Have You Completed the Introduction of Cashless Tax Payments?
Introduction
The utilization of e-Tax for filing national tax returns has reached about 80%. On the other hand, most taxpayers still tend to pay taxes in cash. 70% of national tax payments are paid in cash, and only 30% are paid cashless. However, as banks continue to close branches, it is expected that enterprises will introduce cashless tax payments in the future.
Connecting from e-Tax Filings on to Cashless Payments Is an Issue
The utilization of e-tax for FY2019 corporate tax returns reached 87.1%. Considering that about 30% of businesses make use of cashless payments, it can be said that the current situation is, “Tax returns are made by e-tax, payments are made in cash”. Even among enterprises which pay their taxes at financial institutions and tax office counters, the rate filing electronically reaches 74.8%. An issue for the national tax authorities is to “link e-Tax to cashless payments”.
Amidst accelerating non-face-to-face interactions and digitalization, the expectations for digitalization of administrative procedures rise. Regarding tax payments, direct payments have started with the introduction of the eLTAX system in 2019.
In addition, from January 2021, it became possible to carry out procedures for beginning usage of transfer accounts and direct payments for national tax payments online with smartphones, PC’s, etc. (in cases where filers are individuals).
Four Types of Cashless Tax Payments
There are four types of cashless payments, as follows:
- tax payments by transfer account
- direct payments
- internet banking
- credit card payments
Because tax payments via transfer accounts are only used for individual income tax/individual consumption tax/etc., options for enterprises are direct payments, internet banking, and credit card payments.
Of those, probably credit card payments would be the easiest. Even if a company hasn’t made an e-tax filing, its representative can complete the payment procedures without going to a financial institution or tax counter, as long as the company uses a credit card, and it has an environment where they can connect to the internet. However, a demerit is that such transactions incur payment fees - even if they are small sums.
Your company can use direct payment and internet banking without a settlement fee, but e-tax filing is a prerequisite.
If you have already filed via e-tax, it may be better to consider direct payment and internet banking.
Expectations for Further Enhancement of the System
In the tax reform for fiscal year 2021, it is stated that the government will "continue to study the taxation system and diversification of tax payment methods in response to digitalization and cashless transactions”. Therefore, more improvements to the system and structure are expected.
However, we think that it is more important to “communicate to taxpayers in an easy-to-understand manner” regarding the convenience and other merits of the system, rather than improve the system. Partly in order to increase productivity by eliminating the need to go to work and then go to the bank in order to pay taxes, it would be recommended to consider cashless payments.
Putting a Stop to Saving on Taxes by Changing Policyholders
Introduction
Tax reduction schemes using low surrender value life insurance policies are about to be reviewed. It seems that schemes to reduce income tax burdens by changing the policyholders from corporations to executives or employees are about to be stopped. Following is an explanation of the tax treatment regarding changing the names of policyholders.
Using "One-half Taxation" of Temporary Income
When a corporation changes the name on an insurance policy to that of an officer or employee, the amount of the surrender value at the time of the change is taxed as "employment income" on the officer or employee's side. When the policy is cancelled by the officer or employee, the cancellation refund received by the officer or employee will be taxed as "one-time income". In this case, after subtracting the total amount of premiums paid from the surrender value, and deducting the special deduction of 500,000 yen, one-half of the amount remaining will be subject to taxation as temporary income.
In this way, since the so-called "one-half taxation" is applied to the lump-sum income, low surrender value life insurance (a contract that substantially reduces the amount of surrender value for the first 10 years of the contract and then raises the surrender value) was often used as a tax-saving scheme to reduce the burden of income tax.
Flow of a tax-saving scheme using low surrender value life insurance:
- The policyholder or premium payer is a corporation, and the insured is an employee or officer of the corporation who concludes the same insurance contract.
- In the 10th year, when the surrender value is low, the policyholder is changed from the corporation to the officer or employee, and the rights to the policy are transferred to the officer or employee.
- The following year, when the surrender value is increased, the officer/employee cancels the policy and receives the surrender value.
Since a portion of the premiums paid are deductible by the corporation, and the surrender value is set to be much lower than the premiums paid by the corporation for the first 10 years after the contract is concluded, the amount of taxable wages for the officer/employee is very small.
Thus, by changing the name on the low surrender value life insurance policy, it was possible to transfer assets from the corporation to the individual with minimal tax impact.
