NEWS

NEWS

NEWS

2021.07.27

Is Your Company Treating Costs For Drinking Alone as Entertainment Expenses?

Introduction

 Has your company been treating receipts for drinking alone as entertainment expenses?  Please be careful, as you could be subject to unexpected additional taxes.

What are Entertainment Expenses?

Entertainment expenses, etc. are defined in the Act on Special Measures Concerning Taxation as social expenses, reception expenses, confidential expenses, and other expenses incurred by a corporation for the purpose of entertaining, offering hospitality, comforting, giving gifts, or other similar activities to its customers, suppliers, or other persons related to its business.

It is stipulated that entertainment expenses are those that are spent for entertaining, etc., of customers, suppliers, or other parties related to the business.

Expenses for drinking alone do not fall under this category. Such costs are only personal expenses for eating and drinking, and are not allowed as corporate expenses.  Therefore, it is necessary to pay such expenses oneself.

A Case in which Heavy Additional Tax Was Imposed

In the case announced this time, a representative of a company reported the cost of using several restaurants (so-called clubs) for entertainment as entertainment expenses, but in a subsequent tax audit, it was pointed out that the costs were for the representative's personal use.

Based on the audit, the company filed an amended return stating that the individual’s payments at the restaurants for personal purposes were not entertainment expenses, but actually loans to the individual.

Under normal circumstances, the company would have paid additional corporate tax and consumption tax, additional tax for under-reporting, and delinquency tax in response to the amended tax return.  However, in this case, a heavy additional tax was imposed instead of the usual additional tax for under-reporting.

Such additional tax is imposed only when a case is judged to be malicious - for instance, when a company has concealed/disguised its finances - and even we tax accountants rarely see cases where such heavy additional tax is imposed.

Why Did That Company Become a Target for Extra Additional Tax

There are not many cases like this where such a large additional tax is imposed. So why was it imposed in this case?

It seems that the extra additional tax was imposed because the representative's personal food and beverage expenses were recorded in the general ledger, even though there was no proof that the representative had entertained clients.  This was ruled to constitute disguisement/concealment. Apparently, the company representative claimed that interacting with various people in the clubs meant that he was expanding his personal business network, but the Tokyo High Court ruled that the mere abstract necessity of expanding the network of people was not enough to be recognized as entertainment expenses for people concerned with business.

Personally, I think it is a bit severe to impose heavy additional tax for disguised concealment just because of the above reason.  I’m just guessing, but the amounts of money spent on food and drinks at the clubs might have been quite large, or the representative's attitude during the tax audit may have been unhelpful.  I have to admit that this is a rather special case.

However, it is important to note that this could become a precedent for imposing heavy additional taxes if a company treats the expenses of an employee drinking alone as entertainment expenses.  Whether or not additional tax is imposed, please keep in mind that the cost of drinking alone is not an expense of the company.

If you have any questions about entertainment expenses, feel free to contact our office.

FAQs Regarding COVID-19 & Working from Home Updated

The National Tax Agency has updated the ‘New Corona Virus’ FAQ and the Telecommuting FAQ, respectively, adding a total of five questions. The following is an explanation of points that may raise questions about these matters.

Introduction

As COVID-19 brings about new lifestyles and ways of working, the National Tax Agency has clarified tax treatment for those with unclear tax relationships by publishing FAQs.  Please make sure you understand them correctly so that you will not be pointed out for omissions of income tax withholding in a tax audit after the virus has passed.

With regard to the purchase of consumables such as masks and disinfectants used during work, a certain amount of money paid to employees by way of reimbursement of actual expenses paid is not taxed as salary to the employees. Similarly, if a company directly distributes masks, etc., employees will not be taxed for them.

However, please note that the purchase of consumable items such as masks that are used outside of work, or those that are provided to non-employees such as family members of the employee, are subject to income tax as wages for the employee.

Masks, in particular, are used outside of work hours, so it is difficult to determine whether they are for work or not.

