Report of the OTO Advisory Council (April 12, 1993)

3-(8) Review of system for paying consumption tax on imported items (including simplification of valuation declaration procedures when importing from a foreign subsidiary)

1. Complainant: Keidanren

2. Ministry concerned: Ministry of Finance

3. Complaint:

(1) In the case of domestic transactions, the total consumption tax due over a specific period must be reported and paid at the head office location. In the case of imports, the consumption tax must be declared and paid at the time of import, together with the import declaration and the declaration and payment of tariff. The complainant believes that the requirement to pay consumption tax on import transactions at the time of import places an overly heavy clerical burden on the importer and constitutes a barrier to import. In accordance with the principle of non-discrimination in domestic and import transactions, the complainant feels the system should be changed so that the total consumption tax on import transactions over a specified period can also be reported and paid at the head office location.

(2) Further, regarding import transactions when seller and buyer are related, for example, the parent company and its subsidiary, to use the transaction price as the tax assessment standard for tariff and consumption tax, the importer is required, when submitting the import declaration, to submit a valuation declaration and to prove that the relationship in question does not affect the transaction price. The complainant believes that

1) since consumption tax is assessed based on invoice price, there may be no need to provide strict proof that the price at the time of import is appropriate, as is the case for tariff;
2) regarding items on which no tariff had been levied, or accordingly no valuation declaration for paying tariff purposes had been required, but on which it became necessary after introduction of the consumption tax to submit a valuation declaration for payment of consumption tax, with numerous documents as proof that the price was appropriate, Valuation declaration procedures for consumption tax on imports from a related person, should be simplified; the requirement to submit documentary proof dropped; and consumption tax assessed based on the invoice prices.

4. Results of deliberation:

(1) It is not unreasonable for importers to consider that the current requirement that consumption tax on import transactions be paid each time import takes place generates extra paperwork, compared to the system of declarations and paying the consumption tax due over a specific period, as is done for domestic transactions.

However, in order to ensure reliable and efficient tax collection, it is a practical method to assess the consumption tax due on an imported item as part of overall import procedures and collecting this together with duty when the item is cleared. EC countries, which have a value-added tax, require declaration and payment of this tax over a specific period for domestic transactions, but where imports are concerned, the tax must be declared and paid at the time of import. In this respect, the Japanese system is similar to that use in the EC. Further, if there were systems for declaration and paying consumption tax on imports for specific periods, interest benefits would accrue on the undue tax accumulated until the time of payment. As expressed above, there are various problems involved and therefore it is inappropriate to change the system to allow reporting and payment of total consumption tax on imports over a specific period.

(2) Concerning the valuation declaration for consumption tax on imports between related persons, it is not unreasonable for importers to consider that this requirement, applicable only in the case of imports and not in the case of domestic transactions, generates extra paperwork.

However,

1) to ensure appropriate and fair assessment of the consumption tax, it is necessary to calculate the taxable price for consumption tax appropriately, regardless of whether or not the item concerned is subject to tariff.
2) Since, if the valuation declaration for consumption tax on imports from a related person were omitted, it would become difficult to assess tax appropriately, and transactions between related persons might enjoy an advantage over other ordinary transactions, those proposals are considered to be inappropriate due to the various problems involved from the stand point of fair and proper taxation.

However, the ministry or agency concerned, bearing it mind that this complaint was submitted, should re-confirm that the application should be required to present only essential documents in cases of valuation declarations for consumption tax on imports from related person.

Government decision (May 27, 1993)

The ministry or agency concerned should reconfirm that the applicant should be required to present only essential documents in cases of valuation declarations for consumption tax on imports from related parties.