If a Company’s Vehicle is Being Used for Personal Use


If a car or other vehicle is in a company’s name, 100% of its use should be for the corporation's business, therefore, if the wife of the company president utilizes the vehicle for her personal use, a tax controversy may arise.

In the Past, This Has Been Contested at National Tax Tribunals.

Needless to say,  a vehicle purchased in the name of company should be used entirely for company business.  In the case in which the car is used for personal matters, what problems could be caused?

There was a case in which the national tax authorities rejected favorable tax treatment on the grounds that the wife of Mr. A, a 100% shareholder, was using a vehicle which was registered in the name of Company B (a family corporation) 100% for her own personal use.

In that case, Mr. A was the actual manager of Company B, and his wife was neither an officer nor an employee of the company.  Therefore, the use of the company's car by the wife was found to be 100% personal use.

Incidentally, the car was delivered to/stored at Mr. A's home, and the contact phone number registered at the auto dealership was his wife's mobile phone number.

Under those circumstances, the tax authorities argued that the car in Company B's name was not being used for company business, and that the cost of acquiring the car was an executive salary amount paid to Mr. A (not deductible as a business expense).

Decision by the National Tax Tribunal

However, the national tax tribunal ruled that the cost of acquiring the car did not fall under the category of executive salary.

According to the judgment, even though Mr. A's wife used the company car for her personal matters, it could not be said that the car was a gift from Company B to Mr. A and his wife.

On the other hand, the automobile tax, motor vehicle acquisition tax, motor vehicle weight tax, charges paid to the dealership, etc., were judged to be bonuses paid to a director/officer - so were not deductible as expenses.  In addition, Mr. A should have paid a certain amount of rental fee to Company B, but he did not, so the amount equivalent to the rental fee was considered to be executive salary (however, since it was a fixed amount every month, the entire amount was deductible).

In the event of a tax audit where the acquisition cost of a vehicle is alleged to be a bonus to executive(s), taxpayers will argue based on rulings like this one.

If a Vehicle is Used "also" for Personal Matters

In the above example, Mr. A's wife used Company B’s car 100% for her personal use, but what if the president’s wife were to utilize a vehicle registered in the company’s name “also” for her personal matters?

In this case as well, there is a good chance that a tax auditor will point out that the taxpayer needs to pay a fee for the personal use.  If (s)he uses the vehicle partly for business purposes, the filer will need to calculate the proportions for business use and personal use.

Although it is on a case-by-case basis, please keep in mind that there is a possibility that you could have this pointed out in this way if you are using a car registered in a company’s name for personal matters.

Pay Attention to Nominal Deposits


Please note that the act of a grandparent saving money in a bank account in a grandchild's name for the grandchild does not constitute a gift.  Let's take another look at nominal deposits/“name deposits”.

First of All, What Is a “Name Deposit”?

A "name deposit" is a deposit that a grandparent or parent "intends" to give to a grandchild or child.  ‘Intended to’ is important. The older person thinks of the money as a gift, but legally it is not a gift, and when the grandparent or parent passes away, it becomes part of the estate of the deceased individual.

These deposits are not formally in the name of the grandparents or parents who have passed away, so they can be omitted from the inheritance tax return, and are likely to be pointed out in a tax audit.  In addition to the inheritance tax itself, the taxpayer ends up subject to penalties such as delinquency tax and additional tax for under-reporting.

The act of giving a gift is stipulated in Article 549 of the Civil Code, and is only valid when both the person giving the gift (the donor) and the person receiving the gift (the recipient) express their intentions. Even if the donor wants to make a gift, it will not take effect unless the recipient accepts the gift.

Even if you transfer money to your grandchild's or child's bank account, it does not necessarily mean that it is a gift, as it may be a loan or an advance.

Impossible Unless Grandchild/Child Accepts

One of the most common situations is when a grandfather has been saving money in a bank account in the name of his grandchild.