Economic Benefit to be Taxed as Salary to be "Capitalized Amount”
What is under consideration for review is the amount of economic benefit that should be taxed as salary at the time a policy is changed. Specifically, if the surrender value of the policy is less than 70% of the premiums capitalized by the corporation, it apparently will be assessed as the "capitalized amount”.
The current Fundamental Directive on Income Tax 36-37, which stipulates that economic benefits at the time of policy change should be valued at a low surrender value, is expected to be revised.
This will result in a significant increase in the amount subject to payroll taxation at the time of contract change, and even if the surrender value actually received by the employee, etc. is subject to one-half taxation as one-time income, the tax benefits of the name change scheme using the mechanism of such insurance contracts will end up being greatly reduced.
This Tax-Saving Insurance Area was Already Revised in 2019.
An amendment to block tax-saving insurance plans that presuppose a name change was made in 2019, and this amendment is likely to follow suit. Regarding tax-saving insurance, the National Tax Agency (NTA) has been playing a cat-and-mouse game with insurance companies for a long time; the NTA takes measures, then insurance companies develop new products that dodge the new statutes.
Although the tax-saving insurance with low surrender value is expected to be blocked as explained above, the insurance companies will probably develop new products again.
Points to Keep in Mind for Financial Statements for the Fiscal Year Ending March 2021
Introduction
Work on financial statements for the fiscal year ending March 2021 will start soon. Here is a summary of points to note for the fiscal year ending in March 2021.
About the Tax System Supporting Income Growth for SMEs
If a company submits a blue declaration and meets certain requirements, a certain amount of tax credit will be granted. For small and medium-sized enterprises, the tax credit is available if the salary of employees continuously employed from the previous year increases by 1.5% or more. It is important to note that in the fiscal year ending March 2021, companies that receive subsidies for employment adjustment should apply through this Tax System Supporting Income Growth for SMEs.
Since the amount of subsidies for employment adjustment will be excluded from the scope of salaries and wages, it will be necessary to deduct the subsidies for employment adjustment before determining whether or not the requirements are met. In addition, since the employment adjustment subsidies are a system whereby the total amount for all employees who have taken a leave of absence is paid in a lump sum, it is necessary to rationally calculate the payroll for employees who have been continuously employed since the previous fiscal year, which requires somewhat more complicated calculations.
There are various issues regarding the employment adjustment subsidies, so please consult with us as soon as possible if you are receiving them.
Carry-back Refunds Also Permitted In Cases where Companies Are Capitalized at over 100 Million Yen
Traditionally, small and medium-sized enterprises (SMEs) have been allowed to carry back losses to the previous fiscal year and claim a refund of corporate income tax in the fiscal year in which the losses were incurred. Under the Act on Special Measures Concerning Taxation for COVID-19, not only small and medium-sized enterprises (SMEs) with capital of 100 million yen or less, but also those with capital between 100 million - 1 billion yen are allowed to claim refunds of corporate tax on blue declarations by carrying back the amounts of their losses to the previous fiscal year.
Corporations capitalized at over 100 million yen may be able to handle the situation differently from normal years, so they need to be taken care with their returns.
Losses Caused Due to COVID-19 Can be Carried Back up to Two Fiscal Years.
In cases where losses have been incurred in inventories, fixed assets, etc., due to the temporary closure of schools or requests to refrain from going out (self-quarantine) due to the new coronavirus infection, or where expenses have been incurred for disinfection, etc., to prevent the spread or outbreak of infectious diseases, the amounts of these losses and expenses will fall under the category of "losses incurred due to disasters”.
However, please note that the amount of losses incurred due to a disaster is limited to the amount of losses incurred on inventories, fixed assets, or certain deferred assets due to the disaster - so, for example, a decrease in sales at a store due to requests to refrain from going out would not be included.
In the case of the carry-back refund system for disaster losses, it can be applied regardless of the size of the company’s capital, or type of declaration (whether blue or white). For losses caused by disasters for blue-filing companies, carry-back to two previous fiscal years will be possible.
Regarding Increases/Decreases in Executives’ Compensation
There are many companies that have been forced to reduce executive salaries due to the effects of the new coronavirus infection. Even with the coronavirus, not all reductions in executive salaries or increases in reduced salaries can be included in deductible expenses, unless the prescribed requirements are met. Please inform us if you have made any changes to executive salaries during the period.
