Revised act concerning the interim tax return filing

Wednesday, August 3, 2011. 11:25

Before the act was revised, in order to calculate and pay the interim tax for the current fiscal year, there were two methods a company could choose: either preparing pro forma tax return or make a simple calculation by multiplying 50% by the tax payment of prior fiscal year, whichever is favorable. In other words, if the interim tax payment computed by making pro forma tax return is smaller than 50% of the prior year tax payment, then it would be advisable to prepare pro forma tax return in order to pay less interim tax to save cashflow for any immediate use for the time being. Of course, everything comes at a cost; company that chooses the method of preparing pro forma tax return shall spend time and money because such method requires the closing procedure as the same as at the end of the fiscal year.

However, there are some companies which would rather choose to prepare pro forma tax return even though interim tax payment computed by making pro forma tax return is greater than 50% of the prior year tax payment, for overpayment of tax will entitle the company to an interest calculated on the tax amount overpaid. Since the interest rate which is 4% + official discount rate is greater than the bank interest rate a company can earn by deposit, it’s certainly an attractive way to earn higher interest in a short period than depositing that amount of money in banks. This is a loophole of the tax refund that some of the companies have taken advantage, found out by the board of audit of Japan.

As a measure to prevent company from abusing the right of the tax refund, the act allowing company to choose either of the two methods is no longer available if the interim tax payment computed by making pro forma tax return is greater than 50% of the prior year tax payment. That is to say, company can only choose to pay its interim tax by just simply calculating 50% of its prior year’s taxable income. Furthermore, if 50% of its prior year’s taxable income is equal to or less than JPY100,000 or zero, the company is not obliged to file interim tax return.

This revised act concerning filing interim tax return was approved by the congress on June 22, 2011.

Of all the proposals, submitted to the congress, to reform part of the income tax so as to maintain the fairness in income taxation under the current economic downturn and low employment, the proposal of the act concerning filing interim tax return is revised separately from the Japan’s annual tax reform for 2011.

Source: Revised act concerning filing interim tax return for the purpose of preventing the abuse of the right of tax refund on June 22, 2011. (2011年6月22日還付濫用防止が目的の中間申告制度の改正)

Disclaimer
The publication contains information in summary form and is therefore intended for general guidance only.  This publication is not intended as legal, accounting or other professional advice and should not be relied upon as such.  If legal, accounting or other professional advice or expert assistance is required, the services of a competent professional should be sought.  Neither Reanda Japan nor any related entity shall have any liability to any person or entity that relies on the information contained in this publication.