1. Accounting (Source: “Keiei Zaimu Magazine NO. 3119”)
JICPA confirmed National Tax Agency audit engagements as a transitional measure for the rise in the consumption tax.
Accordingly, any audit engagements entered into by the end of September, 2013 may be applicable at the currently prevailing tax rate. In other words, the consumption tax rate will be raised on or after April 1, 2014; however, “as pertains to construction contracts entered into on or after October 1, 1996 until the day before October 1, 2013, any contracts for construction in which the objective will be mostly achieved after April 1, 2014” may be applicable at the currently prevailing tax rate.
Because audit engagements are “contracts to be similar to these contracts or other” and they involve delivery of objects which involve preparation and delivery of audit reports, audit engagements are subject to the transitional measure. For that reason, as pertains to audit engagements entered into on and after October 1, 1996 until September 30, 2013, any audit engagements required turning over of audit reports on and after April 1, 2014 may be applicable at the currently prevailing tax rate.
2. Taxation (Source: “Zeimu Tsushin Magazine NO. 3267”)
In line with the original decision (Tokyo District Court), the Tokyo High Court rejected tax authorities’ appeal on whether tax haven counter-measures were applicable or not for a “Corporation A” established in Singapore which was financed with 99% of outstanding shares by an officer himself.
The points in dispute were ① to judge whether “materiality standard” was met or not; that is if “Corporation A” possessed requisite fixed assets like an office for its business, and ② to judge whether “administrative control standard” was met or not; that is if its business was controlled and/or run by the officer himself.
In terms of ①, because Corporation A made a lease contract for a rental office provided by “other Corporation B in Singapore” for usage of its office, The Tokyo High Court could not conclude that the materiality standard was not met in the face of tax authorities’ appeal that “a lease space for Corporation A was unspecific and was not exclusively possessed.” In terms of ②, The Tokyo High Court could not definitively say it was impossible to exercise business management for Corporation A even though one of its officers (a resident of Singapore) doubled as other officers at many different companies.
The Tokyo High Court rejected tax authorities’ appeal for the reasons above. As the case was not appealed further to the Supreme Court, their decision was final.
3. Labor Management(Differences between Contractor-Client Contract <as Sole Proprietor> and Employment Contract
Sometimes we have inquiries from our clients expressing a desire to have a “contractor-client contract” with someone instead of retaining him/her as an “employee.” The reason varies depending on the client.
Even if there is a “contractor-client contract” signed by both a company and an individual, and if the contract clearly states that it is a “contract for service”, the substance of the payer-contractor relationship is more important than superficial circumstances, such as the existence of a written contract, when determining whether the individual is an independent contractor or an employee.
Listed below are the primary criteria under which a contract is deemed as a contractor-client contract for service. The actual status of an individual should be carefully examined and all various factors need to be considered together in order to determine if the designation of a contractor-client contract is appropriate or if the individual is more like an employee.
① Scope of work is clearly prescribed in written specifications or instructions, and is not directly ordered or instructed by the payer.
② The payer has no control over where and when the contractor works. The contractor is not subject to any disciplinary action or pay reduction against his/her late arrival and absence from work.
③ The contractor should purchase and prepare his/her own equipment for work, such as PC, telephone, etc.
④ The contractor is not provided with transportation allowance.
⑤ The contractor processes work independently on his/her own responsibility, and is liable for the performance of the duty and damages caused by negligence.
⑥ The contractor receives compensation (expenses included) as a business operator, and income tax is not withheld from such compensation as opposed to the case with salary. The contractor should be publicly regarded as an independent business operator from the level of compensation he/she receives, which should be filed as business income in accordance with convention as a business operator.
For a company, it is very important to give thorough explanation and consultation to contractors prior to making a contract because some contractors do not have a clear understanding that they are personally liable for damages and are responsible for taking care of their own tax filing and various types of insurance coverage under a contractor-client contract (as sole proprietor).
If a company undergoes an inspection and a contractor is deemed as an employee, the company is required to enroll him/her in social insurance and withhold income tax from his/her compensations retroactively. Even penalties may be imposed for non-compliance. In order to avoid such a situation, a contract should be made in accordance with the worker’s actual status; that will ultimately protect both the company and the worker.
For more information, please contact our HR Consulting Group.
4. This Week’s Words of Wisdom (Source: Leadership in the Era of Economic Uncertainty, Writer: Ram Charan, Commentator: Tadashi Yanai)
A person of humble status would not shoddily work unless leaders set a bad example by working shoddily themselves. Those who simply order people from the top and evaluate what their subordinates have done are not the true leaders.
These words speak to my heart. They are an excellent commentary on leadership.