All questions

Commencing disputes

i Tax filing

In Japan, a tax filing system is adopted for most national taxes, including corporation tax, income tax, consumption tax and inheritance tax.

In principle, under such system, the amount of payable tax is determined based on the filing made by taxpayers. In exceptional cases, when there is no filing or when the filed tax amount is inappropriate, the tax amount is instead determined by the tax authority's reassessment or determination after a tax audit.

The due dates for tax filings differ depending on the taxation categories. Tax filing may be performed online.

In principle, the tax authority's reassessment or determination is to be made before five years have elapsed after the statutory due date for the tax filing concerning the reassessment or determination.

Nevertheless, a reassessment of national taxes, etc., for which the taxpayer has evaded payment of the whole or part of the tax amount through deception or otherwise wrongful acts, may be made until seven years have elapsed from the statutory due date.

Taxpayers may file an amended return where there is a shortfall in the filed tax amount. The amended return may only change the original tax return adversely for taxpayers, while in order to advantageously change the tax return, a request must be made for reassessment. A request for reassessment must be made within five years of the statutory due date.

ii Tax audits

When tax authorities impose taxation by way of a reassessment or determination, they need to obtain materials or information concerning the requirements for taxation. Therefore, the tax authorities have the right to conduct inquiries and inspections in relation to taxpayers.

Commencement of tax auditsRequirements

Inquiries and inspections may be conducted when they are necessary for tax audits. 'When they are necessary' means when there is an objective necessity, and although tax authorities do not have an unfettered discretion in their judgment, there are few cases where this requirement is not applied.

Targets of tax audits

The targets of tax audits are mainly (1) taxpayers and (2) third parties who are in a business relationship with taxpayers. Generally, audits against those who fall under (1) are called main audits, and audits against those who fall under (2) are called counterparty audits.

Prior notification

The commissioner of the National Tax Agency (NTA), the regional commissioner of Regional Tax Bureau, the district director of the Tax Office (the District Director) or the director-general of a custom office (collectively, the Directors) shall, prior to tax audits being conducted in relation to taxpayers, notify such taxpayers of the fact that the tax audit will be conducted, and certain other matters.,

Nevertheless, it should be noted that such prior notification is not necessary under certain conditions.

Procedures for tax auditsOptional audits

As the Act on General Rules for National Taxes does not allow compulsory audits, inquiries, inspections, entering into business places or inspecting documents and goods against the intention of the audit target is prohibited.

However, criminal penalties will be imposed when the auditee does not respond to the inquiry or refuses the audit without a justifiable reason. Therefore, the audit target is obliged to accept the inquiry and inspection in the absence of a justifiable reason.

Attorney–client privilege

Countries under the legal system of Anglo-American laws provide an attorney–client privilege between an attorney and his or her client.

However, such privilege is not provided in Japan. Therefore, taxpayers may not refuse to respond to a tax audit by using the existence of the attorney–client privilege as an excuse.

End of tax auditsProcedures for ending audits

The Directors shall, when a reassessment or determination is found to be unnecessary at that time as a result of an on-site audit, provide written notification to the taxpayer against whom such audit is conducted of such fact.

On the other hand, where the reassessment or determination is found to be necessary as a result of an on-site audit, such Directors shall explain the result of the audit to such taxpayer. In such cases, although such Directors may encourage such taxpayer to file an amended return, etc., he or she shall explain that the taxpayer may not make an objection after filing a return form regarding the result of the audit, but that the taxpayer may instead request a reassessment, and shall issue a document to that effect.

Amended return

As referred to above, when being encouraged to file an amended return, the taxpayer may file an amended return in accordance with the intention of the tax authority without the need for a reassessment or determination.

In Japan, settlements in the course of tax audit procedures are not legally permitted.

However, in practice, many cases are solved in a form somewhat close to a settlement, in which filing an amended return regarding part of the tax authorities' claims is conducted instead of a reassessment or determination.

It should be noted that, even after filing an amend return, when taxpayers are dissatisfied with the contents of the filing an amended return, they may request a reassessment to reduce the payable tax until such time as five years have elapsed after the due date for the tax filing concerned.

Reassessment and determination

The District Director may, when the calculations of the tax base, etc., or the tax amount filed do not comply with the provisions of national tax laws, or if the tax base, etc., or the tax amount is otherwise different from the result of the audit, reassess the tax base or the tax amount, etc. In addition, the District Director may, when taxpayers fail to file taxes, determine the tax base or the tax amount.

A reassessment or determination shall be made by sending a reassessment notification or determination notification.