In such a case, the grandchild himself does not even know that the account exists, and in most cases, the grandfather is the only one who manages the account, including the bank book and seal.  Of course, this would correspond to a nominal deposit.

In order to avoid such a situation, it is important to prepare a gift agreement.  By putting her/his name and seal on the gift agreement, the recipient/donee can provide evidence that they have accepted the gift.  Having the recipient's name and other information written in his or her own handwriting, rather than typing it on a computer, is considered more reliable.

It is also important that the recipient manages the gifted money.  Since the monetary gift belongs to the recipient, naturally the bank book, seal, and cash card of the bank account must be managed by him/her.  It is essential to avoid a situation where the donor has control over the bank book and cash card, and the recipient cannot freely access the money.

For example, what should you do if your grandchild is still small and a minor?  Is it possible to give a gift to a grandchild who is too young to write his or her name on the gift agreement, or who cannot manage a cash card?

In such cases, it is not a problem for the parents who have parental authority to put their names and seals on the gift agreement, and manage the bank account.  By having the custodial parent(s) manage the bank account until the grandchild reaches the age of adulthood, it will be possible to make a gift before death even when the grandchild is still small.

However, after the child comes of age, they should be allowed to manage their own property by themselves; also, the age of adulthood will become 18 years old (currently 20) from April 2022, so please be careful about that.

How Does the Transfer Approval Process Work?


In a previous article, we mentioned that legal risks are high when the ‘transfer approval agency’ is a "representative director”.  So what should you do?


If a shareholder other than the owner-president tries to sell their shares to a person or company that the owner-president does not approve of, the company can at least temporarily prevent the shareholder from selling the shares without permission if the articles of incorporation stipulate "provisions concerning restrictions on the transfer of shares”.

If you wish to prevent an unwanted person or company from becoming a shareholder, you must notify the other party/parties of the following within two weeks of the submission of the request for approval of the transfer:

  • Disapproval of the undesirable person or company becoming a shareholder.
  • Your company or a designated buyer (e.g., the owner or president) will purchase the shares.

If these notifications are not made within two weeks, it will be deemed approval, and it is inevitable that an unwanted person or company will become a shareholder.  Thus, this two-week period is very important.  However, if the approval body for the transfer is the general meeting of shareholders or the board of directors, there is a problem in that it takes one week to convene a general meeting of shareholders or the board of directors to pass a resolution of disapproval.

It is a major problem that it takes a week to convene a meeting of shareholders or a meeting of the board of directors to approve the transfer, despite the short two-week period, during which ① a resolution of disapproval must be passed, and ② notice must be made regarding the purchase by the designated buyer.

Can the Period for Holding a Meeting be Accelerated?

Under corporate law, in principle, notice of both general meetings of shareholders and meetings of the board of directors must be given at least one week in advance, but if the articles of incorporation stipulate a shorter period, the period can be shortened.

The articles of incorporation can be amended so that a general meeting of shareholders (meeting of the board of directors) can be held for the disapproval mentioned above if, for example, at least three days' notice is given, although normally a convocation notice must be given at least one week in advance.

Although it is formally possible to change the articles of incorporation so that a meeting can be convened if the notice is given at least the day before, it is advisable to allow a few days, as it may be difficult to determine how a court will judge if the notice is extremely short.

It’s Necessary to Consider Company Measures in Advance

If prepared as illustrated above, even if the ‘transfer approval agency’ is not a "representative director”, there will be greater flexibility during the limited two week period.

It is definitely important to consider measures in advance, assuming that a shareholder submits a request for approval of a transfer.

If your company does not envisage such a situation at all, it may be extremely difficult to calmly respond to such a request that is suddenly submitted.

It is advisable to simulate to a certain degree whether there are any shareholders who may be considering selling the company in the future due to inheritance, etc., and if there are such shareholders, then who will raise funds to purchase the shares, and how.

  • Russell Bedford

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