reached these targets, we also
set and publicize 64 performance and other guideposts.
Such indicators include “affinity felt by taxpayers
visiting tax offices” and “the percentage of income tax
refunds processed within six weeks.”
At the end of each business year, the Minister ofFinance compiles and releases a written evaluation of
our performance against our targets for that year, andwe use the evaluation to create future NTA measures.
The opinions of private-sector members of the Council
on Policy Evaluation in the Ministry of Finance areincorporated in the evaluation to ensure the objectivityof the evaluation and to enhance its quality.
In addition to this yearly performance evaluation, theNTA gathers public views through 2,790 national tax

monitors＊3 throughout Japan and collects requests
from all sectors of society through the “publiccomments” page on the NTA’s Japanese-language
website. In this way, we endeavor to improve taxpayer
services.
The NTA has made various changes to its system asa result of taxpayer input. For example, taxpayers used
to be required to bring revenue stamps to request
issuance of a certif icate of tax payment. Citizens
requested that this be changed, and, starting January 19,
2004, payment can now be made in either revenue
stamps or cash at Regional Taxation Bureaus (including
the Okinawa Regional Taxation Office; hereinafter thesame) or Tax Offices.
Recent efforts to ascertain taxpayer evaluation of
NTA policies and apply them to improve policies in the
future have included a questionnaire survey on filing byInternet (e-Tax), which started in fiscal 2003, and on
Sunday tax consultations, which started on a trial basis
during the fiscal 2003 final tax return filing period.

NTA Budget and Personnel
The fiscal 2003 NTA budget was ¥723.2 billion, themajority of which was spent on personnel expenses.
In recent years, the KSK System (Kokuzei Sogo
Kanri [Comprehensive Tax Administration System])and other IT-related expenses have come tocomprise an increasing amount of the budget, andwe are focusing on raising the efficiency ofoperations and improving taxpayer services.

NTA personnel numbered around 52,000 from the1970s through the first half of the 1980s. With theintroduction of the consumption tax in 1989,
personnel figures increased and peaked in 1997. Asof the end of fiscal 2003, the NTA staff numbered
56,315.

(persons, 1,000 cases)
Year

1975

1997

2003

(Reference) 2003/1975

Number of personnel

52,44057,20256,315107.4%(1) Number of Income Tax Returns Filed

7,327

20,023[20,873]284.9%(2) Number of Corporations

1,482

2,793

[2,896]

195.4%

117

−

−

−

(3) Number of Establishments Subject to Commodity Tax(4) Number of Enterprises Subject to Consumption Tax

−

2,521

[2,237]−(1) ＋ (2) ＋ (3) ＋ (4)8,926

25,33726,006291.4%

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 2002 figures.
3. The figures under "(Reference)" are 2003 percentages when 1975 figures are set at 100.

＊3 Homemakers, company executives, educators, and other people from various sectors of society are appointed to serve as national tax monitors andprovide the NTA with their views and requests concerning national tax administration.

5

The Law Concerning Access to Information held byAdministrative Organs was introduced to raise thetransparency of government administration and toensure the government is accountable for its
administrative activities. This law made it possible foranyone to request the disclosure of administrative
documents by completing a disclosure request form andsubmitting it with the handling charge in person or bypost or other courier service to the information
disclosure desk at the National Tax Agency
headquarters or a Regional Taxation Bureau or Tax
Office.
In addition to published data such as road ratings
which are necessary for the calculation of inheritancetax, the administrative documents held by the NTA

include materials that cannot be disclosed, such as
information involving taxpayer privacy. Information
disclosure is crucial to earn taxpayer confidence thattax administration is proper and fair and to raise trust in
the tax administration. The NTA proactively handles
this by placing information disclosure officials at theRegional Taxation Bureaus.
The NTA received 32,278 requests for information
disclosure in f iscal 2002, accounting for about 54
percent of all such requests made to national
government ministries and agencies. Full disclosure
was made in about 94 percent of all cases, and full or
partial disclosure together accounted for approximately
99 percent of cases, both of which are very highpercentages.

Mission of the National Tax Agency

3. Disclosing Information

Tax Collection Costs
To gain a rough estimate of how much it costs tocollect taxes, we can calculate the expense required
to collect ¥100 of tax revenue based on figures for
the NTA’s budget and tax revenue handled. In fiscal
1950, it cost ¥2.79 to collect ¥100 of tax, but thefigure dropped to ¥0.90 in fiscal 1990 with thedramatic increase in tax revenue accompanying
economic growth. Since that time, however, tax
revenue has decreased with tax reduction policies
and the economic downturn and IT expenses haveincreased at the same time. As a result, it cost ¥1.78
to collect every ¥100 of tax revenue in fiscal 2003.＊4＊4 The fiscal 2003 figure is calculated based on the amount of the initial budget, whereas the figures for other years are based on settled accounts.

6

Mis sion of the National Tax Agency

KSK System（Kokuzei Sogo Kanri [Comprehensive Tax Administration System]）
The KSK System links the 12 Regional Taxation
Bureaus and the 524 Tax Offices in a nationwide
network. Boasting more than 23,000 terminals, theKSK System makes it possible for tax officials to use
the latest information online at any time. In addition to
the tax returns, applications, and notifications
submitted by the nation , s 24 million taxpayers(including both individuals and corporations), thesystem includes records of tax payments made atbanks and post offices as well as interest and otherpayment records.
The introduction of this system has raised the leveland efficiency of the various operations whichconstitute the core of tax administration. It has madepossible the integrated management of national tax
claims and the access of information organized bytaxpayer. The KSK System also contributes to theimprovement of taxpayer services by making it
possible to promptly and accurately respond to
taxpayer inquiries by referring to information on
computer, as needed. Thanks to the system, we
have set the goal of issuing certificates of tax
payment within 15 minutes of request. In addition, thesystem also helps in the selection of entities for tax
examination and tax delinquency collection
procedures because the system can perform
multifaceted analyses of the information gathered.

The KSK System

7

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

National
Tax
Agency(Local Branch
Offices)

Regional
Taxation
Bureaus (11)Tax Offices(518)

Mission of the National Tax Agency

Structure of the National Tax Agency(Sapporo, Sendai, Kanto-Shinetsu, Tokyo,
Kanazawa, Nagoya, Osaka, Hiroshima,
Takamatsu, Fukuoka, Kumamoto)

The National Tax Agency performs tax planningand standardizes the interpretation of tax laws tofacilitate the execution of tax administration. The
NTA also oversees the Regional Taxation Bureaus
and Tax Offices. (655 personnel, 1.2%)＊1

Commissioner’s
Secretariat
Taxation
Department(Internal
Subdivisions)

Revenue Management
andCollection Department
Examination andCriminal Investigation
Department(Councils, etc.)(Facilities)

National Tax
Council＊2

National Tax
College

The National Tax College trains tax officials.
(355 personnel, 0.6%)

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 oflarge-scale, inter-prefectural, and difficult cases,
and conducting procedures for tax
delinquencies. (10,656 personnel, 19.0%)

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

Revenue Management
andCollection Department
Examination
Department
Criminal
Investigation
Department

The Information andExamination Divisionof the Taxation
Department carries
out examinations ofdifficult cases.
The Revenue
Management andCollection
Department carries
out procedures forlarge-scale tax
delinquencies.＊3
The Examination
Department carries
out examinations oflarge corporations
and others.
The Criminal
Investigation
Department carries
out investigations andexaminations basedon the National Tax
Violations Control
Law and enforces
regulations in thecase of violation.

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

National Tax
Tribunal

Okinawa
Regional
Taxation Office

The Tax Offices, which
serve as liaison offices
for taxpayers, arefront-line
administrative
institutions in chargeof carrying out national
tax administration.
(44,171 personnel,
78.0%)

Co-ordination
Division
Special Officer(Public Relations)
Revenue Management
andCollection Group
Examination Group(Individual)
Examination Group(Property Tax)
Examination Group(Corporation)
Chief Examiner(Liquor Tax andIndustry)Tax Offices (6)The National Tax Tribunal makes decisions onrequests for reconsideration from taxpayers
regarding national taxation-related penalties
imposed by the Regional Taxation Bureaus, the Tax
Offices, and other institutions. (478 personnel, 0.8%)

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 ofcertified public tax accountant examinations and deliberations on disciplinary actions against certified public tax accountants, and (3) deliberations on theestablishment 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.”

8Sel f-Assessment System
Taxpayer Services & Follow-up and Examinations:
The Cornerstones of the Self-Assessment System

Japan employs the self-assessment system for its
national taxes. Under this system, the taxpayer
determines and pays tax based on the income and otherinformation he or she submits to the Tax Office. For
local taxes, however, the official assessment system isgenerally used. Under that system, the tax amount isdetermined by the municipality in 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 andnotif ied each of the tax amount due. With the
democratization of the tax system in 1947, however, theself-assessment system was adopted for income tax,
corporation tax, and inheritance tax. Later, that system
was applied to all national taxes.
For the self-assessment system to function properly,

two things are necessary: First, taxpayers must have ahigh level of awareness regarding tax payment andvoluntarily and properly fulfill their tax responsibilitiesprescribed by law (tax compliance). So that taxpayers
can correctly file and pay their taxes by themselves, theNational Tax Agency (NTA) endeavors to improvetaxpayer services, including tax education, tax
counseling, f iling convenience, public relations
activities about the significance of tax, and information
on tax law and procedures.
Second, proper follow-up and examinations arenecessary to check taxpayers’ tax returns and instructthem on how to file their returns correctly. The NTA
aims to achieve proper and fair taxation through followup and examinations for taxpayers that require
correction.

Tax Offices encourage taxpayers to write their own returns.

Easy-to-understand advice is provided to taxpayers through tax
consultations.

Corporate ComplianceTo fulfill the responsibilities expected of them asmembers of society and to strengthen their ties oftrust with society, some corporations establish
compliance committees and set internal corporate
action guidelines which they release to the public.
Corporations are being called upon to take active
measures to observe legislation and social rules andsecure fairness in their business activities. As one

9measure, some corporations have designated theobservance of tax law as their responsibility as amember of society.
Corporate executives need to further deepen theirawareness that tax payment is a duty of the citizens
of Japan under the Constitution and that observanceof the tax law is one of the most fundamental andimportance items in corporate compliance.

1. Taxpayer Services:（1）Public Relations, Tax Consultations, and Information Provision■ Tax Education,
Today s children will lead and support Japan in
future years. To deepen their understanding of thesignificance and role of taxes and tax payment, theNTA encourages educators to incorporate tax educationin their school classes.
To promote tax education, the NTA established theCouncil for Promotion of Tax Education, which iscomposed of representatives of national and local
governments and educational organizations. The NTA
also holds classes on tax and publishes and distributes
supplementary textbooks for tax education. For schoolsthat wish to tour a Tax Office or to try a hands-on studyof tax, we have set up permanent facilities exclusively
for tax education at some Tax Offices. For example,“Tax Space Ueno” at the Tokyo-Ueno Tax Office gives
students an opportunity to develop the skills to detect
tax issues themselves, to learn and think about thoseissues, and to independently judge and resolve them.

＊5 A regular TV program entitled Did You Know? Tax Information for Your
Life is broadcast every other Thursday from 11:25 a.m. to 11:30 a.m.
＊6 A regular radio program called Your Tax Consultation with Teizo Muta
is broadcast every Sunday from 8:20 a.m. to 8:30 a.m.
＊7 During the filing period for final income tax returns, the NTA’s PR efforts
include inserting advertisements in newspapers to inform taxpayers
about filing deadlines.

In questionnaire surveys on national tax PR,
however, taxpayer evaluation of the NTA’s efforts
remains low. For this reason, future PR is being
promoted with the following goals in mind:(1) Ensure that taxpayers can obtain the information
they want when they want it.
(2) Make it possible for taxpayers to obtain theinformation they want without traveling to the Tax
Office.
(3) Write public relations materials in a way that is easy
for taxpayers to understand.
(4) Reflect taxpayer input in the public relations
materials.
(5) Ensure that tax off icials fully understand the
purpose of the public relations materials and ensurethat PR is conducted uniformly and consistently.