A reassessment shall be accompanied with the reasons for such reassessment. A reassessment made without reasons is invalid, and when the reasons accompanying the reassessment are insufficient, this may constitute a ground for revocation of the reassessment.

It should further be noted that if, after performing a reassessment or determination, the District Director becomes aware that the reassessed or determined tax base or tax amount, etc., is overestimated or underestimated, he or she may further reassess such reassessed or determined tax base or tax amount, etc. There is no limit on the number of times for reassessment.

iii Request for re-examination

When taxpayers are dissatisfied with a reassessment or determination, they may request the District Director for re-examination. In the examination procedure, the taxpayer may request a chance to render an oral opinion on the case and may submit evidentiary documents or materials.

The re-examining agency shall make a determination regarding the re-examination. The standard period for re-examination is three months.

Please note that taxpayers may request a review without requesting a re-examination. In addition, when taxpayers are dissatisfied with the result of a re-examination, they may request a review.

A request for re-examination offers the merit that it leads to a judgment earlier than a request for review. However, as the District Director who has imposed the disposition conducts the re-examination, the conclusion is unlikely to be reversed, and the number of such requests has been decreasing. Nevertheless, in cases such as where there is an obvious error in the documents submitted in the tax audit, a request for re-examination should be considered in order to quickly settle the dispute as the conclusion is likely to be reversed.

iv Request for reviewOverview

Requests for review to the director general of the National Tax Tribunal (the Director-General) are generally permitted as to dispositions regarding internal taxes.

Requests for review shall be made within three months of the date on which taxpayers become aware of the disposition. When taxpayers are dissatisfied with the results of the determination regarding the request for re-examination, they may request a review only within one month of the date on which a certified copy of the decision on re-examination is delivered.


Requests for review shall be made by submitting a written request for examination with designated matters in duplicate to the National Tax Tribunal (the Tribunal) or its district offices. There are 12 district offices of the Tribunal in Japan. The Tribunal is an agency belonging to the NTA, and organisationally a part of the NTA. However, the Director-General has the independent right to make judgement in the review. The Director-General designates one trial examiner in charge and two or more observing trial examiners, and all of these examiners together form a panel to promote the investigation and trial of such requests for review.

When a request for review is lawfully made, the Director-General shall send a copy of the written request for review to the administrative agency that has imposed the disposition (the Disposing Agency), and have the agency submit a written answer in duplicate within a reasonable period of time.

A copy of the written answer by the Disposing Agency is delivered to the requestor, and thereby the requestor may submit a written opposition, or submit evidentiary documents or materials.

Although the trial shall basically be in writing, upon request, the requestor shall be provided with a chance to orally make an opinion.

In addition, although a trial for request for review shall be ex officio, the requestor may submit a written opposition, or submit evidentiary documents or materials, and the Disposing Agency may submit documents and other materials that establish the facts on which the disposition is based.

The requestor and the Disposing Agency may inspect the documents and materials and request the provision of copies of such documents.


After the examination and the trial, the trial examiner in charge and the observing trial examiners forming a panel have a meeting to draft a resolution through a majority. After the resolution is drafted, the Director-General makes a judgment based on the resolution.

To make the judgment, the Director-General shall send a certified copy of the written judgment supplemented with the reasons for judgment.

The standard period for review is one year.

v Written answer to advance inquiry

Taxpayers may inquire with the NTA in advance of filing a tax return, and the NTA will answer such inquiry in writing if: (1) such inquiry is regarding the tax treatment of the transactions the taxpayer actually conducted or the transactions that the taxpayer intends to conduct; (2) individual specific materials may be submitted; (3) the tax treatment of such transactions is not made clear by circulars regarding the interpretation of the law; and (4) the requirements of (a) and (b), below, are satisfied:

  1. the inquiry is made before the deadline for filing the tax return for the national tax imposed on the relevant transactions; and
  2. the inquirer agrees to publication of the content of the inquiry and the answer.

Note that the inquiry may not be used in certain cases, such as if the inquiry is related to the valuation of individual assets or the calculation or appropriateness of the amount of transactions, or if the main purpose of the transactions is a reduction of national tax, or the transaction is otherwise unreasonable as a normal economic transaction.

The NTA shall make efforts to provide a written answer within three months of the date of receipt of the inquiry.

As stated above, the cases where inquiry procedures may be used are limited. In addition, even if taxpayers file a tax return in accordance with the answer in writing, the NTA may reach a different conclusion and make a reassessment or decision if there is any amendment to tax law or if, after investigation, the actual facts are found to be different from the facts alleged in the inquiry.

Note that, instead of the above procedures, the APA procedures will apply to the transfer pricing issues.