Normative Significance of Tax Procedural Law: Reconstruction of the Principle of Legality (TATSUMI Tomohiko)
Regulation of "Money" Issued by Private Entities - Focusing on Stablecoin Regulations (YUKIOKA Mutsuhiko)
EU DAC 8 - Automatic Exchange of Information Between Tax Authorities Covering Crypto-Asset Transactions (OHNO Masato)
BEPS 2.0 Dispute Resolution - The Need for Effective Dispute Prevention/Resolution in a Global Taxation Framework (NAKAMURA Mayuko)
Tax Compliance and Non-Compliance – With Special Focus on the Reports Published by the Forum on Tax Administration (MASUI Yoshihiro)
| By TATSUMI Tomohiko | (Associate Professor, Graduate Schools for Law and Politics, The University of Tokyo) |
Tax procedural law has an inherent normative significance in terms of realizing the substantive law of taxation; it should handle disputes based on differences in the recognition of each party regarding the existence or nonexistence of tax liabilities and their contents. The principle of legality requires a tax agency to determine and enforce tax claims that have been established based on the provisions of the substantive law when the requirements for taxation have been fulfilled, but does not prohibit the tax agency from suspending further investigation after sufficient examination in the case where it is unclear whether the requirements for taxation have actually been fulfilled. Although the principle of legality may hold a certain normative requirement with respect to the scope of the sufficient examination by the tax agency, there may be a situation where the limits of the examination are defined from the perspective of efficiency of tax enforcement. The issue on the scope of an administrative agency's obligation to examine is to reconcile the accuracy and efficiency of tax enforcement on the plane of the procedural law; the same issue is involved in the admissibility of settlements relating to tax claims.
Keywords: Tax Procedure Law, Principle of Legality, Opportunism, Legalism, Examination Obligation, Settlement, Agreement, Efficiency
JEL Classification: H20, K34, K41
| By YUKIOKA Mutsuhiko | (Professor, Graduate School of Law, Kobe University) |
The amendment of the Payment Services Act (hereinafter “the Act”) in 2022 (effective as of June 2023) created the regulation for "Electronic Payment Instruments" (as defined in Article 2, Paragraph 5 of the Act), which aims to introduce a regulatory regime for so-called "stablecoins" in Japan. Under the regime, the financial industry has been making efforts to issue stablecoins in the form of trust beneficiary rights (which is a form of Electronic Payment Instruments as stipulated in the Act). In this regard, the Act requires that all the assets backing stablecoins, which are trust assets pertaining to the above-mentioned trust beneficiary rights, be managed in the form of the demand deposit. The purpose of this regulation appears to ensure the full redemption of stablecoins and the stability of their value, by requiring the stablecoin issuers to (i) safeguard the backing assets in a relatively safe way (i.e., in the form of the demand deposit) and (ii) legally separate the backing assets (as trust assets) from the issuer’s own assets.
However, there could be two questions raised regarding the current regime. The first is about the necessity of safeguarding the backing assets in the form of demand deposit. It might be argued that other forms of safe assets (i.e., low-risk and highly liquid assets), such as government bonds, municipal bonds, and commercial papers (CPs), should be allowed for backing the stablecoins. The second is about the sufficiency of safeguarding the backing assets in the form of demand deposit. Even banks are not free from the risk of bankruptcy, and thus there might be a concern about the safety of the stablecoins under the current regime, especially in a scenario where the stablecoins are widely used such that their collapse poses systemic risks to the whole financial system. This paper seeks to answer these questions by examining pros and cons of four regulatory models presented in the Bank of England's discussion paper "New forms of digital money," and, more generally, seeks to show some possible regulatory approaches and issues to be discussed in relation to the regulation of "money" issued by private entities.
Keywords: money, digital money, stablecoins, banking regulation, Electronic Payment Instruments
JEL Classification: G21, G23, K22
| By OHNO Masato | (Professor, Graduate School of Global Business, Meiji University) |
This paper introduces and discusses DAC 8 (Eighth Amendment to the Directive on Administrative Cooperation in the Field of Taxation) enacted by the European Union (EU) in October 2023.
DAC 8 requires "Crypto-Asset Service Providers" that intermediate crypto-asset transactions on the Internet to provide the tax authorities of the EU member states with information about their customers, the "Crypto-Asset Users," and establish a framework where the information such provided is automatically exchanged among the tax authorities of the EU member states. Such information is to be provided, as needed, to the authorities in charge of combating money laundering and terrorism.
In the EU, DAC 8 implements the Crypto-Asset Reporting Framework (CARF) of the OECD, which was published in 2022. The EU has been steadily enacting the framework for automatic exchange of information between tax authorities proposed by the OECD through successive amendments to the DAC. In contrast, such legislation in Japan has been somewhat delayed.
When a resident of Japan (including a corporation or other business entity) earns income by using Internet-based services provided by a foreign resident, it is difficult for the Japanese tax authorities to ascertain such income without exchanging information with the foreign tax authorities. The author believes that Japan should expedite legislation for establishing information-exchange frameworks proposed by the OECD.
Keywords: international taxation, tax enforcement cooperation, information exchange, crypto-assets, DAC 8, CARF
JEL Classification: F53, H26, K34
| By FUJIWARA Kentaro | (Associate Professor, Graduate School of Law, Tohoku University) |
As a predecessor to VAT, we have referred a lot to VAT in the European Union (EU). It is natural that there are some things we should learn from it and other things we should not learn from it. Nevertheless, the position of VAT in the history of the EU is naturally dictated by the ideals pursued by the EU and its political situations.
