Japan cracks down on overseas tax evaders
Japan is set to begin an aggressive campaign against tax evasion through overseas bolt-holes, with a series of changes to the national taxation system to include stiffer penalties for anyone attempting to conceal assets abroad as well as punishment for anyone abetting evasion efforts.
An outline of the reforms was due to be compiled by Thursday, with the revisions to the National Tax Collection Law to be submitted for debate in the Diet in the early part of next year.
At present, Japan's tax authorities are only legally able to seize assets in Japan of a person who has failed to pay their taxes or who is known to have concealed or undeclared funds overseas. In an effort to claw back more of what it is owed, Tokyo has been reaching out to foreign governments and signing reciprocal treaties with a cooperative collection system.
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This will permit tax authorities in another country to seize assets on behalf of the Japanese government, with Tokyo carrying out the same duties on foreigners' undeclared or concealed assets in Japan.
As of October, Japan had signed treaties with 69 countries, including South Korea and India, but has not yet reached agreement with counterpart authorities in Hong Kong, China and most nations in Southeast Asia.
The system has already proved its worth to Japanese tax authorities, who requested help in collecting tax from abroad on 29 occasions in the year to July, bringing in 3.7 billion yen (US$35.5 million). Tokyo also received seven applications for help from foreign tax organisations, with the total involved coming to around 200 million yen.
The additions to the existing law are designed to encourage more people to come clean on their taxable assets and permit the authorities to impose harsher punishments as an inducement, while the government is also looking to sign more reciprocal treaties with foreign tax authorities.
An executive with one of the "Big Four" global accounting firms said the new legislation was overdue.
"If the tax authorities have assessed tax, I think the vast majority of taxpayers would pay up rather than try to conceal their assets," he said. "I think the tax authorities would probably only try to get the assets overseas if they cannot find any assets in Japan, so there will probably be a limited number of cases where they need the new law - but it is a useful tool for the tax authorities to have available.
"The fact that such a law is being proposed suggests that there are some cases where the tax authorities feel they need it," said the executive, who declined to be named.
Under the new law, anyone caught concealing assets abroad can face a prison term of up to three years, a fine of 2.5 million yen (US$23,990) or both. The punishment is also being extended to anyone who assists in concealing assets, such as a spouse or business partner, with Japanese tax authorities to be given the power to collect any unpaid tax from those individuals.
Andrew Springthorpe, senior executive vice-president of the Tokyo-based accounting firm Sumida Tax & Accounting Office, says that the onus has been on anyone resident in Japan for tax reasons to report overseas assets in excess of 50 million yen ($479,910) every year, but this legal change gives tax authorities far greater tools to trace companies or individuals who fail to pay their taxes.
"At the moment, it is only possible for the Japanese tax authorities to pursue assets concealed abroad when they become aware of them, so it is to be expected that the information net will increasingly encompass more and more overseas assets," he told This Week in Asia.
Changes in Japan have been driven - albeit belatedly - by similar moves overseas that were triggered by the September 11, 2001, terrorist attacks in the US, he said. Previously, it was relatively easy for anyone to open a bank account overseas, set up shell companies and "transact business in an opaque manner", he said. Now, the US has introduced the Foreign Account Tax Compliance Act, and the worldwide Common Reporting Standard was set up to share financial data across borders and make criminal activity significantly more difficult, Springthorpe said.
In Japan, many taxpayers "did not understand" the full scope of the requirements and obligations regarding overseas assets, or they inadvertently forgot to mention then in their annual reports, but that is changing, he added.
"The new language coming out of the tax administration indicates a significant shift in the treatment of tax delinquents who are 'hiding' their assets overseas, and ignorance is not now a defence," he added.
This article originally appeared on the South China Morning Post (SCMP).
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