Self-Assessment System

To have taxpayers voluntarily and properly pay theirtaxes, it is vitally important that the NTA takes
advantage of every opportunity to enhance taxpayer
understanding of their tax responsibilities. It is also
important that we provide information on tax andrespond to questions on tax.
We endeavor to create an environment in which
information related to tax is easy to obtain. We employ
a variety of PR media ＿ ranging from pamphlets which
are available at Tax Offices and city and town halls to
taxpayer brief ings, television,＊ 5 radio,＊ 6 andnewspaper ＊ 7 ＿ to provide information on thesignificance and role of tax and the structure of the tax
system. More recent efforts include posting tax
information on the NTA website. These efforts aretargeted not only at taxpayers but all segments ofsociety.

Poster advertising the TV
program entitled Did You
Know? Tax Information forYour Life“Tax Space Ueno” at the Tokyo-Ueno Tax Office10

Sel f-Assessment System■Taxpayer Briefings
The NTA holds briefings for taxpayers to informthem about tax system reforms and deepen theirunderstanding of tax administration. At Tax Offices
throughout the nation, we hold a variety of taxpayer
briefings to provide information about tax in general.
There are briefings for compiling financial statements
for those filing a final return or a blue return; year-end
adjustment briefings for withholding agents; briefings
on tax law revisions, and briefings for newly formed
corporations. These various brief ings are held asnecessary to ensure that the information needed toperform tax procedures is provided at the required
times.

■ Tax Consultations at Tax Counsel Offices
In the past, tax counselors with vast experience in all
aspects of tax handled most taxpayer tax questions.
Today, in addition to telephone and in-person
consultations at Tax Counsel Offices, the NTA also
has Tax Answer which provides information by
Internet, telephone recording, and facsimile. Tax
Answer can be accessed by Internet in Japanese at
http://www.taxanswer.nta.go.jp or in English at
http://www.taxanswer.nta.go.jp/gaikoku.htm. The
telephone number and information access codes for theJapanese-language telephone recording and facsimile
services are available at any Tax Office or city or town
hall. Consultations in English are provided at the Tax
Counsel Offices of the Tokyo, Nagoya, and Osaka
Regional Taxation Bureaus.

Types of Tax Consultations
Telephone and in-person tax
consultations by tax counselors

Tax consultations in English(at Tokyo, Nagoya, and Osaka
Regional Taxation Bureaus)

Tax Counsel Offices

Internet

Telephone recording
Tax Answer (tax consultations)FacsimileTaxpayer Briefings

Tax Consultations at Tax Counsel
Offices in Fiscal 2003

(first half of the 2003 business year)(briefings, 1,000 persons)Taxpayer Briefings

Telephoneand
In-Person:
2,986(12.7%)Of Which, Briefings on the
Revised Consumption Tax Law

Numberof
Briefings

20,871

NumberofParticipants

1,318

Total:
23,457(100.0%)

5,487

203

Telephone Recording
and Facsimile:491(2.1%)

Internet:
19,980(85.2%)(1,000 cases)

11

Self-Assessment System

Tax Answer (tax consultation) via the Internet■Responses to Taxpayer Inquiries
The NTA provides information about the generalinterpretation and handling of tax law through tax
consultations at Tax Counsel Offices and through theissuance of directives. Taxpayers who have questions
about the detailed application of the tax law to their
particular transactions may inquire in advance at theTax Office and receive an oral answer.
In September 2001, we started to issue written
responses to questions we anticipated would be asked
by many taxpayers when we thought that the responses
would serve as reference to other taxpayers.
However,we provided written responses only to thosequestions that we anticipated would be asked by many
taxpayers. This regulation was relaxed in March 2004,
widening the scope of cases to which written responses
are issued.
To implement these improvements in taxpayer
services, we expanded our review framework so that we
can more promptly handle inquiries. Review Divisions(Examination) staffed with review officers were createdat all Regional Taxation Bureaus, except for the
Okinawa Regional Taxation Off ice, as specializedorganizations for the review of transaction taxation.

12

Sel f-Assessment System
2. Taxpayer Services:（2）Making the Filing of Returns More Convenient
More than 20 million taxpayers ＿ or one in every six
Japanese citizens ＿ filed a final income tax return for2003. More than 10 million filed a return for refund,accounting for more than half of all f inal returns
submitted.

To respond to the increase and diversification of thenumber of income tax f ilers and to increase thesatisfaction of taxpayers, the NTA attempts to reducethe costs related to filing as much as possible and toprovide even higher quality services than before.

■Encouraging Taxpayers to Complete Their Own Returns
Under the self-assessment system, it is crucial that
the NTA website. These various services are describedtaxpayers understand the tax framework and pay theirin detail below.
taxes. At tax consultations, NTA officials encourage
We expect the number of final returns will increasein the future, and it is important that taxpayers
taxpayers to complete their own forms. To further
encourage taxpayers to write their own forms, wevoluntarily and properly file their final returns for thecompletely revised the tax form starting with the 2001
NTA to control tax collection costs and process returns
efficiently with its limited number of officials. At the
final return form and simplified the items to be entered.
same time, these computer-based measures to assist
We are also actively taking various other measures tomake it easy for taxpayers to write their own forms:
taxpayers in writing their own forms are expected toTouch-screen computers have been set up at Tax
free up officials so that they can spend more time with
Offices for taxpayers to use to prepare their returns.
taxpayers requiring consultations and thus further
enhance taxpayer satisfaction.
Moreover, filing assistance and e-Tax are available on■Touch-Screen Computers
Touch-screen computers for preparing tax returns
have been installed at Tax Offices making it possible
for taxpayers to complete a tax return simply bytouching a computer panel in accordance with the
instructions that appear on the screen, like a bank ATM.
Thanks to the calculation function on the touch-screen
computer, even taxpayers who do not know how to
calculate their income or tax amount can complete theirtax form without difficulty. Touch-screen computers are
now a main method that taxpayers use to complete theirforms by themselves at the Tax Office, and they arecontributing to the improvement of taxpayer services,
including shortening the line for consultations.
Touch-screen computers were introduced startingfrom the final return filing period for 1998 returns. In
the f irst year, 1,260 computers were installed
throughout the nation, and approximately 420,000
returns were completed using them. In the final return
filing period for 2003 returns, the number of computers
had risen to 4,756, and a total of approximately
4,260,000 returns (about 20 percent of all returns) wereprepared using them.

Touch-Screen Computers
For 1998 Returns (first year of service)
For 2003 Returns
1,260

Number ofComputers

Number ofTax Returns
Prepared

4,756
420
4,255
(computers, 1,000 returns)

Preparing tax returns by touch-screen computer at the Tax Office13

Poster for 2003 final tax returns

Usage of the Tax Return Preparation
Section of the NTA Website
For 2002 Returns (first year of service)
For 2003 Returns
3,334

Number ofAccesses

Number of
Returns
Printed

5,180
1,073

Self-Assessment System■Filing Assistance on the NTA Website
The tax return preparation section of the NTA
website allows taxpayers to complete their income tax
return from the comfort of their very own home. By
inputting the necessary information in the sequence
indicated on the computer screen, taxpayers can prepare
their final return and have the income and tax amountcalculated automatically. If the form is printed out on acolor printer, it can be submitted as the final form.
Forms may be either submitted in person or sent by
post or other courier service to the Tax Office.
The final tax return preparation section of the NTA
website was developed in response to the spread ofcomputers and Internet access. During the final return
period for 2002 returns when the system was launched,
there were about 3.33 million accesses, andapproximately 1.07 million forms were printed out.
Based on feedback and requests from taxpayers, we
added new functions to enable temporary storage of
inputted data and to increase the types of forms that canbe prepared on the website. During the filing period for2003 final returns ＿ the second year of the system ＿the number of users rose steadily with about 5.18

1,808
accesses（1,0001,000 returns ）million accesses and approximately 1.81 million forms
printed despite the fact that the system was out of
operation for one week to the inconvenience of
taxpayers.
Considering the rate of spread of computers andInternet access at home, we estimate that the number ofusers will increase further. We will endeavor to further
improve the tax return preparation section of thewebsite and make it easier to use.

Tax return preparation section of the NTA website

14

Sel f-Assessment System■e-TaxA system for online tax return f iling and tax
payment, e-Tax was developed as part of “A Program
for the Creation of Next-Generation Electronic
Government”＊8 which aims to simplify and raise theefficiency of administrative procedures through the useof IT. e-Tax started operation for the filing of income
tax and consumption tax (individual) returns at the
Nagoya Regional Taxation Bureau from February 2004.
Corporation tax return filing and tax payments for all
items were added from March. Since June 2004, thesystem can be used throughout the nation. In this way,
the range of users and operations has gradually been
expanded while placing highest priority on the stable
operation of the system.
With e-Tax, taxpayers can send in their tax returns
and applications from their home computers. In
addition, tax payment procedures, which to daterequired that taxpayers bring cash and tax payment

slips to the bank or Tax Office, can also be made via
Internet banking from the taxpayer’s home computer. eTax has a major impact on taxpayer rights andobligations and involves taxpayers’ personal data, suchas tax information. For these reasons, we are doing ourutmost to earn taxpayer confidence.
e-Tax still does not meet with the full satisfaction of
taxpayers, however. For example, taxpayers must
submit an advance notif ication to the Tax Off ice
indicating that they wish to start filing by e-Tax, andsome documents that must be attached to the return,including various certificates and receipts, must be sent
separately or delivered in person to the Tax Office.
While taking full care to ensure the security of thesystem, we will improve e-Tax so that taxpayers are
more satisfied with it. We aim to increase the numberof users to about 1.3 million (about 5 percent ofreturns) in fiscal 2006.

Number of Advance Notifications for
e-Tax Submitted(as of May 31, 2004)

Corporations:
5,062
Total:
16,492
Individuals:
11,430

Number of Tax Returns Filed via e-Tax(as of May 31, 2004)
Corporation
Tax: 291

Consumption Tax: 228

Corporations
Total:
3,502
Individuals

Poster for e-Tax＊8 This program aims to utilize information technology in the field ofgovernment administration in order to review administrative operations
and systems, raise the level of convenience for the public, and makeadministration simpler and more efficient. It was decided in July 2003
by the IT Strategy Headquarters (composed of the Prime Minister andall state ministers).

15

Consumption
Tax: 490

Income Tax:2,493

February 2004. Completed returns were also received.
On both days, the number of taxpayers who came to theTax Office for a consultation was about the same asthat who came on weekdays. At Tax Offices located in
the residential areas of the Tokyo metropolitan area,
however, the number of taxpayers who came to the Tax
Office on the weekend was 20 to 40 percent more than
the number who came on weekdays. Taxpayers who
used the service expressed their appreciation andpleasure with the new service.
We will thoroughly study the information wegathered about the weekend consultations held during
the 2003 tax return filing period and announce ourfindings by the filing period for 2004 final returns.

Self-Assessment System■Weekend Tax Consultations
The social and economic situation has changed
greatly in recent years. Employment income earners
today make up more than two-thirds of all employedpeople, and doctors, lawyers, and other professionals
are increasing in number. With this, there is increasing
demand for tax filing consultations to be available on
weekends because taxpayers are unable to come to theTax Office on weekdays.
Weekend consultations were offered for the first timeever for 2003 final returns. This service was provided at
248 Tax Offices around the country where demand forweekend consultations was deemed to be high.
Consultations were available for two Sundays in

Results of a Questionnaire on Weekend Tax Consultations
Was it helpful to haveconsultation services
available on weekends?
No: 0.6%

Why did you visit theTax Office on Sunday?

Others: 2.1%

Others: 4.5%

Sunday ismoreconvenient:
31.3%
Yes: 97.4%

Can only visit
Tax Officeon Sunday:
64.1%

Would it be convenient for weekend consultations
next year to be held on Saturday, Sunday, or a
combination of the two? (In your response, pleaseassume that weekend consultations will be offered
on two days next year.)Once onSaturday andonce onSunday:32.8%

On Sunday
both times:
61.8%

On Saturday
both times:
5.4%

Tax Q&A
Ｑ Every January, the Tax Office says, “Submit yourfinal tax return early!” What does the word “final”
refer to?
A

When the self-assessment system wasintroduced, the system required taxpayers to filean advance estimate of their income for the year
(known as a “provisional return”) and then to
determine and report their final income thefollowing year (“final tax return”). The title “final tax
return” was used to distinguish this return from theprovisional return.

