JAPAN Law and Practice Contributed by: Shinya Tago, Atsushi Fukasawa, Hiroshi Iida and Landry Guesdon, Iwata Godo Law Offices
The FSA may order a person who commits insider trading or a person who violates the above-mentioned regulation regarding the communication of information to pay an administrative surcharge (Articles 175-1 and 175-2). Market Abuse The FIEA (Article 157) prohibits: • the use of wrongful means regarding the sale and purchase of securities or other securities transac - tions, etc; • the acquisition of money or other property by mis - representing important matters or omitting impor - tant matters necessary to avoid a misunderstand - ing regarding the sale of securities, other securities transactions, etc; and • the use of false quotations to induce sales, pur - chases or other securities transactions, etc. Article 158 prohibits spreading rumours or using fraudulent means, assault or intimidation for the pur - pose of: • carrying out sales and purchases of securities or other transactions regarding securities; or • causing quotations to fluctuate. The FIEA prohibits market manipulation. The main acts prohibited as such (Article 159) include: • conducting a series of trades that mislead other investors into thinking that the trading of a listed security is active, to create an environment in which other investors want to trade in said secu - rity (“intention to solicit”) – conducting a series of trades to influence the market price of the security for the same purpose is also prohibited; and • making trades without intending to effect a transfer of rights (“wash sales”) or conspiring with others on certain trades (“collusive trading”) to mislead other investors regarding the overall trading environment. Penalties A person who commits market abuse can be punished by imprisonment of up to ten years and/or a maximum fine of JPY10 million (Article 197 (1)(v)).
A person who commits market abuse and sells or pur - chases securities at prices that are the result of market abuse, with the intention of making economic gains, can be punished by imprisonment of up to ten years and a maximum fine of JPY30 million (Article 197 (2)). Property/earnings gained through market abuse will be confiscated, and any shortfall will be collected from the offender (Article 198-2). If the violation is commit - ted by a company’s representative, agent or employ - ee, said company can be punished with a fine of up to JPY700 million (Article 207 (1)(i)). In addition, the FSA may order a person who commits administrative market abuse to pay a fine under the FIEA (Articles 174-1 and 174-2). 3.5 Tax Fraud Tax evasion is punishable under the law applicable to each type of tax. If a taxpayer under-reports its pay - able tax amount, fails to file a tax return or fails to pay withholding tax by the due date, the tax authorities can impose additional tax collected as an administra - tive penalty. Delinquent tax can also be applied. Under-Reporting The penalty tax for under-reporting is 10% of the tax increment (difference between unreported and report - ed taxes) resulting from a correction or an amended return when the original final return was filed on or before the due date. If the tax increment exceeds the tax amount of the original tax return filed by the due date or JPY500,000 (whichever is greater), 15% addi - tional tax is applied to the excess amount. Notwithstanding the general rules, where a taxpayer who has not been notified of the commencement of a tax audit files an amended tax return voluntarily, additional tax is not applied. If a voluntarily amended return is filed by a taxpayer notified of the commence - ment of a tax audit without awareness of the pos - sible correction based on the audit, 5% additional tax is applied. If the tax increment exceeds the tax amount of the original tax return filed by the due date or JPY500,000 (whichever is greater), 10% additional tax is applied to the excess.
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