Spring Newsletter (No.21) as of
IFRS in Japan
In June 2009, the Business Accounting Council released the “Opinion on IFRS in Japan Interim Report” which permitted voluntary application of IFRS for fiscal years ending on or after March 31, 2010. Taking into account many changes in circumstances both domestically and abroad since then, the joint meeting of the plenary and the Planning and Coordination Committee of the Business Accounting Council was held to discuss the mandatory application of IFRS on April 17, 2012. However, each member only delivered one’s opinion and no conclusion was reached.
Representatives of the International Accounting Standards Board (IASB) and the Accounting Standards Board of Japan (ASBJ) met on April 2, 2012 in Tokyo. The meeting was the fifteenth in a series of discussions between the IASB and the ASBJ. During the meeting, representatives discussed the issues, such as “the IASB’s consultation on its future agenda, including feedback received from Japanese stakeholders”, “opportunities for closer co-operation between the IASB and national accounting standard-setters, including the future relationship between the IASB and the ASBJ” and others. Representatives reaffirmed their commitment to continue their close co-operation in pursuit of high quality global accounting standards.
Recurring Tax Topics
Head Office Employees Temporarily Working in Japan
The withholding tax issues surrounding branches are complex because a single legal entity is located in two or more countries. If an employee from the Head Office or any of its overseas branches performs services on behalf of the Japanese Branch (e.g. travels to Japan), his salary which corresponds to such services is subject to income tax withholdings in Japan.
This withholding is required because such Head Office employee(s) are a part of the same legal entity as the employees in Japan.
Customs Declaration Price vs. Intercompany Billing Price
When importing equipment (including demo equipment) or goods from your overseas parent company or affiliate, the amount reported to the customs office and the amount invoiced to the Japanese entity (“JE”) could be different. There have been companies who would bill the JE at a lowerprice or not bill them at all. In recent tax audits, we have seen cases where the tax auditors applied the customs import prices as the cost of the imported equipment or goods. Any differences between the intercompany billing price and customs declaration prices will be considered a donation to the JE and will be taxed as income accordingly.
However, this difference arising from depreciable assets such as demo equipments will eventually be depreciated over the life of the asset. If we take the position that intercompany billing prices was correct, the JE will need to provide supporting documentation and also amend the prices to the customs agency.
If the JE is found to have misreported the prices of the demo equipment which was imported, the JE will also be required to amend the depreciable assets returns with the local tax authorities.
Special Tax Measures for Small and Medium Enterprises (“SMEs”)
Effective from fiscal years beginning on or after April 1, 2010, legal entities with paid-in capital of JPY 100 million or less are no longer eligible for certain tax benefits previously available for SMEs, if their 100% parent companies (and/or the ultimate parents with wholly-owned interest) have paid-in capital of JPY 500 million or more. The major items are as follows:
1. Corporate income tax rates
From fiscal years beginning on or after April 1, 2012, the corporate tax rate will decrease. The rates below for SMEs will not apply to legal entities described above.
|Currently applicable rates||From fiscal years beginning on or after April 1, 2012|
|For taxable income up to JPY 8 million||For taxable income exceeding JPY 8 million||For taxable income up to JPY 8 million||For taxable income exceeding JPY 8 million|
|Enterprises other than SMEs||30%||30%||28.05%||28.05%|
2. Entertainment expenses
90% of the lower amount of JPY 6 million or the total amount of entertainment expenses is deductible for SMEs. Such deduction will not apply to legal entities described above.
2011 and 2012 Tax Reform
Information Return on Share-Based Compensation Provided by Overseas Parents or Head Offices
From 2012, a new information return form will apply to domestic entities with 50% or more of their capital owned by foreign parents and branches of foreign entities. When local directors or employees exercise their rights based on stock options or similar share-based compensation scheme, a special information return should be submitted to the tax offices by March 31 of the following year.
Change in Depreciation Rates
Slower depreciation rates will be introduced to the declining-balance method. The rates will apply to depreciable assets purchased on or after April 1, 2012.
|Current||250% of those for straight-line method|
|New||200% of those for straight-line method|
1. Conditions to be exempt enterprises
The taxable sales should not exceed JPY 10 million two years prior (i.e. base period) to the current period to be exempt from filing consumption tax returns. In addition to this traditional rule, if sales (or salary payment) for the first six months of the prior fiscal year exceed JPY 10 million yen, the enterprise must file a consumption tax return for the current period starting from fiscal years beginning on or after January 1, 2013.
2. Credit for taxable purchases
Under the current rules, if annual taxable sales comprise 95% or more of total sales, the enterprise is able to claim 100% of the prepaid consumption taxes. However, for the enterprises with the annual taxable sales of JPY 500 million or more will only be able to receive a refund for the same percentage of taxable sales on their prepaid consumption taxes for fiscal years beginning on or after April 1, 2012.
NOL Carry Forwards
From fiscal periods beginning on or after April 1, 2012, only 80% of the periods’ taxable income can be offset with taxable losses carried forward from previous periods. The 80% ceiling will not apply to the companies with capital of JPY 100 million or less.
At the same time, the carry-forward period of taxable losses, which accumulated in periods ending on or after April 1, 2008, will be increased to 9 years from 7 years.
Extension of the Claim Period for Correction
A claim for correction should be filed for an overpayment of taxes. For national taxes with their filing deadlines of on or after December 2, 2011, the claim period is extended from one year to five years after such due dates.
Update on Social Insurance Rates
Effective March and April 2012, some of the insurance rates have changed and the current rates is summarized as follows:
|The Health Insurance Association||Health Insurance (Tokyo)||4.740%||4.985%||4.740%||4.985%|
|Care Insurance (throughout the country)||0.755%||0.775%||0.755%||0.775%|
|ITS Health Union||Health Insurance||4.250%||4.250%||4.250%||4.250%|
|The Foreign Transportation & Finance Health Insurance Association||Health Insurance||3.150%||3.400%||3.150%||3.400%|
|Tokyo Electronic Machine Industries Health Union||Health Insurance||4.650%||4.650%||4.650%||4.650%|
|Welfare Pension Insurance||8.206%||8.206%||8.206%||8.206%|
|Children Welfare Contribution||0.130%||0.150%||–||–|
|Workers Compensation Insurance (Other Business)||0.300%||0.300%||–||–|
|Employment Insurance (General)||0.950%||0.850%||0.600%||0.500%|
Kreston is Awarded “Rising Star Network”
Okamoto and Company’s international network, Kreston International, was awarded the “Rising Star Network” Award from the globally renowned International Accounting Bulletin. Kreston International was founded in 1971 and is currently ranked as the 13th largest in the world. The network covers 98 countries with 600 offices providing a resource of over 19,000 professional and support staff. To celebrate this Award, we would like to offer free mousepads to our clients who have supported us. If you are interested in receiving an original Okamoto & Company mousepad, please inform your in-charge or send an e-mail to email@example.com
Custom Interfacing with Our Web-Based Accounting System (CONTADor)
Do you have trouble uploading our accounting data into your system? If so, please approach your in-charge to see if it is possible to modify the outputs (trial balances, journal entries, etc.) in CONTADor to accommodate your specific needs. We currently have interfaces for popular systems such as Oracle, Cognos and CODA.
Originally developed in 2006, is a cross-platform application which can be accessible from various kinds of computers and smartphones.
The system operates on an Apple server and is resistant against windows viruses and malwares. The system has RAID1 mirroring realtime backup and all transactions are encrypted with 128 bit SSL.
Okamoto & Company Website
On May 1, 2012, we will be launching our new website. The new site will be easier to navigate, provides more descriptions on our services, and will also be readily accessible from smartphones.