This paper focuses on the distribution of the right to levy VAT among EU member states. In doing so, this paper will focus on trends in the Court of Justice of the European Union (CJEU), which is one of the actors that implement Community law. By reviewing and organizing its precedents, especially those concerning fixed establishment and transactions between head offices and branches, this paper aims to enrich the ground for discussing the design of a VAT system for multinational enterprises. Specifically, we will observe how the CJEU has dealt with the major theme of allocation of taxing rights.
Such work is not future-oriented, but rather looking back at the past, and thus does not bring any immediate recommendations into the context of Japanese law. However, we recognize not a few challenges in studying the taxation of VAT with respect to multinational enterprises. For example, which country has the primary right to tax cross-border corporations, or whether internal transactions among corporations can be considered in the VAT point of view, and so on. There is a need for research on the allocation of taxing rights across both income taxation and VAT.
Keywords: Value-added tax (VAT), European Union, International taxation, Allocation of taxing rights, Court of Justice of the European Union, Fixed establishment, Transacitons between head offices and branches
JEL Classification: H25, H26, K34
| By NAKAMURA Mayuko | (Attorney-at-Law (Partner), Nishimura & Asahi) |
The OECD/G20 "BEPS Inclusive Framework" discussion on international tax challenges arising from the digitalization of the economy resulted in an agreement on a two-pillar solution: Pillar 1 (allocation of new taxing rights to market countries) and Pillar 2 (global minimum taxation). The second pillar has been legislated in many countries, and in Japan, the corporate income tax system for global minimum taxation will be applied to fiscal years beginning on or after April 1, 2024.
However, it appears that the framework for dispute resolution corresponding to the new international taxation has not yet been sufficiently developed. In other words, Pillar 1: Multilateral Convention on amount A provides an innovative multilateral dispute prevention/resolution mechanism, but the prospects for its entry into force are uncertain, and no new dispute prevention/resolution measures for amount B are envisaged, while Pillar 2: global minimum taxation seems to not yet have been sufficiently developed in the event of disagreement on interpretation and application. It is expected that discussion on this point of view will progress before its implementation, considering the current efforts to improve mutual agreement procedure and the ICAP mechanism.
Keywords: international taxation, BEPS inclusive framework, tax challenges arising from the digitization of the economy, tax certainty, dispute resolution, mutual agreement procedure, ICAP
JEL Classification: H25, K34
| By NODA Kohei | (Counsellor, Cabinet Legislation Bureau) |
Although it is widely recognized that there is a profound relevancy between anti-money laundering and taxation measures, and that cooperation between both authorities is called for, the discussion in this regard has so far been left fragmented and unstructured. This paper attempts to establish a basic perspective and a framework for discussion that would serve as a basis for furthering the consideration on this issue.
Specifically, the causes of the fragmentation are considered as follows: (1) the lack of differentiation in the discussion on various phases of co-operation, (2) the existence of an "odd connectivity" in the discussion towards the desirable form of co-operation, and (3) the confusions of various characters and objectives s in information sharing among the authorities.
The paper then breaks down the assumed cooperative relationships into the following phases: (1) risk analysis and assessment (ex-ante phase), (2) information sharing (operational phase), and (3) deprivation of criminal proceeds (ex-post phase). It then clarifies that each phase, especially with regard to the phase (2) which is the focal segment of the issue, requires independent consideration based on relevant laws, regulations, judicial precedents, and so on.
Finally, as a supplementary topic, the paper attempts to reorganize the discussion on listing tax crimes as “predicate offences” in money laundering, as well as the issue of confiscation (deprivation of the proceeds of the crime).
Keywords: money laundering, AML, proceeds of crime, organized crime, underground funds, international taxation, information exchange (sharing), confiscation, FATF, OECD
JEL Classification: K14, K22, K33, K34, K42
| By MASUI Yoshihiro | (Professor, Graduate Schools for Law and Politics, The University of Tokyo) |
This paper reviews a series of reports of the Forum on Tax Administration (hereinafter referred to as "FTA") in order to trace the development of its approaches towards tax compliance and non-compliance. The FTA reports have been published since 2004. More than 100 reports have already been accumulated. This paper attempts to make an overview of all the reports published so far. Its aim is to facilitate Japanese audience to refer to them without phycological difficulties.
The main themes of the FTA's reports include the following: Compliance Risk Management, Digitization of Tax Payment Services, the Role of Tax Intermediaries, Working Smarter, Offshore Non-compliance, Cooperative Compliance, Tax Compliance by Design, Maturity Model, and Behavioral Insights. In recent years, after responding to the shocks by the spread of Covid-19, a new perspective on tax enforcement has been proposed under the concept of "Tax Administration 3.0".
In terms of tax compliance, the emphasis has shifted from the initial approach of "responding to tax returns" to that of "working towards the taxpayer environment" since around 2010. This change led to the concept of "Tax Administration 3.0" in 2020 as digital transformation had progressed. The concept of "Tax Administration 3.0" was not generated out of the blue, but rather was a product of an ongoing effort in the initiatives that had developed for some time.
Keywords: Forum on Tax Administration, tax compliance, risk management, cooperative compliance, digital transformation, Tax Administration 3.0
JEL Classification: H26, H83, K34
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