If masks are provided to employees, it’s important to prepare documents that clarify that the company has determined that the masks are necessary for work as a preventive measure against infection, and has decided to provide them based on that determination.

Expenses for Equipment Purchased for ‘Telework’

A certain amount of money paid to an employee for expenses normally required for business, such as the cost of maintaining the environment for the employee to ‘telework’ (telecommute), by a method in which the employee submits receipts, etc. for actual expenses, and the expenses are reimbursed, is not taxable as salary to the employee.  Also, renting equipment for telework to employees for the purpose of using it for work is not considered as salary.

However, telecommuting and remote work allowances paid on a crossover basis are subject to payroll taxation.  This is because it is not clear whether or not these allowances are actually used for business purposes. Please note that such allowances are subject to income taxation as an employee's salary.

The Basic Approach is Unchanged from Before COVID-19

As mentioned above, even if your company provides some equipment or monetary payments to employees, they will not be subject to payroll taxation if the benefits to the employees are necessary for the performance of their work duties.

On the other hand, if allowances are on a crossover basis, or if you are not sure whether the money is used for business purposes or not, in principle it will be subject to payroll taxation.  If this basic idea is understood, you likely will not make any major mistakes in your conclusions, even if new problems or issues arise from the spread of the new corona virus.

When a company pays for infection control or telecommuting costs, the taxation depends on whether it is necessary for business or not.  In addition to clarifying that "necessary for business" means "the extent to which the company bears the cost of infection control and telework", it is effective to prepare materials informing employees of these facts in order to avoid tax audits.

An Attempt to Save Tax by Purchasing Real Estate Just Before an Inheritance Commenced Rejected by Tokyo High Court

In the case of an heir who borrowed money from a bank just before their inheritance to buy real estate and save taxes, the government won the case in the Tokyo High Court, following the first trial, and the heir’s case was rejected.

Introduction

This regards a tax-saving method/scheme that was rampant during the ‘bubble era’ of the 1980s, when people borrowed money from banks to buy real estate in order to reduce inheritance taxes.  We will show how an unreasonable case was rejected, where the Tokyo High Court ruled in favor of the government, rejecting a lawsuit by the heir following the first trial.

Real Estate Was Purchased Immediately After a Cancer Diagnosis

First of all, a brief background explanation about the case:

In September 2013, the heir acquired by inheritance a luxury rental condominium purchased by the decedent, their father, for 1.5 billion yen.  The decedent and his family had been discussing the effect of reducing inheritance tax by purchasing real estate through the bank since before his death, and the decedent had purchased the above luxury rental condominium after borrowing 1.5 billion yen from the bank immediately after his lung cancer was discovered in June 2013.

The heir valued this rental condominium at approximately 500 million yen based on the assessed value of the land, etc., and filed an inheritance tax return after recording the 1.5 billion yen borrowed as debt.  If the status before the purchase of the real estate was zero, the company borrowed 1.5 billion yen from the bank and purchased 500 million yen worth of real estate for inheritance tax purposes, creating a loss of 1 billion yen (= 500 million yen in real estate - 1.5 billion yen in liabilities).

On the other hand, the government claimed that the real estate was valued at 1.04 billion yen (appraised value) and increased the inheritance tax, which led to a dispute.  At issue was the market value of the property at the time of inheritance.

Heir (Assessment by circular-evaluated value) ¥477,611,109
National government (Assessment by appraisal value) ¥1,040,000,000

The appraised value of the property claimed by each side

The Tokyo High Court Upheld the Judgment of the Tokyo District Court from the First Trial

The Tokyo District Court, the first trial court, ruled that the government's correction (the inheritance tax increase) was appropriate, as follows:

  1. There was a significant difference between the circular-evaluated value and the appraised value; and
  2. The property was purchased with the expectation of reducing the inheritance tax burden.

The Tokyo High Court upheld the judgment of the Tokyo District Court in the first trial and found that the market value of the property in question was 1.04 billion yen.  The heirs who lost the case plan to appeal to the Supreme Court.