16

Sel f-Assessment System
3. Follow-up and Examinations
To achieve proper and fair taxation, the NTA
provides follow-up regarding tax returns and payment
and implements rigorous examinations from various
angles on taxpayers who attempt to evade their tax

obligations. To select taxpayers for examination, we
analyze income tax and corporation tax returns input
into the KSK System from the perspectives of industry
type, business category, and business scale.

■Information
The NTA gains about 130 million new pieces of
information a year, and we manage this informationand the tax return data in an integrated fashion todaywith the KSK System and use it to conduct follow-up
and tax examinations.
The rise in corporations’ wide-area, international
business transactions and the increasing use ofsophisticated information technology in recent years
present new information needs. We determine what newkinds of information are required to examine these newforms of transactions and then actively collect it. For
example, to respond to the increase in transactions withoverseas entities accompanying the advancement ofinternationalization recently, we actively exchange
information with foreign tax authorities and use it toinspect returns related to overseas transactions.
Information that proves secret deals or fictitioustransactions and pieces of information related toindividual or corporate transactions are particularly
helpful in examinations.

■Follow-up
The Tax Off ice checks whether the information
reported on a tax return is complete and correct basedon information gathered from various sources. If
unreported or falsely reported information is detected,
the Tax Office requests the taxpayer by telephone or inwriting to submit an amended return. If the taxpayer

refuses, a correction＊9 or determination＊10 is performed under the authority of the district director of the Tax
Office.
The Individual Taxation Division handles about
700,000 cases a year of this kind of brief follow-up
with taxpayers.

Cooperation with Local Tax Authorities
Some 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 ofsystem structure and administration.
For example, in terms of the system structure,
taxpayers who have filed income tax are not required
to submit returns for individual enterprise tax orindividual inhabitant tax, both of which are local
taxes. Moreover, taxpayers can file their consumption
tax and local consumption tax through a single
procedure. In terms of administration, manymunicipalities offer consultations on income tax, anational tax. In addition, the national tax and local tax
authorities together hold briefings on tax return filingand conduct tax PR.
Cooperation in the area of administration isconducted based on consultations between thenational tax authorities and the various local
authorities, including prefectural and municipal
officials. In actuality, there is considerable disparity
among regions in terms of the level of cooperation.
To improve taxpayer services, the national tax
authorities aim to develop closer cooperation with thelocal tax authorities, particularly those in urban areas.

＊9 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.
＊10 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 incharge of the case.

17

Comparing this to 1985 figures, it is clear that theamount of unreported income per examination case ison the rise.
The number of examinations is on the decline,
however, because of our restricted number of personnel
and the increasing number of days required for eachexamination.
In light of this situation, the NTA deems ensuring asufficient number of examinations as indispensable forachieving proper and fair taxation. Constantly keeping
malicious taxpayers under our watchful gaze by adeptly
selecting and examining taxpayers submitting deficient
returns will increase conscientious taxpayers’
willingness to pay tax and enhance services totaxpayers in the broad sense.

Self-Assessment System■Strict Treatment of Malicious Taxpayers
To facilitate the smooth operation of the selfassessment system, the NTA has been granted theauthority to conduct tax examinations. Suchexaminations aim to check the content of tax returns
based on the taxpayer’s books and to correct any
mistakes found. We place particular priority on theexamination of malicious taxpayers by being sure toinvest the necessary number of days on such cases.
The average income declared in 2002 income tax
returns was ¥5,540,000, and unreported income
discovered through examination averaged ¥6,840,000
per case. The average income declared in 2002
corporation tax returns by corporations with a surplus
was ¥41,680,000, and unreported income detected
through examination averaged ¥12,790,000 per case.

Reported and Unreported Income Per Income Tax and Corporation Tax Case(¥ thousand)Income Tax
1985

4,130

2002/1985:
134.2%

Reported Income
per Return

5,540

2002

1985

3,520
194.3%

Unreported Income
per Field Examination

6,840

2002

Corporation Tax
1985
Reported Income
per Corporation
Reporting a Surplus
2002

1985
Unreported Income
per Examination
Case
2002

39,940104.4%
41,6805,930
215.7%
12,79018

Sel f-Assessment System

Tax Examinations
An examination proceeds quickly and smoothly if
the taxpayer cooperates in the tax examination bypresenting books and other documents that track

advance notification is given. Advance notice is given
in approximately 80 percent of income tax
examinations and about 90 percent of corporation tax

daily transactions to the tax official in charge andresponds accurately to questions regarding the tax
return and books.

examinations.
To minimize the burden on the taxpayer, we makeIn principle, taxpayers are notified in advance ofas possible.
In principle, tax examinations are conducted in thepresence of the taxpayer. The taxpayer may also

the date and time of the examination so that we canconfirm the taxpayer’s availability. The tax official in
charge of the examination notifies the taxpayer by
telephone. In cases where we must confirm theactual state of the business itself, however, noevery attempt to conduct the examination as quickly

have his or her certified public tax accountant who
has been designated as tax proxy attend theexamination.

Tax Office Responses to Tax Examination Findings
The Tax Office’s response to a tax examinationdiffers depending on whether an error is found in the
tax return or not.
(1) When an error is found in the tax return, the Tax
Office explains the error to the taxpayer andstates the amount of tax that should be paid.
(2) When no error is found in the tax return, the Tax
Office performs the following:a. If no error is found in the return and no followup is needed, the Tax Office sends a written
notification of tax examination findings to thetaxpayer.
b. If there is no need for submission of anamended return or a return after due date(hereinafter “amended return, etc.”), but followup is needed regarding future tax returns orrecordkeeping, or maintenance and storage ofbooks and documents, the Tax Office provides
the taxpayer with an explanation. The Tax
Office also clearly announces that the tax
examination is closed.
If the taxpayer does not cooperate with the Tax
Office’s request for an amended return, etc., the Tax
Office district director issues a correction (if a tax
return has been filed) or determination (if no return
has been filed) and sends a Notice of Correction or
Notice of Determination to the taxpayer.

Handling Taxpayers during Tax Examinations and Tax Collection
When the tax official visits the residence or office ofa taxpayer to conduct a tax examination or collecttax, the official presents a photo identification cardthat clearly states his or her name and identity as a

19

tax official. To ensure the taxpayer’s privacy, tax
officials make every attempt to avoid holding
discussions at the entrance to the taxpayer’s store or
residence.

To encourage taxpayers to file tax returns and pay taxes properly, delinquent tax is imposed if tax returns
are not filed or taxes are not paid by the due date. There are also cases where either a penalty forunderstatement, a penalty for failure to file, or a fraud penalty is imposed.

Until two months from the day after the due date

Annual rate of 4.1% (in 2004)* The annual rate may change due tofinancial and other conditions.

After two months from the day after the due date

Annual rate of 14.6%

Delinquent Tax

Tax Return Filed by Due Date?

Regular Case

Case of Fraud, etc.

Return is filed by due date,but tax amount is understatedPenalty for understatement(10% or 15%)

Fraud penalty (35%)

Return is not filed by due datePenalty for failure to file (15%)

Fraud penalty (40%)

Self-Assessment System

Delinquent Tax and Penalties

20

Sel f-Assessment System■ Corporate Groups Engaged in Wide-Area
Transactions
Corporations endeavor to expand their business overa wide geographical area by setting up subsidiaries andbranches, and the NTA is being called to adjust its tax
examinations accordingly.
To examine a corporate group, the NTA must firstgain an overall sense of the group, and it is very
important that the NTA fully ascertain whether thegroup is illegally manipulating taxation by using intragroup transactions. For overseas subsidiaries, the NTA
must examine international tax issues. The state of thelocal economy and the subsidiaries’ ties with thecommunity are valuable information for the Japanese
tax authorities to fully ascertain the true situation of thesubsidiaries.
The consolidated taxation system was introduced inAugust 2002. The corporate groups that opt for thissystem are still corporate groups in form, however, so
the NTA must ascertain the actual situation of intragroup transactions and the importance of local
information remains basically the same.
For corporate and consolidated groups conducting
wide-area transactions, the NTA implements
coordinated, nationwide examinations of parent
companies and those subsidiaries that require
examination by maintaining close communication andcoordination among the national network of Regional
Taxation Bureaus and Tax Offices.
Corporations’ wide-area business transactions haveincreased markedly in recent years withinternationalization and the increasing use of IT. The
NTA considers examinations of corporate groups andconsolidated groups as an important issue for the future
as well.

Consolidated Taxation System
response to the situation today where corporations are
expanding their operations as corporate groups andcorporate disclosure is primarily performed via
consolidated financial statements.
The consolidated taxation system was introduced inAugust 2002. This system views a corporate group as asingle corporation in the levying of tax. The NTA issmoothly implementing the system by improving theadministrative framework, including conducting PR about
the new system, responding to inquiries, and promptly
examining applications for approval to use the system sothat consolidated reports are submitted properly.

With the dramatic changes in the management
environment surrounding Japanese corporations, theCommercial Law and other laws and regulations havebeen adjusted to facilitate corporate reorganization andthereby ensure that the nation’s companies remaincompetitive and can fully demonstrate their vitality. In theamendments made to the Corporation Tax Law as part of
the fiscal 2001 tax reforms, necessary adjustments werealso made to the corporation tax system, including therevision of items related to corporate split-ups andmergers. Moreover, a consolidated taxation system wasintroduced as part of the fiscal 2002 tax system reforms in

Applications for Approval to Use the Consolidated Taxation System

Consolidated Taxation Returns(for fiscal 2003, ending March 31)

1. No. of Applications
Submitted(No. of Parent
Companies)

Reference

3. Total No. of
Subsidiaries
2. No. ofand Parent
Subsidiaries Companies(1 + 2)21

No. of
Corporations
per Group(3/1)

Cumulative Total asof End of Sept. 2002

164

2,732

2,896

17.7

Cumulative Total asof End of June 2003
(submitted during
2002 business year)

304

3,789

4,093

13.5

Cumulative Total asof End of Sept. 2003

384

4,712

5,096

13.3

Consolidated
Returns

Reference

No. of Returns

134

Percentage of Returns
Declaring a Surplus

13.4%

Reported Income(¥100 million)325

Non-consolidated
Income(¥100 million)

9,287

international transactions of large corporations. In
recent years, small and medium-sized enterprises andwealthy individuals have come to be involved ininternational tax avoidance schemes. In response, theNTA established the Project Team to Deal with
Internationalization at key Regional Taxation Bureaus
in the 2002 business year, and endeavors to ascertain
the schemes, explicate the facts, and acquire
information about financial assets held overseas. To
improve the abilities of our tax officials, the National
Tax College provides advanced, long-term training ininternational taxation, including foreign tax law, tax
conventions, derivatives,＊13 and foreign languages. In
addition, the Regional Taxation Bureaus offer various
practical training courses as well. We are also
considering incorporating the expertise of privatesector specialists in f inancial transactions and tax
avoidance schemes to explicate the facts.
To prevent the loss of the nation’s tax base, the NTA
requests that tax system revisions be made as soon as
possible so that the NTA can successfully address
schemes that cannot be properly handled using theinterpretation of current tax law and schemes that
demonstrated in court rulings the need for new
legislation.

Self-Assessment System■International Tax Avoidance Schemes
With the globalization of the economy, corporate
activities that span national borders are growing more
dynamic. At the same time, attempts to avoid
international tax by craftily using differences in tax
systems and tax treaties between nations are becoming
more numerous and are unfairly eroding the nation’s tax
base. Tax avoidance plans are complex schemes thatuse anonymous association contracts, partnerships,＊11
limited liability companies (LLC),＊12 or other businessformats or new financial methods.
To realize proper and fair taxation and prevent theunfair erosion of the nation’s tax base, the NTA refuses
to allow these schemes because they will result, in the
final analysis, in conscientious taxpayers’ carrying theburden of the taxation avoided by these schemes.
The NTA makes every effort to properly addressinternational tax avoidance schemes. We implement tax
examinations and other measures to ascertain the actual
situation of the transactions and clarify the facts ofcomplicated schemes. We then carefully examine theapplicable laws and determine whether taxation isnecessary.
To handle these new issues, we have endeavored to
improve and strengthen our system since the 1980s,
including increasing the number of senior examiners(international) who specialize mainly in examining theTypes of International Taxation Avoidance Schemes
There are two types of international taxation
avoidance schemes: boutique-type schemes, inwhich individual corporations or other entities form ascheme in line with their business activities, andpackage-type schemes, in which those who develop
schemes sell to an indefinite, large number ofcorporations. Boutique-type schemes include cases
where foreign corporations attempt to avoid
Japanese tax by investing through paper-companies
established in the Netherlands, for example, to abusetax conventions in their purchase of nonperforming
loans and other investment activities in Japan.
Package-type schemes include transactions in which
corporations or other entities purchase and thenlease expensive depreciable assets, including
airplanes, tankers, motion-picture films, and overseas
real estate, through such entities as anonymous
associations or voluntary partnerships. With such
schemes, depreciation costs which exceed the leaseearnings are accounted first.

