JAPAN Law and Practice Contributed by: Yutaka Shimoo, Anderson Mōri & Tomotsune
5. Anti-Avoidance and Anti-Evasion Measures 5.1 Definition and Identification of Tax Fraud, Evasion, Tax Avoidance and Abusive Schemes Under domestic tax laws, tax fraud/evasion and tax avoidance are generally understood as follows: • Tax fraud/evasion: any wilful concealment, in whole or in part, of the non-fulfilment of any taxation requirement. • Tax avoidance: any abnormal or irregular action taken to reduce tax burden that is not contemplat - ed by the tax laws (an abuse of tax laws). With regard to tax avoidance, whether anti-general avoidance rules apply would be determined by com - prehensive circumstance. For example, with regard to general avoidance rules applicable to family-owned corporations that are often applied by the NTA, whether any given act or calcula - tion is deemed as unjustified would be determined under the following criteria: • whether the series of transactions is unusual, for example, the parties use unusual procedures or methods of transactions that would not normally be conducted between unrelated parties, or they use a legal form of transactions that is different from the actual intended economic result of the transactions; and • whether there is any business purpose or other commercial reason to execute the transaction, other than a mitigation of tax burden. In addition, with regard to “abuse of tax law” rules which restrict general tax benefit on the taxpay - ers, a Supreme Court decision dated 19 December 2005, restricted the use of a foreign tax credit on the grounds that the structure in question mitigated taxes by using a foreign tax credit system in a manner that deviated significantly from its intended purpose, and thus prejudiced the resulting tax burden in a way that was unfair. Accordingly, whether a given act by a tax - payer prejudices the fairness of the intended tax bur -
den may be the ultimate criterion used for determining the presence of tax avoidance. 5.2 Anti-Avoidance Mechanisms Tax fraud and tax evasion are generally subject to criminal penalties, in addition to tax dispositions. With regard to tax avoidance, Japanese tax laws have general anti-avoidance rules such as the disallowance of acts or calculations: • by family-owned corporations; • in relation to organisational restructuring; • by corporate groups of the group calculation framework; and • regarding foreign entity profits that are attributable to a permanent establishment. Other than these, according to the abuse of tax law rules, tax benefits such as foreign tax credit may be restricted if the actual use of such tax benefits is deemed as abuse of tax law. 5.3 Blacklists and Non-Cooperative Jurisdictions Currently, there is no list of non-cooperative or high- risk jurisdictions. 5.4 Reporting Obligations and Disclosure Regimes No direct reporting obligations exist in Japan in order to detect and prevent tax fraud, tax evasion and/or tax avoidance. Currently, no reporting obligation of tax planning is required for tax professionals. However, the Japanese tax authorities collect infor - mation that is strategically sensitive for the detection of tax fraud/evasion or tax avoidance, based on tax reporting and statutory reports required under domes - tic tax law. 5.5 Role of Tax Authorities and Enforcement Measures The NTA is responsible for the enforcement of national tax law. Specifically, the 12 regional tax bureaus and 524 tax offices under the supervision of the NTA are authorised to impose and collect taxes based on indi - vidual addresses or corporate registered offices.
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