The Tokyo High Court ruled that, "The difference between the circular-evaluated/notified value and the appraised value is significant because the notified value is less than half the appraised value, and more than 500 million yen less.”  While acknowledging the existence of cases in which there is a difference between the circular-evaluated value and the appraised value, it can be seen that one of the reasons for the decision was that the difference was indeed too large.

Even if not a purchase of real estate immediately after the discovery of lung cancer, as in this case, careful judgment is required when there is a large difference between the notified value and the appraisal value.

It is not an easy thing to do, but taking inheritance measures using rash judgment can lead to trouble for heirs.

Please feel free to contact our office if you would like to discuss inheritance measures based on these considerations.

pagetop
  • Russell Bedford
  • PRIVACY POLICY
  • PRIVACY POLICY

    locate a single person, or to identify an individual in context. Please read our privacy policy carefully to get a clear understanding of how we collect, use, protect or otherwise handle your Personally Identifiable Information in accordance with our website.

    What personal information do we collect from the people that visit our blog, website or app?

    When ordering or registering on our site, as appropriate, you may be asked to enter your name, email address, Address or other details to help you with your experience.

    When do we collect information?

    We collect information from you when you fill out a form or enter information on our site.

    How do we use your information?

    We may use the information we collect from you when you register, make a purchase, sign up for our newsletter, respond to a survey or marketing communication, surf the website, or use certain other site features in the following ways:

    • To follow up with them after correspondence (live chat, email or phone inquiries)

    How do we protect your information?

    We do not use vulnerability scanning and/or scanning to PCI standards.
    We only provide articles and information. We never ask for credit card numbers.
    We do not use Malware Scanning.

    We do not use an SSL certificate
    • We only provide articles and information. We never ask for personal or private information like names, email addresses, or credit card numbers.

    Do we use 'cookies'?

    Yes. Cookies are small files that a site or its service provider transfers to your computer's hard drive through your Web browser (if you allow) that enables the site's or service provider's systems to recognize your browser and capture and remember certain information. For instance, we use cookies to help us remember and process the items in your shopping cart. They are also used to help us understand your preferences based on previous or current site activity, which enables us to provide you with improved services. We also use cookies to help us compile aggregate data about site traffic and site interaction so that we can offer better site experiences and tools in the future.

    We use cookies to:
    • Keep track of advertisements.
    • Compile aggregate data about site traffic and site interactions in order to offer better site experiences and tools in the future. We may also use trusted third-party services that track this information on our behalf.

    You can choose to have your computer warn you each time a cookie is being sent, or you can choose to turn off all cookies. You do this through your browser settings. Since browser is a little different, look at your browser's Help Menu to learn the correct way to modify your cookies.

    If you turn cookies off, some features will be disabled. It won't affect the user's experience that make your site experience more efficient and may not function properly.
    However, you will still be able to place orders.

    Third-party disclosure

    We do not sell, trade, or otherwise transfer to outside parties your Personally Identifiable Information unless we provide users with advance notice. This does not include website hosting partners and other parties who assist us in operating our website, conducting our business, or serving our users, so long as those parties agree to keep this information confidential. We may also release information when it's release is appropriate to comply with the law, enforce our site policies, or protect ours or others' rights, property or safety.

    However, non-personally identifiable visitor information may be provided to other parties for marketing, advertising, or other uses.

    Third-party links

    Occasionally, at our discretion, we may include or offer third-party products or services on our website. These third-party sites have separate and independent privacy policies. We therefore have no responsibility or liability for the content and activities of these linked sites. Nonetheless, we seek to protect the integrity of our site and welcome any feedback about these sites.

    Google

    Google's advertising requirements can be summed up by Google's Advertising Principles. They are put in place to provide a positive experience for users. https://support.google.com/adwordspolicy/answer/1316548?hl=en

    We use Google AdSense Advertising on our website.

    Google, as a third-party vendor, uses cookies to serve ads on our site. Google's use of the DART cookie enables it to serve ads to our users based on previous visits to our site and other sites on the Internet. Users may opt-out of the use of the DART cookie by visiting the Google Ad and Content Network privacy policy.

