Interview with Fumiko Mizoguchi, Partner, Tax & Legal, Deloitte Japan
1. What is the most significant change to your region/jurisdiction’s tax legislation or regulations in the past 12 months?
Introduction of platform taxation for Japanese consumption tax (JCT) on electronically supplied services (effective from 1 April 2025).
2. What has been the most significant impact of that change?
Specified platform operators with facilitated sales over US$34 million will be deemed to purchase and provide electronically supplied services provided by non-resident online sellers on the platform and are required to collect and remit the JCT on those supplies to Japanese consumers.
3. How do you anticipate that change impacting your work and the market moving forwards?
I worked closely with the Ministry of Finance to advise on the platform taxation regimes already introduced outside of Japan. I have been working for many ESS (Electronically Supplied Services) suppliers, but I envisage working more closely with platform operators going forward. Japanese consumption tax revenue will significantly increase due to this amendment, as currently, the government suffers difficulties identifying and investigating non-resident online suppliers with taxable sales over the threshold and collecting JCT from them.
4. How has this changed the way you offer tax advice?
For those that already collected JCT on their own supplies, JCT liabilities of facilitated sales on specified platform operators will be remitted to the platform/s. We are currently advising that either they may be able to deregister for JCT purposes, or their interim payments will be decreased. Further, I have started working with a platform to exchange information on envisaged further amendments of the platform taxation towards B2C online sale of goods.
5. What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?
Abolishment of the import JCT exemption of low-value consignment (currently the value under US$113) and introduction of platform taxation applicable for B2C sale of goods by non-resident suppliers.
6. What are the potential outcomes that might occur if those changes are implemented?
The distortion of market competition between domestic and non-resident sellers will be solved.
Japan Customs needs to adopt a more digitalized customs declaration system so that over 100 million customs declarations by air should be customs cleared.
Under-evaluated consignments should be detected, and the widespread misuse of customs numbers by persons who are not real importers of record should be sanctioned by depriving customs brokers’ licenses, etc.
7. Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
For Japan, the taxation of Import JCT is a gateway for foreign goods entering Japan. Given the significant growth of imported consumer goods, especially during the COVID-19 outbreak, strengthening import taxation is a key for the government as well as domestic sellers, who are required to charge 10% domestic JCT on all sales.
8. Are there any regulatory/legislative changes you believe should be implemented in your region/jurisdiction?
After the introduction of the Qualified Invoice System in October 2023, tax-exempt businesses (i.e., non-Qualified Invoice Issuers) are still allowed to show the JCT amount on the receipt without payment of the same to the tax authorities. After a six-year transitional period (October 2029), the corresponding input JCT will be non-deductible, but as a sound Value Added Tax, it should be clearly prohibited for tax-exempt businesses to show the JCT amount in the sales price by law.
9. How do you believe those changes would help improve the tax landscape in your market?
In view of the globalizing economy and rapidly changing business models, local VAT systems, including the JCT system, should be internationally aligned to avoid double or non-taxation of sales. Misalignment causes not only double/non-taxation but also risks towards abusive practice.
10. How are issues surrounding the taxation of the digital economy affecting your work?
I was a member of study groups on taxation in the digital economy hosted by the Ministry of Finance and the Ministry of Economy, Trade and Industry (METI). As stated above, I suggested introducing the platform taxation for JCT to the Ministry of Finance and closely worked with METI, which led to the law amendment last year. DST (Digital Service Tax) is one of my areas of specialization and keen interest, and I have published many articles on its nature and overseas regulatory landscapes, and was commissioned to establish a report on DST taxation for METI. Considering recent US movements, I do not believe that the government would introduce DST in Japan, but rather recommend maintaining the JCT system updated to adapt to the new business models and secure the destination-based taxation.
11. How would you describe the tax authorities’ approach in your region/jurisdiction?
The government is very cautious about changing the JCT regime, which is unpopular among politicians apart from the LDP (Liberal Democratic Party of Japan). After 35 years, JCT revenue accounts for the biggest tax revenue in Japan, but still, its abolishment or reduction of tax rate is listed in the political promises at every election by opposite politicians. Having said that, the government and the tax authority now recognize the importance of JCT as a revenue source as well as the risks of abusive practices by taxpayers. I am supportive of informing the government with my knowledge as a German tax advisor who knows the European VAT system and JCT practitioner on the most recent development of VAT regimes and helping them to update and maintain the most important tax system in Japan.
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