＊11 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 withunlimited liability, and (2) limited partnerships, which consist of one or more general partners who manage the business and have unlimited liability andone or more limited partners who do not participate in management and have limited liability.
＊12 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.
＊13 Derivatives are new financial products based on bond, stock, exchange, and interest rate transactions. Futures, options, and swaps are types ofderivatives.

22

Sel f-Assessment System■Transfer Pricing Issues
With the globalization of corporate activities,
transfer pricing issues have become important in thef ield of international taxation. For example, if aJapanese parent company sets a low price when it
exports products to its overseas subsidiary, income istransferred overseas. The transfer pricing tax system
has been developed to address such issues.
Transfer pricing issues also lie at the heart oftransactions, namely, the setting of prices fortransactions between related cor porations in a
multinational corporate group. At the same time,transfer pricing issues are related to multinational
corporations’ management policy. Moreover, transfer
pricing examinations generally require a large volume
of documents and considerable time to calculate theappropriate price. If we consider the costs required toresolve double taxation that arises from transfer pricing
taxation, this issue has a tremendous influence on
corporations.
To reduce the administrative burden on corporations
and to ensure predictability of taxation on businessactivities, the NTA offers advance pricing arrangements(APA) to conf irm in advance the method used to
calculate the transfer price.
As more and more Japanese corporations havetransferred their production bases overseas in recent
years, transactions related to intangible assets and therendering of service ＊ 1 4 have been of increasing
importance. Regarding these kinds of transactions, theNTA must make corporate executives aware of theimportance of the parent company’s receiving a proper
price from their overseas subsidiaries.

■Electronic Commerce Transactions
As means of communication have become moresophisticated and communications costs have declined,
use of the Internet has increased dramatically, andtransactions with individual consumers via virtual
shopping malls on the Internet are spreading.
To collect information about the state of these kindsof electronic commerce transactions and to ascertain

the parties involved in the transaction, the NTA has set
up a Professional Team for E-Commerce Taxation(PROTECT) at each Regional Taxation Bureau. This
team collects information in both a specialized andcross-sectoral manner from providers and others
involved in e-commerce transactions and conducts tax
examinations based on the information gathered. The
team also develops and collects examination methods.

Discussions at the OECDThe Organisation for Economic Co-operation andDevelopment (OECD) has long been the primaryinternational forum for the discussion of the taxationof electronic commerce transactions that spannational borders. Purchases of products from foreign
entities via the Internet are taxed with customs duties
and consumption tax, if items are physicallyimported, because they pass through customs. When
consumers directly purchase digital content (music,
books, etc.) distributed online from overseas entities,
problems arise in terms of tax neutrality and tax
revenue if no consumption tax is levied. The OECD

has recommended the following: for business-tobusiness (B-to-B) transactions, the importer shall pay
tax by voluntarily filing with the Tax Office theconsumption tax related to purchases from overseas,
and for business-to-consumer (B-to-C) transactions,the foreign entity shall pay tax by registering as ataxpayer with the Tax Office.
The Executive Committee of the European Union
adopted a framework for imposing value added tax
on digital content and the framework was similar tothat in the OECD recommendation. The regulation
came into force in July 2003.

＊14 Transactions related to intangible assets include transactions that permit the use of copyrights, patents, and other rights recognized by law as well as
know-how, customer lists, and other things that are not recognized in the law but are important and valuable. Transactions related to the rendering ofservice include transactions related to the provision of service regarding management, financial affairs, operations, and administrative management
within the corporate group.

23the NTA endeavors to actively pursue criminal charges
and prosecute large-scale, malicious tax evaders.
In fiscal 2003, the NTA commenced 201 criminal
investigation cases and reported 147 cases to theprosecutor. Total tax evaded was about ¥33.6 billion,
with an evaded tax sum of ¥208 million per accused
case. Although the number of cases commenced, closed,and prosecuted increased over the previous fiscal year,
the percentage of prosecutions, total evaded tax
amount, and amount of tax evaded per case decreased.
Notable tax evasion methods in fiscal 2003 wereintentional concealment of sales and recording of costs
at unreasonably high figures. Moreover, evasion of tax
through wide-area transactions that involved several
Regional Taxation Bureaus and tax evasion related tooverseas transactions were also prominent.
In 2003, 133 cases were resolved at the court of first
instance, all of which were convicted. The average fine
was about ¥32 million per case, and the average prison
sentence was 15.6 months, including six cases with noprobation. Prison sentences have been handed down
every year since 1980.

Self-Assessment System■Criminal Investigations
General tax examinations are so-called voluntary
examinations and are conducted with the consent of the
taxpayer in principle. To impose correct taxation on
taxpayers who intentionally evade tax using illegalmeans and to pursue criminal responsibility for
antisocial behavior, however, the NTA conducts
examinations using methods equivalent to those used incriminal investigations conducted by police. Based on
the findings, we request the public prosecutor to charge
and prosecute the person. This is known as the criminal
investigation system, and it pursues the criminal
responsibility of large-scale and malicious tax evaders.
Taking advantage of the fact that punishing one serves
as a warning to others, this system plays an importantrole as the ultimate means for protecting the selfassessment system.
As corporations engage in wide-area, international
business activities that involve the use of advanced IT,
tax evasion methods have grown more complex anddiverse in recent years. By expanding and strengthening
our information and conducting efficient examinations,

Criminal Investigations
Fiscal Year

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)

Tax Evaded per Case
(Number in parentheses is
tax evaded perprosecuted case)(¥ million)

2003

201

202

147

33,613(30,600)

166
(208)

Note: Tax evasion figures include penalties.

Judgments Handed Down in Criminal Investigation Cases
Calendar Year

(1) Number ofJudgments(2) Number ofConvictions

2003

133

133

(2)/(1)
Of (2), Number of Convictions
Percentage ofwith Prison Sentence
without Probation
Cases Convicted

6100.0%

Amount ofTax Evaded
per Case(¥ million)

Average Prison
Sentence
per Person(months)

Average Fine
per Case(¥ million)

155

15.6

32

Note: The “Amount of Tax Evaded per Case” is the amount of tax evaded through fraud and other illegal activities.

24Sel f-Assessment System
4. Payment of Taxes

25■ Fostering a Cooperative Attitude regarding
Voluntary Payment
Declared tax becomes tax revenue when it is actually
paid to the national treasury. In fiscal 2002, about ¥46.5
trillion of the ¥48 trillion in national tax reported to theTax Office were paid by year-end. This means thatapproximately 97 percent of taxes were paid.
For national taxes, taxpayers f ile a tax returnthemselves and pay the tax by the filing due date using
a tax payment slip on which they write in the tax
amount themselves. For this reason, the NTA endeavors
through PR to make sure that taxpayers do not let the
tax payment deadline pass by accident. For individual

enterprises that declare and pay tax on an ongoingbasis, we suggest tax payment by transfer account fromtheir savings account. Moreover, we are committed tofurther improving taxpayer services. From 2004,
taxpayers can perform tax payment procedures at theirhomes or offices with e-Tax.
The NTA also takes steps to ensure tax receipts.
Taxpayers whose last tax payment was submitted after
the due date are reminded in writing of the next tax
payment deadline, and taxpayers who missed thedeadline by accident are contacted by telephone prior toissuance of a demand for payment.

■Measures to Address Tax Delinquency
Tax delinquency is failure to pay national tax by thedeadline. Delinquent tax outstanding at the end of
fiscal 2003 amounted to about ¥2 trillion. Allowing
delinquent tax to go unpaid results in unfairness
between delinquent taxpayers and the vast majority of
taxpayers who pay their national taxes by the deadline.
In the end, this undermines the principles of the selfassessment system, namely, voluntary declaration andpayment. For this reason, the NTA endeavors to strictly
deal with tax delinquency while taking into
consideration the unique situation of each taxpayer.
If taxpayers are delinquent in the payment of theirnational taxes and do not pay even after receiving awritten payment demand slip, the NTA seizes the
taxpayer’s property. In past years, telephone
subscription rights and real estate were often the items
seized. Reflecting the decline in value of telephone
subscription rights and in real estate prices, savings
accounts, loans receivable, and other claims are
increasingly seized today. For taxpayers who are having
temporary difficulty with their tax payment because ofnatural disaster, sickness, or the suspension orclosedown of business operations due to economic
circumstances, however, we respond appropriately tothe taxpayers’ situation, including allowing an
installment plan for tax payment, as a measure tolighten the burden of tax payment.
The clamping down on tax delinquency was
designated a top-priority issue from 1999. The entire
NTA is working together to take measures to preventtax delinquency and to place priority on the collectionof delinquent consumption tax＿ which is a type ofdeposit ＿ and the collection of large-scale andmalicious tax delinquency.
Moreover, the NTA is addressing cases ofparticularly malicious tax delinquency, including
concealment or disposal of assets with the intent ofevading the procedure for collection of tax delinquency,
based on the penal provisions for evading delinquency
disposition stated in Article 187 of the National Tax
Collection Law. Under these provisions, a taxpayer isgiven a maximum of three years in prison or a fine of
up to ¥500,000 for such evasion. There have been threesuch cases since 1996.

Tax Delinquency Currently
Being Handled(¥100 million)
30,000Tax Delinquency Newly
Occurring

27,830Tax Delinquency Handled

28,14927,661

27,031
26,66826,60624,980Self-Assessment System

Trends in Tax Delinquency

24,84225,00023,28022,51920,516(estimate)
20,00017,04815,000

14,118

11,691

10,000

5,000

0
1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003
(fiscal year)26

Sel f-Assessment System■ Tax Payment Call Centers
At Tax Payment Call Centers, tax officials makedemand notif ications to delinquent taxpayers bytelephone while referring to taxpayer information thatappears on a computer screen. The calls are placed
automatically by a state-of-the-art computer system thatsimultaneously displays the data for the delinquent
taxpayer called. This system has helped raise theefficiency of delinquent tax handling; the full payment
rate has risen four to f ive times compared to thatcollected through written notices in the past. The Tax
Payment Call Center was introduced at the Tokyo
Regional Taxation Bureau in 2002 and introduced laterat the Osaka Regional Taxation Bureau and then at the
Kanto-Shinetsu Regional Taxation Bureau. Call centers
are scheduled to spread throughout the nation in 2004.

■ Efficient Management of Tax Claims andLiabilities
The NTA manages national tax claims and liabilities
by processing tax returns, some of which require tax
payment and others that require tax refund. In 1966, we
initiated efforts to create a system to properly andefficiently manage these claims and liabilities. In 2001,
the KSK System was introduced at Tax Off ices
nationwide, and tax claims and liabilities are managed
via this integrated system.
Every year, about 40 million tax payments are made,mainly of income tax. To date, the majority of them
have been paid at financial institutions. To efficiently
process such a large number of payments, the NTA has
streamlined administrative operations by introducing
payment by account transfer through the exchange ofmagnetic tape for self-assessed income tax＿ so-called
tax payment by transfer account. ＊ 15 We have also
streamlined operations through cooperation withfinancial institutions and the Bank of Japan, including
OCR processing＊16 of tax payment slips by the Bank ofJapan. Transfer procedures to pay refunds used to be
performed through written documents from Tax
Offices, but the NTA developed paperless procedures
for refund transfers by magnetic tape in 2001 andperforms most refunds using those procedures. In theseways, we endeavor to achieve efficient and speedy
processing of payments.
The introduction of e-Tax makes possible even more
efficient administrative procedures because taxes that todate could only be paid at Tax Offices or financial
institutions can now be paid via computer or ATM. In
the future, the NTA intends to spread and expand
electronic tax payment in cooperation with financial
institutions.
The management of national tax claims andliabilities is the cornerstone of taxation and tax
collection. We will continue to strive to improve
services by conducting procedures speedily andaccurately through the advanced application of thesystem and delivering refunds to taxpayers as quickly
as possible.

