Cost of Services

Cost of Services

Cost of Sales for service sales can get ugly during tax audit in Japan since clear definition is not stated in Japan the tax code. The rule of the thumb is any explanation which can be interpreted as logical to a person who is explained of the service for the first time can be considered safe. A logical allocation based on some key index figures are,

1. Number of hours
2. Number of employee or staff
3. Floor area ratio

As with most accounting policies, consistency will be the key element in making a persuasive argument to the tax auditors. In addition, there is always a cultural business interpretation whether a practice is logical or not. Therefore, it would be advised that you consult with a tax accountant whether or not what you are trying to implement is logical by Japan tax code.