Caution Needed When Reducing Executive Salaries


Prices of energy, food, and other commodities continue to rise. If a company is expected to perform in a way that was not anticipated in its original business plan due to sudden changes in the external environment, such as higher prices or a weaker yen, is a reduction in executive salaries permissible?

Soaring Prices and Sharp Depreciation of the Yen

In 2022, the invasion of Ukraine by Russia has triggered a continued surge in energy prices, food prices, and other commodities. In addition, the sharp depreciation of the yen has accelerated this trend.

Many companies have begun to revise their executive salaries downward, mainly due to deterioration in their business performance, which was not anticipated at the beginning of their fiscal years.

The question arises as to whether it is permissible to reduce executive salaries with some flexibility (elasticity), as was the case at the beginning of the spread of the novel coronavirus.

General Treatment of Executive Salaries

In principle, only "salaries paid to corporate executives at regular intervals of one month or less, and of the same amount for each period of the fiscal year (regular salaries)" are allowable as expenses for corporate tax purposes.

The general rule is that executives' salaries for the fiscal year are determined at the general meeting of shareholders held within two or three months of the beginning of that fiscal year, and no changes are made until the next general meeting of shareholders.

In the case of a reduction of executives' salaries during a fiscal year, unless the revision falls under the category of "reasons for revision due to worsening business performance (significant worsening of business conditions or other similar reasons)," the lower salaries will not be recognized as expenses in the calculation of corporate tax.

For example, it has been confirmed that temporary cash flow issues, or simply not meeting goals in the business plan, do not fall under the above-mentioned category of "reasons for revision due to worsening business performance.”

Example of revisions due to worsening business performance

  1. In regards to shareholder relations as a result of deteriorating business performance, the company is forced to reduce the amounts paid due to management responsibility.
  2. In loan rescheduling discussions with a bank with which the company does business, the company is forced to reduce the amount of the loan.
  3. A situation in which a reduction in the amount of executive salary is formulated within a business condition improvement plan due to a deterioration in business performance, financial condition, or cash flow, and there is a need to maintain the trust of business partners and other stakeholders.

Flexibility in Operations Not Expected

At the beginning of the spread of the novel coronavirus two years ago, the National Tax Agency allowed fairly flexible operations because many companies had to revise executive salaries downward due to decreases in sales caused by the pandemic, and because it was an unknown virus.

However, while some companies may decide to revise executive salaries during the current fiscal year due to significant decreases in sales, current (recurring) income, etc., because of the recent price hikes and other circumstances, at present, mere deterioration in performance due to such price rises alone is not considered a "reason for revision due to worsening business performance.”

If your company is considering a reduction in executive salaries in response to a deterioration in business performance caused by the recent price hikes and/or other factors, you need to consider the matter carefully. In order for a reduction in executive pay to be recognized as a "reason for a revision due to worsening business performance," it will likely be necessary to prepare a variety of circumstantial evidence.

Reviewing Transactions with Tax-exempt Businesses


With the start of the invoice system, there has been a movement among businesses that do business with tax-exempt businesses to review the contract amounts. When reviewing contracts with tax-exempt businesses, attention must be paid to the Antimonopoly Act and the Act against Delay in Payment of Subcontract Proceeds, Etc. to Subcontractors (the Subcontract Act). Penalties are also provided for violations of the law. What kind of contract terms and conditions should be used?

There is No Problem in Reviewing the Terms of the Transaction Itself

With the implementation of the invoice system planned from October 1, 2023, there has long been a tendency among practitioners to wonder whether asking tax-exempt businesses to negotiate transaction prices is itself a problem under the Antimonopoly Act. In this regard, the Ministry of Finance and the Fair Trade Commission of Japan released “Q&A on the Response to the Invoice System by Tax-Exempt Business Operators and Their Business Partners" on January 19, 2022.

<Q&A on the Response to the Invoice System by Tax-Exempt Business Operators and Their Business Partners>

According to the Q&A, reviewing the terms and conditions of transactions with tax-exempt businesses as suppliers on the occasion of the implementation of the invoice system is not in itself an immediate problem.

In addition, if a tax-exempt business operator chooses to remain a tax-exempt business operator with the understanding that it can become a taxable business operator, and if both parties agree on a transaction price during renegotiation, it does not seem to be a problem under the Antimonopoly Act even if the transaction price is consequently lowered. The key is whether or not both parties agree.