Multipayment Network
Many banking transactions can be performed using
ATMs or the Internet, but the payment of taxes andother public fees has in the past required thetaxpayer to bring a payment slip or application form
with the payment to a financial institution or
government office. The financial institution collected
the amount written on the slip or form and then took
procedures to notify the fee collection agency inquestion about the payment. In 2000, financial
institutions and fee collection agencies (government
ministries and agencies and private corporations)started discussing the creation of a network for thecollection of tax and other public fees that would

enable the notification of payments to be performed
electronically. The resulting network is called theMultipayment Network and is part of theinfrastructure for the electronic payment of taxes.
The Multipayment Network commenced operation
for the collection of private sector bills from October
2001. From January 2004, it started to be used forsome national treasury funds. National taxes werecollected by this system from March 22 from
taxpayers under the jurisdiction of the Nagoya
Regional Taxation Bureau. It has been usednationwide since June 1, 2004.

＊15 Tax payment by transfer account uses a method in which tax payment slips are sent from the Tax Office to the financial institution designated inadvance by the taxpayer and taxes are automatically deducted from the designated account. Regarding self-assessed income tax, for which filing ofreturns 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.
＊16 OCR (optical character reader) processing converts characters printed on tax payment slips into electronic data, thereby enabling paperless operations.

27

5. Cooperation with Private Organizations
In reality, however, it is very hard to communicate all
the fine points of tax law to the average taxpayer. To
support taxpayers, a certified public tax accountant
system has been established, and the NTA receives
cooperation from private organizations as well.

■Certified Public Tax Accountants
Certif ied public tax accountants have a public
mission as tax experts to strive to realize tax
compliance as provided in the tax law and to satisfy
taxpayer trust from a fair and independent standpoint.
They play an important role in the proper and smooth
operation of the self-assessment system.
Japan has about 67,000 certif ied public tax

accountants and about 700 certif ied public tax
accountant firms. The business, qualifications, rights,
and obligations of certified public tax accountants are
stipulated in the Certified Public Tax Accountant Law.
The business of certif ied public tax accountants
includes tax counsel, tax proxy, and preparation of tax
documents.

Self-Assessment System

To enable correct filing and payment of tax＿ thecornerstones of the self-assessment system＿ the NTA
endeavors to disseminate correct information about tax
and to ensure a fair tax burden, but in the final analysis,
taxpayers are the key players in the self-assessment
system.

Documents Attached by Certified Public Tax Accountants to Tax Returns
To facilitate tax compliance, the Certified Public
Tax Accountant Law was revised in May 2001, andthe revisions took effect from April 1, 2002. The
amendments to the law expanded the system forhearing the opinions of certified public tax
accountants (firms). The new system permits certified
public tax accountants (firms) to attach documentsthat describe the calculations or audit they performed
for the return. If the Tax Office intends to conduct a
tax examination on a taxpayer that has submitted

such a return, the certified public tax accountant(firm) possessing the certificate evidencing theauthority of tax proxy is given the opportunity to
express his or her opinion on the items written in theattached documents before the taxpayer is notified
about the tax examination.
The NTA intends to facilitate tax filing and payment
so that the new system for having certified public tax
accountants attach documents can be actively used.

The NTA’s Tax Payment Call Centers boast a state-of-the-art computer system.

28

Sel f-Assessment System■ Cooperative Private Organizations
In addition to providing tax information directly to taxpayers, the
NTA also endeavors to relay information to taxpayers throughcooperative private organizations, including blue return associations,
corporations associations, and indirect tax associations. These
cooperative private organizations play an important role in realizing
correct tax filing and payment as organizations of sincere taxpayers.

This representative of a cooperative privateorganization submits final tax returns early.

Blue Return Associations
Set up voluntarily by individual enterprises andother blue return taxpayers, blue returnassociations aim to spread the blue return systemand promote the submission of proper returns
through honest bookkeeping. Today, there areabout 4,200 blue return associations in Japan
comprised of approximately 1.09 million members.
Each association provides members with

instruction on bookkeeping and account settlementand disseminates tax information through seminars
and association newsletters. The associations arealso conducting a wide range of activities toencourage nonmembers to use blue returns. For
details, please inquire at your local blue returnassociation.

Corporations Associations
Corporations associations are independently
formed organizations that aim to improvebookkeeping practices and deepen and spreadknowledge of tax. Today, there are 483 corporations
associations nationwide, including prefecturalfederations, and membership stands at about 1.16
million corporations. Corporations associations
conduct a wide range of activities to contribute to
the improvement of tax awareness and the sounddevelopm ent of corporate m anagem ent andsociety. They hold tax lectures and seminars forcorporate executives, managers, and accountantsand engage in activities to contribute to the local
community. For more information, see the websiteof the National General Federation of Corporations
Associations at http://www.zenkokuhojinkai.or.jp(Japanese only).

Indirect Tax Associations
Indirect tax associations aim to contribute to thedissemination of knowledge about indirect taxes andthe realization of fair taxation and proper tax
administration through the self-assessment system.
Today, there are 538 indirect tax associations inJapan, and total membership stands at about
109,000 and is composed mainly of taxpayers ofconsumption tax and other indirect taxes. Indirect tax

29

associations make proposals to the government on
ways to enhance the indirect tax system and its
enforcement. The associations also conduct activities
to prevent consumption tax delinquency. For moredetails, please see the website of the National
General Federation of Indirect Tax Associations at
http://www.kanzeikai.jp (Japanese only).

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 andcorporations associations. These associations aim todisseminate knowledge about taxes, promote propertax filing and payment, and enhance compliance.
There are 83 tax payment associations nationwide
which together boast membership of about 310,000

individuals and corporations. Each tax payment
association conducts a wide range of activities todisseminate information about tax, including PR
activities, briefings and lectures tailored to the needsof members, and bookkeeping classes. For moredetails, please consult the website of the Federationof Tax Payment Associations at
http://www.nouzeikyokai.or.jp (Japanese only).

Self-Assessment System

Tax Payment Associations

Saving-for-Tax Associations
To fully pay tax by the deadline, it is important tothink about cash flow and endeavor to systematicallysave funds to use for tax payment. Saving-for-tax
associations are formed by and of taxpayers who
strive to pay all their taxes on time every year bysaving for tax payment on a daily basis. Establishedbased on the Saving-for-Tax Associations Law, theseassociations number 99,000 today. The associations
encourage tax payment by transfer account forincome tax for individuals and for consumption tax
and local consumption tax for individual enterprises

based on savings set aside as funds for tax payment,
and promote the full payment of consumption tax.
Moreover, the associations conduct a wide range ofactivities to spread tax information and raise tax
awareness, including holding seminars on tax law
and holding an essay contest on tax for junior highschool students. For details, please consult thewebsite of the National Federation of Saving-for-Tax
Associations at http://www.zennoren.jp (Japaneseonly).

Tax Q&A
Ｑ I see posters promoting blue returnassociations and blue returns. Why are these
returns referred to as “blue?”
A Blue returns were introduced with the Shoup
Recommendations* after World War II.
Designed to promote proper filing, blue
returns were permitted only for taxpayers who
kept certain books and documents, and blue
return taxpayers were given various benefits.
There are various theories about why the
returns are referred to as “blue.” One theoryis that the system in the United States at thattime used a blue-colored return. Anothertheory is that blue was selected because of
its association with the image of “cleanliness”
and “proper declaration.”＊ The Shoup Recommendations are the recommendations of a U.S.
mission led by Dr. Carl Summer Shoup that served as the masterplan for the comprehensive reform of Japan’s tax system afterWorld War II.

Final income tax return30Reme dy for Infringement of Taxpayer Rights
Requests for Reinvestigation, Requests for Reconsideration, Litigation:
Japan’s Systems to Address Infringement of Taxpayer Rights and Interests

Sometimes taxpayers differ in viewpoint with theTax Off ice about a correction made during a tax
examination. If they want to appeal the correction, they
use the appellate system for administrative review
before lodging a lawsuit directly with the court. This
review system provides procedures to simply andpromptly remedy infringement of taxpayer rights andinterests and is composed of requests forreinvestigation and requests for reconsideration.
To appeal the Tax Office’s handling of a case, in
principle taxpayers f irst submit a request for■Requests for Reinvestigation
Requests for reinvestigation represent the first stageof administrative dispute procedures regarding disposalof national tax. To appeal a correction/determination or
seizure made by the Tax Office district director or otheroff icial, the taxpayer lodges a request forreinvestigation with the district director or other official
to request the ruling be revoked or changed.
In recent years, reinvestigation request cases havegrown increasingly complicated as corporate groups
conduct inter-prefectural and international business
transactions. With this, more and more of these cases
require facts that are hard to ascertain and involve lawsthat are diff icult to interpret. To respond to thissituation, the National Tax Agency (NTA) has
established Review Divisions (Examination) withreview officers at each Regional Taxation Bureau. In
addition, we are endeavoring to develop a system toappropriately and promptly process requests forreinvestigation by offering various training programs todevelop officials expert in conducting reviews as well
as examinations. As a result, about 80 percent of all
requests for reinvestigation have been processed within
three months in recent years.
The NTA endeavors to conduct reinvestigation
operations properly and uniformly throughout thenation based on an accurate interpretation of tax law sothat taxpayers throughout the country are properly andfairly taxed at the examination stage.
In f iscal 2002, a total of 4,379 requests forreinvestigation related to taxation were processed. Of
these cases, 18 percent saw full or partial review infavor of the taxpayer’s claims based on new facts
determined.

31

reinvestigation to the district director of the Tax Office.
If a taxpayer is still dissatisfied after receiving theoutcome of the request for reinvestigation, he or she
can submit a request for reconsideration to thepresident of the National Tax Tribunal, a specialized
institute which is independent from the district directorof the Tax Office. In addition, if a taxpayer wants toappeal the disposal of his or her case after a decision
has been given by the president of the National Tax
Tribunal, the taxpayer may lodge a lawsuit in court asin other general administrative cases.

Percentage of Reinvestigation Request
Cases Processed within 3 Months andNumber of Reinvestigation Request
Cases Processed(No. of cases)
6,000

(%)
100
Percentage of Cases Processed

5,800

87.8
83.1

5,600

84.7
81.0

86.1

79.6

90

80

5,400
5,279

70

5,265
5,198

5,200
5,086

60

5,000
50
4,800

4,713
40

4,600

4,400

4,379

4,200

30

20

4,000
10

0

0
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1998 1999 2000 2001 2002 2003
No. of Tax Cases ProcessedRelationship between the Appellate System and Litigation
Taxpayer

Correction/determination,delinquency disposition, etc.

Request for reinvestigationmust be lodged within 2 months.

Request for reinvestigation

Decision onrequest forreinvestigation

District Director of Tax Office

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

Request forreconsiderationmust be lodged
within 1 month.

Request for reconsideration

National Tax Tribunal President

Decision onrequest forreconsideration

No decision onrequest forreconsideration
after 3 months

Opinions

NTA Commissioner

ReportReferralNational Tax Council

Litigation must be
instituted within
3 months.

● In cases where a decision interprets laws

or regulations differently from directives.
● In cases where a decision will become

an important precedent.

