JAPAN Law and Practice Contributed by: Hiromi Hayashi, Daisuke Tsuta, Masaki Yukawa and Keiichi Bando, Mori Hamada & Matsumoto
of the electronic services, rather than the place where the services are provided. The provision of electronic services to recipients in Japan is generally subject to consumption tax, while the provision of electronic services to recipients out - side Japan is not subject to consumption tax. The provision of electronic services includes, but are not limited to, services that: • provide e-books, digital newspapers, music, videos, and software (including various appli - cations such as games) via the internet; • allow customers to use software and data - bases in the cloud; • provide customers with storage space to save their electronic data in the cloud; • distribute advertisements via the internet; • allow customers to access shopping and auction sites on the internet (eg, charges for posting goods for sale); • allow customers to access a site to sell game software and other products on the internet; • provide, via the internet, a reservation web - site for accommodation and restaurants (eg, charges to the businesses that operate the accommodation and restaurants for posting on the website); and • provide English lessons via the internet. On the contrary, when services provided via tel - ecommunication networks are ancillary to the transfer of assets, those services are not treated as the provision of electronic services. Examples of those services are: • services which merely mediate information transmission among subscribers (so-called telecommunications), such as telephone, fax, telegraph, data transmission, and access to the internet; • software development;
• administrating and managing assets outside Japan (including internet banking services); • requesting foreign businesses to collect and analyse information; and • foreign legal professionals pursuing litigation outside Japan. Classifications of the provision of electronic services The applicable taxation scheme is based on whether the service provided is classified as the “provision of B2B electronic services” or the “provision of B2C electronic services”. If the provision of electronic services by foreign busi - ness operators is normally limited to business operators, considering the nature of the servic - es, or the terms and conditions for providing the services, it is classified as the provision of B2B electronic services. On the contrary, if provision of electronic services by foreign business oper - ators is not limited to business operators, it is classified as the provision of B2C electronic ser - vices, which include services received by both individual customers and business operators, as well as those received only by customers. The provision of B2B electronic services (reverse charge mechanism) When a foreign business operator provides B2B electronic services to business operators in Japan, the recipient business operators are gen - erally required to file a consumption tax return and pay consumption tax. This taxation scheme, which places the burden of filing for and pay - ing consumption tax on the business operators in Japan, is called the reverse charge mecha - nism. In this regard, a foreign business operator providing B2B electronic services is required to indicate beforehand that the service recipient will be responsible for filing for and paying any con - sumption tax that the transaction is subject to.
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