What Is the Worst-Case Scenario in Japan’s Tax Audits?

【Koshida Accounting Firm Column Date:

Nothing is certain except death and taxes – Benjamin Franklin




Hi, my name is Taisei Koshida, and I am a certified public accountant and tax accountant.


I aim to assist non-Japanese business owners who struggle with reading or writing in Japanese. If you find the Japanese tax return system challenging, I can help you with your tax filings.



If you are unsure about Japan’s taxe audits, this blog can be helpful for you.




The Tax Office Considers You As a Taxpayer Engaged in Severe Tax Evasion (Acts of Disguise and Concealment):

If you intentionally fail to record sales or include fictitious purchases and outsourcing expenses, there is a high risk of being categorized as someone who committed atrocious tax evasion.


If You Are Categorized as Such, What Will Happen?

You will be placed on the tax office’s blacklist as an atrocious taxpayer. Additionally, the frequency of tax audits will increase, and the penalty rates will rise from the usual 10% or 15% to 35%.


What Should You Do When an Officer Insists on Regarding Your Conduct as Acts of Disguise and Concealment?

Officers will often try to label your conduct as acts of disguise and concealment because it can lead to a favorable performance evaluation for them. Even if the reasons are simple mistakes, such as missed recorded sales or missing purchase documents, they may still insist on acts of disguise and concealment. In such cases, it is important to persistently assert that it is not intentional tax evasion, but rather a genuine mistake that does not qualify as acts of disguise and concealment.


The Burden of Proof in Cases of Disguise and Concealment

The responsibility for proving such acts falls on the tax authorities. Therefore, if you disagree with the tax officer’s claims, you are not obligated to file a voluntary amended tax return. Since the burden of proof is challenging, the tax officers may abandon their claims.


This theme is continued in the following.

The points in tax audits.

What businesses had high amounts of unreported income in individual income tax returns in Japan?



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