Litigation

Remedy for Infringement of Taxpayer Rights

Instructions

Court

32

Reme dy for Infringement of Taxpayer Rights■Requests for Reconsideration
Taxpayers who wish to appeal the decision of the
district director of the Tax Office in relation to theirrequest for reinvestigation can lodge a request forreconsideration with the president of the National Tax
Tribunal.
The National Tax Tribunal remedies infringement of
taxpayer rights and interests by taking an independent,
third-party perspective from the Regional Taxation
Bureaus and Tax Offices. Appeals judges, associate
appeals judges, and tax tribunal examiners withspecialized knowledge and vast experience examine
and review the case from a neutral standpoint. Justices
and public prosecutors are appointed president of the
National Tax Tribunal and chief appeals judges at theTokyo and Osaka Branch Offices of the Tribunal andother key positions.
The National Tax Tribunal promptly clarifies thepoints at issue in a case by drafting a chart outlining theclaims of each party after fully ascertaining theirperspectives by contacting the party requesting
reconsideration and the Tax Off ice. The Tribunal
endeavors to quickly and speedily remedy any
infringement of the rights and interests of the taxpayer
by listening fully to the opinions and claims of eachparty and conducting its own examination whennecessary.
Decisions by the president of the National Tax
Tribunal never increase the penalty placed on the
taxpayer in the disposal made by the Tax Office district
director. Moreover, the district director cannot institutea lawsuit even if he or she wishes to appeal the ruling,
because the decision by the National Tax Tribunal
president represents the final opinion of the NTA.
In principle, decisions on requests forreconsideration are issued within one year. In fiscal
2002, requests for reconsideration related to taxation
numbered 3,206, about 15 percent of which found fullyor partially in favor of the taxpayer.

33

Percentage of Reconsideration Request
Cases Processed within 1 Year andNumber of Reconsideration Request
Cases Processed(No. of cases)

(%)
3,497

3,500
Percentage ofCases Processed

70

65.5

3,400
56.9

3,300

60

54.6
3,206

3,200

48.9

48.3

50

46.0
3,100

3,063
3,032
40

3,000

2,900
30
2,782

2,800

2,700

2,661

20

2,600
10

2,500

0

0
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1998 1999 2000 2001 2002 2003
No. of Tax Cases Processed■ Litigation
Taxpayers can institute a lawsuit at a court of law ifthey wish to appeal the decision by the president of the
National Tax Tribunal. The NTA accepts the decisionsof the court and reflects them in its administration oftax particularly as regards new tax matters that arise
due to today’s constantly changing social and economic
situation. When issues arise because the system itself isunable to successfully respond to socioeconomicchanges, the NTA requests the legislative authorities torevise the law.

In fiscal 2002, 275 tax-related lawsuits were lodged.
A total of 232 cases were resolved over the course of
the year, about 12 percent of which found fully or
partially in favor of the taxpayer. However, this is not a
final figure because there is a considerable number ofcases where the taxpayer’s views are validated in the
court of first instance but then overturned in favor of
the state in a higher court. In recent years, there areabout 10 litigation cases a year which find in favor of
the taxpayer in the end.

■ Case Trends
Approximately 4,500 requests for reinvestigation and
3,000 requests for reconsideration are received every
year, and in about 15 percent of both types of cases theoriginal disposal at question is revoked. Combining
these two figures, this means that full or partial reviewof the correction, determination, or other disposal by
the Tax Office is made in about one-fourth of all casesof request for investigation. Requests forreinvestigation, requests for reconsideration, andlitigation found fully or partially in favor of the
taxpayer’s claims in about 0.4 percent of all cases where
the Tax Off ice found that there were errors in the
declaration of tax. In other words, approximately 4 ofevery 1,000 corrections by the Tax Office were ruled
against.
To gain taxpayer understanding regarding the system
for remedy of infringement of taxpayer rights, the NTA
and the National Tax Tribunal provide information in
Japanese on case decisions via the NTA website.

Responding to Taxpayer Grievances
grievances is crucial to earn the understanding andtrust of taxpayers. In recent years, about 88 percent
of all grievances have been handled within threedays of receipt. Moreover, in July 2001, the positionof taxpayer support officer was created, and theposition’s duties include explaining procedures for
remedy of infringement in cases where taxpayer
rights or interests have been infringed.

Remedy for Infringement of Taxpayer Rights

In addition to receiving requests for reinvestigation
regarding corrections, the NTA also sometimes
receives complaints, requests, and criticisms(hereinafter “grievances”) from taxpayers regarding
tax officials’ attitude or manner of examination. The
NTA endeavors to respond promptly and properly bytaking the standpoint of the taxpayer because webelieve that responding forthrightly to taxpayer

34

Adm inistration of the Liquor Industry
Ensuring the Sound Development of the Liquor Industry

Liquor tax has been a major source of government
revenue alongside land tax since the Meiji Restorationof 1868. Liquor tax even surpassed land tax revenue at
one point to become the primary source of national tax
revenue. Since then, however, income tax, corporation
tax, and other direct taxes have come to make up a
greater proportion of total revenue. In fiscal 2003,
liquor tax amounted to ¥1.733 trillion and accounted
for 4.0 percent of total tax revenue. Liquor tax is astable form of tax revenue because it is not easily
affected by fluctuations in the economy. For this reason,
liquor tax continues to play an important role in Japan’s
tax system today.
The liquor industry is composed of 2,841
manufacturers and 152,477 sellers (as of the end of
fiscal 2002), more than 95 percent of which are small

or medium-sized enter prises. The environment
sur rounding the liquor industry is changing
dramatically as it responds to the issues of citizen
health and the consumption of alcohol by minors, aswell as the deregulation of liquor sales licenses, thediversification of consumer preferences and demand,and the advancement of IT.
With the aim of promoting the sound development of
the liquor industry amid this environment, the National
Tax Agency (NTA) conducts rigorous licensing
inspections and responds to society’s demands,
including the call to prevent underage drinking. The
NTA also endeavors to ensure a fair trade environment
and to support the revitalization of the management of
the small and medium-sized enterprises in the liquor
industry.

■ Conducting Rigorous Licensing Inspections
A licensing system is adopted in the liquor industry
to ensure the proper collection of liquor tax and to
facilitate the shifting of the tax burden onto consumers.
In recent years, however, the liquor industry has been
deregulated to enhance consumer convenience. Basedon the Three-Year Program for Promoting Deregulation(passed by the Cabinet in March 1998), thegeographical distance criteria＊17 for the issuance ofretail licenses was discontinued in January 2000, andthe population quotas＊18 were gradually relaxed andfinally abolished in September 2003. Along with these
deregulations, regions that have a marked over-capacity
to supply liquor in relation to the region’s demand for
liquor have been designated as “regions requiring
emergency adjustment of liquor demand and supply”

based on the Emergency Measures Law Concerning
Improvement, etc., of the Management of Liquor
Retailers (hereinafter “Emergency Measures Law”),
and the issuance of retail licenses is restricted for the
one-year period from September 1, 2003, throughAugust 31, 2004.
In regions not requiring adjustment of liquor demandand supply, there are more retail license applications
today than there were prior to the lifting of the
population quotas. Before issuing licenses in responseto these applications, however, the NTA conducts
rigorous inspections to make sure that all requirements
added with the 2003 revision of the Liquor Tax Law are
fulfilled and checks specifically for violation of the
Law for Prohibiting Liquors to Minors.

＊17 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.
＊18 With the population quotas, new licenses were only issued if the resident population per existing liquor store reached a certain level.

35

■Responding to Society’s Demands
To respond to society’s demand to prevent theconsumption of alcohol by minors, every liquor retailer
is required to appoint a liquor sales manager with the2003 revision of the Law Concerning Liquor Business
Associations and Measures for Securing Revenue fromthe Liquor Tax. In addition, liquor retailers must
endeavor to have their liquor sales manager attend
liquor sales management training. Stores are also

required to place a “Liquor sales area” sign and a“Drinking by minors is prohibited by law” signwherever liquor is displayed.
The efforts not only of the liquor industry but also offamilies, schools, communities, and the government are
crucial to successfully address this issue. The NTA is
cooperating and coordinating its efforts with the related
government ministries and agencies, members of theliquor industry, and others.

■ Ensuring a Fair Trade Environment
To ensure a fair trade environment in the liquor
industry,＊19 the NTA works in cooperation with the Fair
Trade Commission of Japan (JFTC) to publicize the
NTA’s Guidelines for the Sound Development of the
Liquor Industry through Fair Competition and the
JFTC’s Guidelines Concerning Unfair Price-Cutting
and Discriminatory Pricing in the Distribution of
Liquors. In addition, the NTA conducts surveys oftransactions to ascertain actual trade conditions andprovides guidance on how to improve the tradeenvironment. The liquor industry is also taking
measures; it independently has announced it willcomply with fair trade business practices and has
released its own evaluation of the industry’s
performance.
Based on the Emergency Measures Law, the national
tax authorities request the JFTC to take the appropriate
actions if they find that unfair trade practices stipulated
in the Antimonopoly Act are being used in liquortransactions.

■Supporting Management Revitalization
To revitalize the management of the small andmedium-sized enterprises in the liquor industry, theNTA conducts measures to support liquor retailers in
implementing management improvement plans andsmoothly closing down or changing their businessdomain if needed. The NTA has created a low-interest
financing system for equipment and facility purchases

and has set up a website for consultations to support
companies in such endeavors as entering a new
industry. We also hold training programs andconsultations and award superior companies with thedesignation of “model business.”
For the sake manufacturing and liquor wholesaleindustry, the NTA provides various forms of support forcompany efforts to strengthen their management basein line with the Small and Medium Enterprises
Business Innovation Support Law.

Administration of the Liquor Industry

The liquor industry is adapting to diversifying consumer demand.
＊19 “To ensure a fair trade environment in the liquor industry” means to provide guidance and other support to promote free and fair competition byeliminating 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 advantageous conditions only to certain business partners.

36

An Eye to the Future
Revised Consumption Tax Law, Internationalization, andSupport for Developing Countries
1. Revised Consumption Tax Law
With the fiscal 2003 revisions to the tax system, thesales threshold for enterprises to be exempt fromconsumption tax＊20 was lowered as was the thresholdfor application of the simplified tax system.＊21 At thesame time, new provisions were introduced requiringthat merchandise labels indicate full prices inclusive ofconsumption tax. The revised system came into effecton April 1, 2004. To ensure the smooth enforcement of
the new law, the National Tax Agency (NTA) is
publicizing the revisions made to the Consumption Tax
Law as well as providing consultations and guidance
and taking various other measures.
The lowering of the threshold for consumption tax

exemption is expected to result in about 1.4 million
new enterprises being subject to taxation from fiscal
2005. These will be small-scale businesses with little
experience in reporting and paying consumption tax.
For the revised system to take root, it is crucial thatthese businesses are able to properly declare and pay
their consumption tax obligations, and the NTA istaking thorough measures, including encouraging thesubmission of such documents as Notif ication of
Taxable Enterprise Status for Consumption Tax,
holding brief ings, and providing guidance on
bookkeeping.

Changes in the Number of Enterprises Subject to Consumption
Tax with the Revisions to the Consumption Tax Law(1,000 enterprises)
Effects of Revised Consumption Tax Law＊

Fiscal 2000

Number of Enterprises Affected by
Revisions to the Simplified Tax System

Total Number
of Enterprises

Number of
TaxableEnterprises

Percentage ofEnterprises
Taxed

Number of Taxable
Enterprises after
Revisions to the
System for ExemptingEnterprises from
Consumption Tax

Individuals

3,256

537

16.5%

1,419

313

102

Corporations

2,676

1,719

64.2%

2,200

750

463

Total

5,933

2,255

38.0%

3,619

1,063

565

Number ofEnterprises
Applying the
Old Simplified
Tax System

Of Which, Number
of Enterprises
with Taxable
Sales of over
¥50 Million＊ Source: Data from the Japanese government’s Tax Commission＊20 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 is called the “system for exempting enterprises from tax liability.”＊21 In principle, the amount of consumption tax payable is calculated by deducting the amount of consumption tax on purchases and other items from theamount of consumption tax on sales. Enterprises with taxable sales of ¥50 million or less (¥200 million or less before the revisions), however, cancalculate 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”.

37

2. Tax Administration in the Era of Globalization
To maintain and improve the compliance of
taxpayers engaging in international transactions, it isimportant to eliminate the risk of double taxation thatsometimes results from differences in taxation rules
between nations. To achieve this, common rules oninternational transactions must be developed, and■ Developing Common Tax Rules
Today the number of international transactions isincreasing and transaction formats are diversifying withIT and other developments. Taxation rules, however,sometimes differ between countries. Unless tax
administrations can completely eliminate the risk of
double taxation, such differences in rules block the flowof transactions and in turn make it difficult to maintainthe compliance of taxpayers engaged in global
transactions. That is why the NTA is working with tax
authorities around the world to develop common tax
rules for international transactions.
(1) Review of the Tax Convention Model
The OECD Committee on Fiscal Affairs has longspearheaded the effort to create new rules and develop
a common tax convention among nations, and it hasrevised its tax convention model, as necessary.
In cases where the affiliates and branches of aninternational company are located in a different country
from the parent company or head office, the national
attribution of the income made by the affiliates andbranches involves the allocation of tax revenue among
countries and double taxation may arise. The OECD
Committee on Fiscal Affairs examines how to best
design rules to address such issues.

nations’ tax authorities must work together and share
their experiences. This is an important task not only forJapan but also for other nations, and the NTA isconducting the following key measures in cooperation
with the tax authorities of other nations.