    We have implemented the following:
    • Remarketing with Google AdSense

    We, along with third-party vendors such as Google use first-party cookies (such as the Google Analytics cookies) and third-party cookies (such as the DoubleClick cookie) or other third-party identifiers together to compile data regarding user interactions with ad impressions and other ad service functions as they relate to our website.

    Opting out:

    Users can set preferences for how Google advertises to you using the Google Ad Settings page. Alternatively, you can opt out by visiting the Network Advertising Initiative Opt Out page or by using the Google Analytics Opt Out Browser add on.

    California Online Privacy Protection Act

    CalOPPA is the first state law in the nation to require commercial websites and online services to post a privacy policy. The law's reach stretches well beyond California to require any person or company in the United States (and conceivably the world) that operates websites collecting Personally Identifiable Information from California consumers to post a conspicuous privacy policy on its website stating exactly the information being collected and those individuals or companies with whom it is being shared. - See more at: http://consumercal.org/california-online-privacy-protection-act-caloppa/#sthash.0FdRbT51.dpuf

    According to CalOPPA, we agree to the following:
    Users can visit our site anonymously.
    Once this privacy policy is created, we will add a link to it on our home page or as a minimum, on the first significant page after entering our website.
    Our Privacy Policy link includes the word 'Privacy' and can be easily be found on the page specified above.

    You will be notified of any Privacy Policy changes:
    • On our Privacy Policy Page
    Can change your personal information:
    • By emailing us

    How does our site handle Do Not Track signals?

    We honor Do Not Track signals and Do Not Track, plant cookies, or use advertising when a Do Not Track (DNT) browser mechanism is in place.

    Does our site allow third-party behavioral tracking?

    It's also important to note that we allow third-party behavioral tracking

    COPPA (Children Online Privacy Protection Act)

    When it comes to the collection of personal information from children under the age of 13 years old, the Children's Online Privacy Protection Act (COPPA) puts parents in control. The Federal Trade Commission, United States' consumer protection agency, enforces the COPPA Rule, which spells out what operators of websites and online services must do to protect children's privacy and safety online.

    We do not specifically market to children under the age of 13 years old.

    Fair Information Practices

    The Fair Information Practices Principles form the backbone of privacy law in the United States and the concepts they include have played a significant role in the development of data protection laws around the globe. Understanding the Fair Information Practice Principles and how they should be implemented is critical to comply with the various privacy laws that protect personal information.

    In order to be in line with Fair Information Practices we will take the following responsive action, should a data breach occur:
    We will notify the users via in-site notification
    • Within 7 business days

    We also agree to the Individual Redress Principle which requires that individuals have the right to legally pursue enforceable rights against data collectors and processors who fail to adhere to the law. This principle requires not only that individuals have enforceable rights against data users, but also that individuals have recourse to courts or government agencies to investigate and/or prosecute non-compliance by data processors.

    CAN SPAM Act

    The CAN-SPAM Act is a law that sets the rules for commercial email, establishes requirements for commercial messages, gives recipients the right to have emails stopped from being sent to them, and spells out tough penalties for violations.

    We collect your email address in order to:
    • Send information, respond to inquiries, and/or other requests or questions

    To be in accordance with CANSPAM, we agree to the following:
    • Not use false or misleading subjects or email addresses.
    • Identify the message as an advertisement in some reasonable way.
    • Include the physical address of our business or site headquarters.
    • Monitor third-party email marketing services for compliance, if one is used.
    • Honor opt-out/unsubscribe requests quickly.
    • Allow users to unsubscribe by using the link at the bottom of each email.

    If at any time you would like to unsubscribe from receiving future emails, you can email us at
    info★shin-sei.jp (replace ★ with at-mark) and we will promptly remove you from ALL correspondence.

    Contacting Us

Copyright© SHINSEI INTERNATIONAL TAX CO. All Rights Reserved.