How Are Tax Audits Conducted in Japan? Part 3: Notice, Timing and Process
【Koshida Accounting Firm Column Date:】
“Thinking is one thing no one has ever been able to tax.” — Charles F. Kettering
Hi, my name is Taisei Koshida, and I am a certified public accountant and tax accountant in Japan.
I assist foreign business owners with accounting and tax matters in Japan, including tax filings and tax audits in English.
If your business is selected for a tax audit in Japan, you may wonder whether the tax office will contact you in advance, whether you can refuse or postpone the audit, and what actually happens on the day of the audit.
Based on my experience assisting clients with Japanese tax audits, this article explains the typical process.
Are Tax Audits in Japan Conducted Without Notice?
Usually, the tax office contacts the taxpayer in advance before conducting an on-site tax audit. Advance notice is generally given by phone.
If you have appointed a tax accountant as your tax representative and the necessary procedures have been completed, the tax office may provide the advance notice through the tax accountant.
Although unannounced on-site audits can occur in certain circumstances, they are relatively uncommon in ordinary cases.
Can You Refuse or Postpone a Tax Audit?
In general, you cannot simply refuse a tax audit.
However, if the proposed date is inconvenient for a reasonable reason, you can ask the tax office to change the audit date. For example, the tax office may take into account a busy business period, temporary hospitalization, a family funeral, or other unavoidable circumstances.
The new date is discussed with the tax office based on the circumstances.
What is the actual flow of a tax audit like?
## What Actually Happens During a Tax Audit in Japan?
In a typical small-business tax audit, a tax officer may arrive at the company around 10:00 a.m. and leave around 4:00 p.m.
During the first hour or so, the officer often interviews the president or business owner to understand the company’s business activities, organization, and general background.
After that, the officer examines accounting records and supporting documents, such as issued invoices, receipts, bank records, and accounting books.
During the audit, the business owner does not need to interact with the tax officer continuously. A tax accountant or an appropriate employee of the company can usually respond to many of the officer’s questions and provide the requested documents.
The main points of focus often include checking for unrecorded sales and determining whether purchases or expenses have been overstated.
If you would like to understand what can happen when serious problems are found during a tax audit, please see:
What is the worst-case scenario in tax audits?
Our accounting firm in Japan assists foreign business owners with accounting, tax filings, and tax audit matters in English.
If you need support with accounting in Japan or assistance before or during a Japanese tax audit, we can help you prepare documents, attend the audit, and communicate with the tax office.
Please feel free to contact us through the inquiry form.