(2) Taxation of Electronic CommerceWith the increasing use of IT, internationaltransactions via the Internet are expanding rapidly. In
the case of e-commerce, consumers can place orders
directly with a company’s head off ice in anothercountry and settle their transactions by withdrawing
payment from a bank account. The OECD Committee
on Fiscal Affairs and other related international
conferences examine international taxation rules forthese kinds of international transactions via theInternet.
(3) Elimination of Harmful Tax Competition
To attract foreign capital, some countries implement
excessive tax reductions (tax incentives) on theirfinancial and services industries. Comparatively heavy
taxation on labor, assets, and consumption results. This
has a negative influence on the fiscal base of the nation
and also gives rise to distortions in cor porate
investment behavior. The OECD Committee on Fiscal
Affairs endeavors to rectify this problem by issuing alist of countries and regions that offer extreme tax
reductions.

An Eye to the Future38

An Eye to the Future■Preventing International Double Taxation
When countries differ in viewpoint on the national
attribution of income earned through internationaltransactions, the risk that a corporation will be subject
to double taxation through transfer pricing taxation orwithholding income tax rises. Such double taxation is
resolved through mutual consultations between the tax
authorities based on tax conventions. The risk ofinternational double taxation increases as corporate
activities become more global, and the number of cases
requiring mutual consultations is increasing every year.
The NTA strives to appropriately resolve such cases
and to perform the necessary administrative procedures
as efficiently as possible so that cases are processedswiftly.

To reduce the administrative burden on corporations
regarding transfer pricing taxation and ensure taxation
predictability for corporate management, the NTA
actively implements bilateral advance pricing
arrangements (BAPA) using the system for mutual
consultations recognized in tax conventions. More andmore corporations are taking advantage of this system.
In September 2003, to increase taxpayer
understanding of our nation’s advance pricing
arrangement (APA) system and to further promote useof this system, the NTA released the APA Program
Report which gives an overview of APA and the APA
process and provides statistics on past APA cases. The
report is available in English and Japanese on the NTA
website.

Number of Mutual Agreement Procedure Cases by Type
Others:25 (21.2%)

Transfer
Pricing Taxation:
37 (22.5%)

Others:39 (23.8%)
End of June 1999
Total: 118

Transfer Pricing
Taxation:51 (43.2%)

APA:
42 (35.6%)

End of June 2003
Total: 164
APA:
88 (53.7%)

New Japan-U.S. Tax Convention
When corporations engage in international
business transactions, double taxation sometimes
arises due to differences in each nation’s tax system.
Nations conclude tax conventions to eliminate suchdouble taxation. Japan has concluded 45 suchtreaties to date.
The new Japan-U.S. tax convention ratified in
March 2004 is a comprehensive revision of the old
tax treaty. With the close economic ties that Japanand the U.S. enjoy, the convention aims to promote
active investment exchange and at the same time
stipulates measures to prevent tax avoidance. For
example, dividends received from a U.S. affiliate or
royalties received from a U.S. corporation have been

subject to withholding tax in the U.S. to date. Basedon the philosophy in the OECD Model Tax
Convention on Income and on Capital, ＊ 2 2 such
dividends and royalties are exempted in the newconvention from taxation in the nation in which theinvestment is made.
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 byresidents in a third country, to whom the treaty was
not originally intended to be applied.
Ensuring the proper application of this new treaty
which will come into force from July 2004 is crucial toensure proper and fair taxation.

＊22 The OECD Model Tax Convention is a model for the drafting of new bilateral tax treaties and the revision of existing treaties. The Model Convention isdrafted based on ongoing discussions among OECD member countries at the OECD Committee on Fiscal Affairs. The Model Convention was firstestablished in 1977 and was revised in 1992, 1994, 1995, 1997, and 2000.

39

■Addressing International Tax Avoidance
As the risk of double taxation in internationaltransactions heightens, taxation loopholes where
income is not taxed in any country arise through tax
avoidance schemes that abuse tax treaty privileges. To
prevent this kind of international tax avoidance and tosecure their taxation rights, countries are strengthening
their measures regarding international taxation. As
economic activities grow more global, it is crucial that
information outside the country can be gathered toensure appropriate taxation. Each country’s tax
authorities are making efforts to deepen cooperative
relations, including providing each other withinformation requested based on tax treaties. To actively
cooperate in this kind of international informationexchange, the NTA was newly given the authority toinquire and inspect under the 2003 revisions to the tax
system so that the NTA also can respond quickly torequests for information from Japan’s treaty partners
based on its tax treaties.
In the past, international taxation issues were aquestion of adjusting each nation’s right of taxation bydetermining which country had the right to levy tax.
Today, however, responding to tax avoidance schemes
in which no country has levied tax is an important
issue. International conferences of taxation authorities
are of one accord that sophisticated tax avoidance
schemes must be handled through international
cooperation just like the issue of double taxation.

Information Exchange Based on Tax Treaties(1,000 cases)
1998
Business Year

2002
Business Year

175

237

Number ofInformation
Exchange Cases

Japan’s Tax Convention Network 45 treaties applied in 55 countries (as of May 2004)
Europe (15)

Eastern Europe (16)Austria, Belgium, Denmark, Finland, France,
Germany, Ireland, Italy, Luxemburg, Netherlands,
Norway, Spain, Sweden, Switzerland, U.K.

Armenia, Belarus, Bulgaria, Czech Republic, Georgia,
Hungary, Kyrgyz Republic, Moldova, Poland, Romania, Russia,
Slovakia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan

North America (2)Canada, U.S.A.

East and Southeast Asia (8)Indonesia, Malaysia, Philippines, P.R.C.,
R.O.K., Singapore, Thailand, Vietnam

South andCentral Asia (4)Egypt, Israel, Turkey

Bangladesh, India,
Pakistan, Sri Lanka

Africa (2)Central andSouth America (2)Brazil, Mexico

Oceania (3)Australia, Fiji, New Zealand

An Eye to the Future

Middle andNear East (3)South Africa, Zambia

40

An Eye to the FutureInternational Conferences of Tax Authorities
To deepen the cooperative ties among tax authorities, various meetings are held, including those forcommissioners. Key multilateral and bilateral international meetings include the following:● Study Group on Asian Tax Administration andResearch (SGATAR)
SGATAR was established in 1971 with theaim of promoting international cooperation in
tax administration in Asia and fostering theexchange 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 wascompiled in a uniform format through a project
proposed by Japan. This information isavailable in English on the NTA website.

● Meetings Related to the OECD Committee on
Fiscal Affairs
The OECD performs a central role indeveloping international common tax rules. In
addition, it encourages the sharing ofexperiences among countries by organizing
study groups on various tax issues andfostering exchange of opinions among
specialists from member country administrations. A forum for tax administrations＊ waslaunched in January 2004. At the firstmeeting, opinions were actively exchanged
about how to maintain social morals about tax,
improve taxpayer convenience, and promote
communication with taxpayers.
＊The OECD Forum on Tax Administration (FTA) was held in
Seville, Spain, in January 2004. Tax authorities from a total of 39
countries, including OECD members, participated.

● Pacific Association of Tax Administrators(PATA)
A meeting of the tax authorities of four key
Pacific Rim countries (Japan, Canada, theUnited States, and Australia), PATA wasestablished in 1980 with the aim of fostering
the exchange of views on common tax issues.
To facilitate transfer pricing examinations by
PATA members, PATA released principles inMarch 2003 under which taxpayers can create
uniform transfer pricing documentation for
their international transactions (PATA
Documentation Package) so that one set of
documentation can meet their respective
transfer pricing documentation provisions. The
PATA Documentation Package can be viewed
in Japanese and English on the NTA website.

41●Japan-People’s Republic of China Tax Administrators’ Meeting and Japan-Republic ofKorea Tax Administrators’ Meeting
Bilateral commissioner-level meetings areheld every year with the tax administrations ofChina and South Korea ＿ two of Japan’s
neighbors with which it shares strong
economic ties. At the conferences, thecommissioners exchange opinions about
matters of concern related to tax. In this way,mutual understanding and cooperative ties arepromoted regarding tax administration.

■ Offering Intellectual Support to Developing
Countries
Improving and enhancing the tax system andadministration in developing countries contributes tothe economic development of those countries bystrengthening their fiscal base. Moreover, fostering acommon understanding of taxation rules between

developing countries and Japan prevents tax issues
from arising and facilitates speedy mutual consultations
and other procedures if problems do arise. For thisreason, Japan actively provides intellectual support todeveloping countries, including dispatching experts to
the People’s Republic of China and ASEAN nations andholding training programs in Japan.

The National Tax College provides training to tax officials from developing countries.

Representatives of tax authorities of 13 countries andregions in the Asia-Pacific region participate in the
Study Group on Asian Tax Administration andResearch (SGATAR).

An Eye to the Future

Representatives of tax authorities of four key
Pacific Rim countries (Japan, Canada, theU.S., and Australia) participate in the Pacific
Association of Tax Administrators (PATA).

42

Sta tistics

Tax Revenue and Budget
Budget and Actual Amounts of Tax and Stamp
Revenues for Fiscal 2002
Item
Withholding income tax

Taxation and Status of Tax Return Filing
Tax Examinations
Criminal Investigations
Tax Delinquency

43
44
45
46
46

Remedy for Infringement of Taxpayers Rights

47

Tax Consultations

48

General AccountTax Revenue and Budget

48

Taxpayer Satisfaction

48

Actual12,933,000

12,249,159

Self-assessed income tax

2,898,000

2,563,068

Corporation tax

11,174,000

9,523,438

Inheritance tax

1,530,000

1,452,891

Consumption tax

9,825,000

9,811,538

Liquor tax

1,735,000

1,680,396

Tobacco tax

848,000

844,101

Gasoline tax

2,134,000

2,126,266

Liquefied petroleum gas tax

14,00014,162Aviation fuel tax

91,00090,102Petroleum tax

480,000

463,445

Motor vehicle tonnage tax

840,000

847,977

Customs duty

860,000

793,642

Tonnage due

9,000

8,725

Others＊International Taxation(¥ million)

Budget1,000

546

Stamp revenue

1,444,000

1,363,750

Subtotal

46,816,000

43,833,205

Local road tax

304,300

303,490

Liquefied petroleum gas tax(transferred)

14,00014,162Aviation fuel tax (transferred)

16,50016,382Motor vehicle tonnage tax(transferred)

280,000

282,659

Special tonnage due

11,30010,907

Crude oil custom duty, etc.

38,00041,470Power resources development
promotion tax

376,700

376,791

Gasoline tax

710,200

710,200

Special tobacco surtax

255,800

254,968

48,822,800

45,844,234

Total

Note: “Others” includes commodity tax, land value tax, and other items collected asdelinquent taxes.
Note: The period of the statistics is shown in the title, above the table, or in thenotes. A fiscal year is the one-year period from April 1 through March 31 of
the following year. A business year is the one-year period starting July 1 of thegiven year and ending on June 30 of the following year. A calendar year is the
one-year period from January 1 through December 31.

43

NTA Budget for Fiscal 2003

Withholding Agents and Withholding Income Taxation(¥ million)

General Expenditures

Item
KSK System-related expenditures, etc.

62,087

Expenses to improve convenience for taxpayers＊1

11,171

Expenses related to internationalization measures

594

Expenses to improve workplace environment＊2

6,755

Expenses related to tax system revisions

5,628

Expenses for various taxation forms andcommunication expenses

21,387

General operating expenses＊3

42,371

Expenses for National Tax College

2,807

Expenses for National Tax Tribunal

491

Expenses for National Research Instituteof Brewing
Subtotal(2002 business year)

Budget1,309
154,601

Personnel expenses

568,620

Total NTA budget

723,221

Notes:＊1. "Expenses to improve convenience for taxpayers" include expenses related totouch-screen computers and the development of e-Tax and the tax returnpreparation 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.

