The Tokyo Regional Taxation Bureau in cooperation with Australian tax authorities collected about 800 million yen from the bank account of an Australian man who had not paid gift taxes in Japan, it has been learned.
The Tokyo bureau reportedly asked for tax collection assistance based on a tax treaty with Australia.
While it is difficult to collect unpaid taxes from overseas assets held by tax defaulters, this is the first time that a Japanese tax authority has collected taxes of over 100 million yen in cooperation with foreign authorities.
According to sources, the man residing in Australia received several billions of yen from his parents living in Japan several years ago. Under the Inheritance Tax Law, which provides provisions on inheritance and gift taxes, if a person inherits or receives assets from residents in Japan, the person is obliged to pay inheritance or gift taxes in Japan irrespective of nationalities of both parties or whether the assets are in Japan or overseas.
However, the man in question did not pay his gift tax and refused to pay the tax despite multiple requests by the Tokyo bureau. The bureau collected part of the unpaid gift tax by seizing the man's deposits in Japan. However, about 800 million yen, including delinquent taxes, had not been paid so far.
The Tokyo bureau knew the existence of a bank account in the man's name in Australia and asked Australian tax authorities for assistance in the collection of taxes via the National Tax Agency in 2018. Australian authorities seized the man's account several months after the request, and transferred an amount worth 800 million yen from the account to Japan, according to the sources.
The multilateral tax treaty that includes the provision on assistance in the collection of taxes went into effect in October 2013. According to the National Tax Agency, there have been 11 cases involving seven countries where Japanese authorities asked for assistance in the collection of taxes through June this year, excluding the latest case. Of the about 270 million yen Japanese authorities had asked foreign authorities to collect, only 40 million yen has actually been collected so far. The 11 cases include those involving Japanese nationals with overseas assets.
"It became clear that a large amount of unpaid taxes can be collected from overseas assets, so the latest case will have high ripple and deterrence effects on other tax defaulters," said Go Kawada, a former chief of the Sendai Regional Taxation Bureau.
"We would like to strengthen systems to exchange information on taxes and cooperate in the assistance of collecting taxes with overseas authorities from here on, so that we can take strict measures against tax avoidance and tax defaulters," said an official of the National Tax Agency.
Difficulty seizing overseas assets
With the economy being increasingly globalized, tax authorities face difficulties imposing taxes on or collecting taxes from overseas assets.
A typical example of this is a case in which a former major consumer loan company's chairman and his wife gave shares of a foreign company to their eldest son. The son received shares in the Dutch company worth about 165.3 billion yen in 1999 when he lived in Hong Kong. However, the then inheritance tax law excluded transferring overseas assets to overseas residents.
The Tokyo Regional Taxation Bureau collected about 133 billion yen in gift and other taxes from the son, citing that the eldest son's life was based in Japan. However, in a trial in which the son called for the revocation of the tax imposition, the Supreme Court in 2011 judged that even though the man lived in Hong Kong for the purpose of avoiding taxes, it was undeniable that his life was based in Hong Kong. The court delivered a ruling to order the revocation of the administrative action.
The son had paid a total of about 158.5 billion yen in taxes, including delinquent tax. As a result of the victory in the trial, the man is said to have been refunded about 200 billion yen, including interest on the tax refund of about 40 billion yen.
In the revision of the law in fiscal 2000, overseas assets became subject to inheritance or gift taxation if either of the parties concerned, such as parents or children, lived in Japan within the past five years and if the recipient of the assets is a Japanese national. In the fiscal 2013 revision, it became possible to impose these taxes irrespective of nationalities of recipients if parents and others live in Japan. In the fiscal 2017 revision, the five-year period was extended to up to 10 years.
However, even though it is possible to impose these taxes, actually collecting unpaid taxes from tax defaulters is not an easy task. Taking all possible measures within its own country is a prerequisite for asking for assistance in the collection of taxes, while the level of cooperation differs depending on countries. Singapore, which attracts attention as a destination for migration or investment of wealthy people, and China, which has achieved remarkable economic growth, do not participate in the assistance program. Therefore, if assets are in such countries, Japanese authorities have to effectively give up the collection of taxes.
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