1. Accounting (Source: “Keiei Zaimu” Magazine)
On April 20, the National Tax Agency issued a circular titled “Corporate tax treatment regarding costs related to the Great East Japan Earthquake” which expanded the scope of deductible expenses. Specifically, the following three items now qualify as deductible expenses: 1) Provisions made to the casualty loss reserve account (estimated amount of repair costs etc.), 2) Costs associated with the repair of damaged leasehold assets etc, 3) Construction costs of temporary housing for disaster victims.
Regarding 1), if costs estimated to be incurred within 1 year from the date of the disaster are transferred to the casualty loss reserve account, such costs are deductible in that year. Companies have been applying deferred tax accounting where book-tax differences exist, but careful attention should be paid because recognition of deferred tax assets may not be required to the extent that casualty loss provisions are allowed as deductible expense per the tax treatment outlined in the circular.
２. Tax (Source: “Zeiri” “Tax QA” Magazine)
～Avoiding Japanese gift tax by bestowing foreign assets to his son～
On February 18, 2011, Japan’s Supreme Court reversed the decision of the high court and made a ruling in favor of the taxpayer, in a case involving the son of the founder of a Japanese consumer finance company TAKEFUJI who was gifted equity interests in a Netherlands company. The Supreme Court stated that from the perspective of “no taxation without law”, although there may have been an aim to avoid Japanese taxes, objective facts such as the number of days in which the son has been resident in Hong Kong support the view that he was not a tax resident of Japan.
In this ruling, the Supreme Court maintained its position that the judiciary system cannot compensate flaws in legislation and that provisions of the law should be interpreted literally based on the principle of “no taxation without law”.
Note that per the tax reform enacted in 2000, the recipient of gifted assets are now liable for Japanese gift tax if either the recipient or transferor of such assets has been domiciled in Japan within 5 years before the assets are gifted.
３. This Week’s Words of Wisdom
“The downfall of a nation is not caused by war. It is not triggered by natural calamities or economic breakdowns either. A nation collapses when morality is lost in the minds of its people.” (Arnold J. Toynbee, British Historian)
More than two months has passed since the Great East Japan Earthquake. Many people may have come across this insightful quote as it is often referred to in various occasions after the earthquake.
Some people may read this quote and think that Japan is far from breaking apart. However, others may stretch the interpretation of the same quote and say that Japan is a nation already in demise, as is apparent in the Japanese government’s poor handling of the crisis (particularly the nuclear accident).