Income Classification, etc.

Number ofWithholding Agents＊ Tax Amount(1,000 agents)

Employment income(wages and salaries)

96,453Retirement income

−

3,414

Interest income, etc.

45

10,492

Dividends

129

10,665

Capital gains of listed stocks, etc.

−

1,237

Capital gains of listed stocks
held in special accounts, etc.

280

Remunerations, fees, etc.

3,222

10,873

Income paid to nonresidents andforeign corporations

24

4,033

Total

7,328

137,245

Note: Figures for withholding agents are as of the end of June 2003.

Number of Corporations and Number of Corporation
Tax Returns Filed (2002 business year)
Number of corporations* (1,000 corporations)

2,896

Number of tax returns filed (1,000 returns)

2,723

Percentage of corporations filing89.0 %

Percentage of returns declaring a surplus

Taxation and Status of Tax Return Filing
Income Taxpayers (2003 calendar year)(1,000 persons)(1) Total population

127,440(2) Workforce

63,300(3) Number of final returns for income tax＊

21,390(¥100 million)

3,906

30.3 %

Amount of self-assessed income (¥100 million)

350,299

Amount of self-assessed loss (¥100 million)

330,116

Amount of tax (¥100 million)

93,500Note: The figure for "number of corporations" is as of the end of June 2003.

Inheritance Tax (2002 calendar year)(4) Refund＊

10,940(5) Tax payment＊

6,930

Number of deceased persons

2,840

Number of deceased persons subject to taxation

44,370

Number of heirs subject to taxation

134,294

42,390

Taxable amount (¥100 million)

106,397

39,550

Amount of tax (¥100 million)

12,863(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)](9) Number of taxpayers [(5)＋(8)](10) Percentage of workforce that pays tax [(9)/(2)]982,379

46,48073.4 %

Note: Figures for items (3), (4), and (5) are for the 2003 calendar year, and those forthe other items are for the 2002 calendar year.

Statistics
44

Sta tistics

Gift Tax (2002 calendar year)

Tax Examinations

Number of persons subject to taxation

360,594

Value of property acquired (¥100 million)

12,685

Amount of tax (¥100 million)

Examinations for Self-Assessed Income Tax (2002 business year)

692

Total
Total
Number of Unreported Unreported Deficient
Income per
Cases
IncomeTax
Case

DeficientTax perCase(1,000 cases) (¥100 million) (¥ thousand) (¥100 million) (¥ thousand)Consumption Tax (2002 calendar year)
Tax Payment
No. ofReturns

Tax Refund

Individual

456

15

Corporation

1,571

85

(1,000 returns)

Total

Amount of tax (¥100 million)

2,027

99

95,34915,456

Liquor Tax and Liquor Production (2002 calendar year)
Production Volume

Amount of Tax(1,000 kL)(¥ million)

Sake

633

113,891

Sake compound

40

4,572

Shochu827

206,573

Mirin(sake-based cooking wine)

100

2,272

Classification

Beer

952,837

Wine, etc.

89

15,544

Whisky and brandy

89

46,737

Spirits

53

7,764

Other liquors＊
Total

74

5,033

Brief contact＊

695

3,532

508

210

30

Total

768

8,565

1,115

1,269

165

6,845

1,059

1,440

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.

Examinations for Withholding Income Tax (2002 business year)
Number of
Cases Examined

Of Which, Number ofIllegal Cases

Total Deficient Tax(1,000 cases)(1,000 cases)(¥100 million)

183

47

741

Field Examinations for Corporation Tax (2002 business year)
Total
Unreported
Number of
Cases Unreported Income per
Income
Case

Total
Deficient
Tax

DeficientTax perCase(1,000 cases) (¥100 million) (¥ thousand) (¥100 million) (¥ thousand)

4,300

Liquors

Field
examinations

558

53,064

2,626

278,9299,314

1,682,183

All corporations

122

15,555

12,793

4,173

3,432

Of which,
corporations
handled by the
Examination
Department

5

8,388

171,927

2,259

46,300

Examinations for Consumption Tax (2002 business year)

Note: "Other liquors" includes low-malt beer.

Number of
Cases

Number of
Cases with
Unreported
Income

Total
Deficient
Tax

DeficientTax perCase(1,000 cases)(1,000 cases)(¥100 million)(¥ thousand)Individuals

39

27

171

438

Corporations

109

57

666

609

Field Examinations for Inheritance Tax (2002 business year)
Number of
Total
Number of Cases with Total Amount Unreported
Unreported of Unreported Inheritance Deficient
Cases
Tax
per Case
Inheritance Inheritance(1,000 cases) (1,000 cases) (¥100 million)

11

45

10

3,748

(¥ thousand)

36,847

DeficientTax perCase(¥100 million) (¥ thousand)

922

9,751

Information Returns Collected (2002 business year)(1,000 returns)

Withholding record of employment income

20,043

Interest payment record

928

Dividend payment record

2,635

Withholding record of public pension, etc.

28,653

Payment record of remunerations, fees, contract
payments, and prizes

7,441

Tax Delinquency
Tax Delinquency Cases of ¥100 Million or More by Industry(as of the end of the 2003 fiscal year)

Industry

Number of Persons

Tax Amount(¥100 million)

Manufacturing industry

83

4.2%

172

3.2%

Payment record of consideration for transfer of stocks, etc.

6,315

Distribution industry

126

6.4%

431

8.0%

Others25,981

Real estate andconstruction industry

550

27.9%

1,428

26.5%

Food and beverage industry

98

5.0%

189

3.5%

Total

91,996

Criminal Investigations
Criminal Investigations (2003 fiscal year)
Total
Tax
EvadedNumber of Number of Number of
Cases
Cases
Cases
Commenced Closed Prosecuted

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

Financial industry

38

1.9%

113

2.1%

Other industries＊1

495

25.1%

1,313

24.4%

Others＊2

582

29.5%

1,733

32.3%

Total

1,972

100.0%

5,379

100.0%

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

(¥100 million) (¥ thousand) (¥100 million) (¥ thousand)

201

202

147

336

166,400

306

208,166

Seizure of Property (2002 business year)

Large-Scale Cases (2003 fiscal year)
Number of
Prosecuted Cases

Of Which, Number ofProsecuted Cases with aTax Evasion Amount of¥300 Million or More

Of Which, Number ofProsecuted Cases with a Tax
Evasion Amount of ¥500
Million or More

147

21

15

Prosecuted Cases by Tax Item (2003 fiscal year)

Tax Item

Number of
Cases

Total Tax
Evaded(¥100 million)

Movable property

Number ofDelinquent
Taxpayers

Number of
Objects
SeizedAppraisal
Value

357

4,921

2,669

(¥ million)

Claims36,322

51,284141,447

Immovable property, etc.

10,25340,319299,275

Others

5,690

92,824

4,270

Total

52,622

189,348447,661

Tax Evaded
per Case(¥ thousand)Income tax

32

38

118,814

Corporation tax

104

223

214,055

Other taxes

1145

412,429

Total

147

306

208,166

Statistics
46

Sta tistics

Remedy for Infringement of Taxpayers Rights
Requests for Reinvestigation

Classification

Numberof Illegal
Cases
(1)

Number of
Number of New
Requests for
Requests for
Reinvestigation
Reinvestigation(2)

Percentage[(2)/(1)]

Number of
Cases
Processed

Number of Requests Approved

(3)

(4)

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

288,000

5,836

4,727

1.6%

4,379

770

0.27%

17.6%

Tax collection

52,622

484

392

0.7%

430

4

0.01%

0.9%

Total

340,622

6,320

5,119

1.5%

4,809

774

0.23%

16.1%

Requests for Reconsideration

Classification

Numberof Illegal
Cases
(1)

Tax assessment

288,000

Number of Number of New
Requests for Requests for
Reconsideration Reconsideration Percentage(2)[(2)/(1)]
6,103

2,622

0.9%

Number of
Cases
Processed

Number of Requests Approved

(3)

(4)

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

3,206

494

0.17%

15.4%

Tax collection

52,622

308

201

0.4%

197

6

0.01%

3.0%

Total

340,622

6,411

2,823

0.8%

3,403

500

0.15%

14.7%

Numberof Illegal
Cases

Number of
Litigation
Cases

Litigation

Classification(1)
Tax assessment

288,000

679

Number of the First
Instance Newly
Percentage
Filed
(2)
[(2)/(1)]
178

0.1%

Number of
Cases
ClosedNumber of Cases Lost on All or Some Counts

(3)

(4)

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

232

27

0.01%

11.6%

Tax collection

52,622

174

71

0.1%

107

6

0.01%

5.6%

Total

340,622

861

254

0.1%

346

33

0.01%

9.5%

Notes:
1. The figures for "Number of Illegal Cases (1)" are the following numbers for the 2002 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● In tax collection cases: the number of delinquent taxpayers who have property seized
2. The "Number of Requests for Reinvestigation" and the "Number of Requests for Reconsideration" are the figures for the 2002 fiscal year.
3. The "Number of Litigation Cases" is the total number of litigation cases for each level of trial for the 2002 fiscal year.

47

Number of Complaints Received at Tax Counsel Offices

Tax Consultations(2003 fiscal year)

Number of Tax Consultation Cases Handled by Tax
Counsel Offices and via Tax Answer (2003 fiscal year)(1,000 cases)

Number of Tax Consultations

Income tax

1,535

Income tax

741

Corporation tax

462

Property tax

153

Corporation tax

214

Consumption tax

64

Property tax

768

Other indirect taxes

20

Consumption tax

114

Tax collection

107

Other indirect taxes

47

OthersCollection

45

Others

471
Total

2,018

263
Total

2,986

Number of consultations via Tax Answer
Total

International Taxation

20,471
23,457

Fraudulent Income Made through Overseas Transactions(2002 business year)

The Five Most Frequent Tax Consultation Topics
In-Person and Telephone Consultations (2003 fiscal year)(1,000 cases)

Ranking Tax ItemTopic

No. of Cases

1

Income tax

Obligation to file returns andfiling procedures, etc.

2642

Income tax

Income category and calculation

145

3

Income tax

Preparation of tax returns,
statements of accounts, and other forms

135

4

Income tax

Medical expenses deduction

128

5

Income tax

Returns for tax refund

124

Number of cases of fraudulent overseas income

117

Amount of fraudulent income made overseas (¥100 million)

266(Reference) The amount of fraudulent income made overseas per case is ¥227
million.

Enforcement of Transfer Pricing (2002 business year)
Number of cases processed

62

Amount of taxable income (¥100 million)

725(Reference) The amount of taxable income per case is ¥1,200 million.

Taxpayer Satisfaction
Items That Meet with High Taxpayer Satisfaction

Tax Answer (2003 fiscal year)(1,000 cases)

Ranking Tax Item
1

Income tax

Topic

No. of Cases

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

398

2

Income tax

Medical expenses subject
to medical expenses deduction

330

3

Income tax

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

283

4

Income tax

Final returns

245

5

Income tax

Exemption for dependents

226(2002 business year)

High Satisfaction Rate

Item
Attitude of officials in providing services

80.4%

Level of convenience in using Tax Office

56.6%

Evaluation regarding PR activities

29.9%

Evaluation regarding activities to collect public opinions

71.6%

Level of satisfaction with consultations In-person

87.9%

Telephone

67.6%

at Tax Counsel Offices

Statistics

Notes:
1. The above figures are from the Questionnaire Survey of the Level of Satisfaction
among Taxpayers which was conducted on taxpayers who visited one of Japan's
524 Tax Offices nationwide on one of the four preselected days between July
2002 and June 2003. (A total of 113,286 questionnaires were collected.)
2. "High Satisfaction Rate" is the percentage of taxpayers who gave highevaluations ("good" and "somewhat good" responses on a five-grade scale
between "good" and "bad") to the item in a questionnaire survey.

48

Published June 2004
Edited and published by
National Tax Agency of Japan
3-1-1 Kasumigaseki, Chiyoda-ku,
Tokyo 100-8978 Japan
Tel: (03) 3581-4161

National Tax Agency Website

URLs:
http://www.nta.go.jp (Japanese)
http://www.nta.go.jp/category/english/index.htm (English)

National Tax Agency