In Cases of Violations of Laws or Regulations, Levies and/or Publication of Violators’ Names

On the other hand, if the renegotiation is only a formality, and a significantly lower price is set solely for the convenience of the purchasing entity, and the tax-exempt entity is forced to accept it out of concern for the impact on future transactions, this could be problematic under the Antimonopoly Act as an abuse of a dominant bargaining position.

In the event of a violation of laws and regulations, a company may be subject to measures such as the imposition of levies under the Antimonopoly Act or the publication of the company’s name, etc., under the Subcontract Act.

Specifically, it is highly likely that a problem will arise if the procurement side unilaterally forces a price reduction by saying, "We will not pay the amount equivalent to consumption tax from now on," or "We cannot do business with you in the future unless the amount is ○○yen.”

If you are a victim of such unilateral coercion to reduce the price, please consider using the consultation services of the Fair Trade Commission or the Small and Medium Enterprise Agency regarding the Subcontract Act.

There is a transitional measure that allows 80% of the amount equivalent to purchase tax for the first three years after the introduction of the invoice system, and 50% for the following three years. Therefore, it seems desirable under the Antimonopoly Act to reduce the transaction price in stages in accordance with the transitional measures, rather than reducing the amount equivalent to the consumption tax all at once.

When reviewing the terms and conditions of transactions with tax-exempt businesses, please be very careful not to violate the Antimonopoly Act, the Subcontract Act, or other laws and regulations.

How to Get Loans Without Management Co-signer Guarantees


What conditions must a business owner fulfill in order to obtain a loan without a personal co-signature? The following is an explanation according to the guidelines.

Three Requirements for Obtaining Financing without Co-signatures

For loans to small and medium-sized enterprises, banks often require company managers to become co-signers, but the downside of this is that it makes it difficult for successors to emerge. This is because many people do not like the idea of becoming a co-signer after taking over the business as a successor.

  1. Clear separation in the relationship between a corporation and its management;
  2. The Company's Performance and Financial Position are Good, and There Are No Concerns about It Repaying the Bank Accurate corporate financial information, timely and appropriate information disclosure to the bank, and transparency of management.
  3. The Financial Statements of the Company are Accurately Understood, Timely and Appropriate Information Disclosure is Made to the Bank, and Management Transparency is Ensured.

1. Clear Separation in the Relationship between a Company and Its Management

One of the reasons why banks require managers to be co-signers is to prevent moral hazard, whereby if the company's assets are transferred to the manager personally after receiving a loan from the bank, the manager can accumulate personal wealth even if the company is unable to repay the bank.

As a requirement when a manager does not become a co-signer, the Guidelines Concerning Management Guarantees require the establishment of a system to ensure that the exchange of assets and funds between a company and its management does not exceed the scope that is socially acceptable and appropriate. Specifically, the company must not provide loans to the individual manager, and the individual manager's personal expenses, such as food and beverages, travel and transportation expenses, etc., must not become company expenses.

2. The Company's Performance and Financial Position are Good, and There Are No Concerns about It Repaying the Bank

One of the reasons banks require managers to be co-signers is to supplement the weak creditworthiness of the company with the managers' personal assets.

In order for a bank to provide a loan without the manager being a co-signer, the company must have sufficient creditworthiness.

3. The Financial Statements of the Company are Accurately Understood, Timely and Appropriate Information Disclosure is Made to the Bank, and Management Transparency is Ensured

Financial statements of small and medium-sized companies are often seen as less credible. Some companies seeking loans may try to obtain them from banks by window dressing their financial statements. Under the Guidelines Concerning Management Guarantees, in order for a business owner not to become a co-signer, it is a requirement that the financial statements and other financial statements submitted to the bank be proven accurate, and that the transparency of management be ensured.

Specifically, the following are required: the submission of account breakdown statements as well as balance sheet (BS) and profit & loss(PL) figures, and periodic reports to the bank through trial balance and cash flow statements in addition to the annual report of the main financial statements.

If a company presently meets these three requirements, it can negotiate with its bank to immediately remove the management guarantee(s). Since it cannot be expected that a financial institution itself would recommend that a borrowing company remove the management guarantee, the company should actively negotiate with the bank.

  • Russell Bedford

    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's advertising requirements can be summed up by Google's Advertising Principles. They are put in place to provide a positive experience for users.

    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:

    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★ (replace ★ with at-mark) and we will promptly remove you from ALL correspondence.

    Contacting Us

Copyright© SHINSEI INTERNATIONAL TAX CO. All Rights Reserved.