OSAKA — A wealthy individual in his 50s living in one of the most expensive neighborhoods in the Kansai region and several of his relatives were investigated by the Osaka Regional Taxation Bureau and found to have failed to declare 5.2 billion yen (about $38.91 million) in income over the five years through 2020, sources close to the case have told the Mainichi Shimbun.
It emerged that the individuals targeted in the probe had managed a large amount of assets at a firm set up in a tax haven, and underreported gains. The amount of additional taxes including penalties for underreporting reached approximately 1.8 billion yen ($13.47 million). The full amount has since apparently been paid.
Taiwanese company shares transferred
Japanese tax authorities are increasing their vigilance regarding tactical tax evasion transcending borders among high net worth individuals with large amounts of assets in Japan and overseas. While authorities have not defined the wealthy class subject to investigations, it is believed officials have set certain criteria, such as the amount of securities they hold, as well as real estate, income and overseas investments.
Sources close to the investigation said that the man cited for tax evasion lived in an upscale residential area in the city of Kobe, and operates a real estate-related company. Some of his relatives are living in Taiwan, as the man has multiple living bases.
In the process of investigating wealthy people, the Osaka Regional Taxation Bureau learned that the man and others targeted in their probe had inherited shares of a listed company in Taiwan from another relative who had passed away, and held large amounts of assets in Japan and abroad. Assets including shares were also transferred to a fund management company that the man’s relatives set up in a tax haven, and this individual and the others received dividends and other payments.
‘I have nothing to say’
It also emerged that the man transferred assets to relatives, but they did not file tax returns.
When a resident of Japan who holds over 100 million yen in stocks and other securities provides gifts or an inheritance to relatives overseas, unrealized capital gains are taxed. This is referred to as the “exit tax system,” and the donor is subject to income tax while the recipient is subject to gift tax. The system was introduced in 2015 to prevent tax evasion through tax havens where profits from the sale of shares are not subject to tax, and tax authorities are believed to have applied this rule to the man and other targets of their probe.
The tax bureau judged that the individuals were also subject to the anti-tax haven taxation system, which is designed to prevent tax avoidance by transferring income to countries with low corporate tax rates. The bureau apparently confirmed that the subjects failed to declare approximately 5.2 billion yen in income and subjected them to additional income and gift taxes.
When approached by the Mainichi Shimbun, the man said, “I have nothing to say.”
Sense of crisis at the tax bureau
If tax evasion by the wealthy is overlooked, then it could result in a sense of unfairness among the public regarding taxation. Harboring a sense of crisis, tax authorities in Japan have been conducting surveillance with dedicated investigation teams, and have also begun collaborating internationally to gather information on overseas assets.
In 2014 the National Tax Agency established project teams for high net worth individuals at the Tokyo, Osaka and Nagoya regional taxation bureaus, and required individuals with over 50 million yen in assets overseas to file reports every year. The project teams have since been stepped up and have been established at all taxation bureaus nationwide.
The background to this is the internationalization of tax evasion by the wealthy and multinational corporations using tax havens, an issue that came under the spotlight through the “Panama Papers,” which exposed the involvement of famous people and major corporations across the world. However, it is difficult for one country alone to ascertain the movement of money across borders.
International collaboration to monitor high net worth individuals
Since 2018, Japan’s National Tax Agency has participated in a system that automatically exchanges account information with countries across the world, and it is proceeding with investigations into the names and balances of accounts that individuals and corporations in Japan hold overseas. This system is based on standards established by the Organization for Economic Cooperation and Development, and tax authorities in 152 countries and regions participate in it.
According to the Japanese agency, over the year through June 2022, the total amount of undeclared income by the wealthy reached 83.9 billion yen (about $627.1 million). This is almost double the 44.1 billion yen recorded five years earlier, and the amount of additional taxes levied against violators averaged 10.67 million yen ($79,800) per case — three times higher that the figure five years earlier.
One tax official who spoke to the Mainichi Shimbun commented, “In order to heighten fairness in tax, we want to continue to prevent tax evasion that only the wealthy can commit, while collaborating with countries overseas.”
(Japanese original by Ryo Numata, Osaka City News Department)