Invoice Support for ETC
Introduction
On September 15, the National Tax Agency (NTA) announced a flexible measure to support invoice preservation of Electronic Toll Collection (ETC) fees for ETC credit cards. This measure seems to have cleared up the issue of invoice handling for ETC credit cards, for which there had been some concern about practical compliance. What are the details?
Types of ETC Cards
Although it may not be well known, there are currently three types of cards issued for ETC usage.
The most widely recognized of those is probably the ETC credit card. This is issued by a credit card company, and usage fees are usually charged to the credit card.
There are also the ETC personal card and ETC corporate card, which are issued by expressway companies and others to allow those who do not have a credit card agreement to use the ETC system. Usage with these is limited to toll payments on toll roads. The ETC corporate card is the only card that offers a "large-volume/multi-frequency discount”; it is issued by expressway companies.
Of these, for ETC personal cards and ETC corporate cards, payments are made based on invoices sent by card bureaus, expressway companies, etc. Therefore, the invoices sent to you can be used as invoices; however, this is not the case with the ETC credit card, since invoices are not sent to users.
Credit Card Statements’ Retention and Certificates of Use
In order to apply the credit for purchase taxes to expressway tolls when using an ETC credit card, in principle, users are required to register with the web-based "ETC Usage Inquiry Service" and download, obtain, and save the "usage certificates" for all such expressway usage as invoices.
Some companies that frequently use expressways have voiced their opposition to obtaining and storing "usage certificates" for all expressway usage, saying that it is too time-consuming to obtain such certificates.
Under the newly-announced measure, a credit for purchase tax will be allowed if a "credit card statement" showing details of expressway usage from the credit card company is kept with each receipt, and a "certificate of use" is obtained and saved once for each expressway company, etc. used.
For example, even if you use the Shuto (Metropolitan) Expressway continuously, if you obtain and save a "certificate of use" issued by the Metropolitan Expressway Company for any one time, you do not need to obtain a "certificate of use" from the company when you use the expressway thereafter.
【Reference: ETC Fee Invoice Support】
| Card Type | What to Keep as an Invoice |
|---|---|
| ETC Credit Card | • “Certificate of Use" for all highway usage • Or, you can save relevant credit card statements and one "certificate of use" from the expressway company, etc., that you used. |
| ETC Personal Card | Invoices sent by the ETC personal card office/bureau |
| ETC Corporate Card | Invoices sent by highway companies, etc. |
Be Careful about Unpaid Year-end Bonuses
Introduction
During periods of strong performance, companies sometimes pay out year-end bonuses in addition to regular bonuses in order to motivate employees and to save on taxes. Let's review some points to be noted regarding year-end bonuses.
There is no problem if the year-end bonus is paid to the employee by the account closing date (the end of the fiscal year); however, there are things to be careful about if the payment is not made by the account closing date, and the bonus is recorded as an accrued expense.
Deductible as long as Requirements are Met
Sometimes a year-end bonus is paid to an employee when the company is performing well. In such cases, there is no problem if such a bonus is paid to the employee by the closing date.
However, when such a payment cannot be made by the end of the fiscal year, many prefer to record the payment as accrued in the financial statements. The following three requirements must be met in order for accrued year-end bonuses to be recognized as deductible expenses.
- Specifying the amounts to be paid, and notifying each employee, by the end of the fiscal year;
- Paying the notified amounts within one month of the closing date; and,
- Accounting for the amounts of the year-end bonuses.
Paying the Notified Amounts Within One Month of the Closing Date
Even if the payments are unpaid as of the end of the fiscal year, they must be paid within one month of the closing date. For example, if the fiscal year ends in March, the payments must be made by the end of April of the following fiscal year. If the payments are made in May, they must be treated as deductible expenses for the following fiscal year.
Also important to note - even if the payments are made by the end of the fiscal year - is that if the payments are made in cash rather than by transfer from a bank account, it is necessary to keep good evidence of when the payments were made. For example, if the fiscal year ends in March and an amount equivalent to the bonus payments is withdrawn from a bank account on March 30, it will not be known when the payments were made. Whether payments are made before the fiscal year-end, or within one month of the end of the fiscal year, if those payments are made in cash, please be sure to receive dated receipts from your employees.
Accounting for the Amounts of the Year-end Bonuses
The amounts of the year-end bonus payments must be accounted for in the fiscal year in which the notifications are made. Specifically, the bonuses and accrued liabilities must be recorded for the amounts paid in journal entries for the applicable fiscal year. This in itself is not difficult and can be easily fulfilled.
Specifying the Amounts to be Paid, and Notifying Each Employee, by the End of the Fiscal Year
It is this requirement that is the most difficult to fulfill. Why is that? The reason is that the rule states that this requirement is not met if the closing bonus is paid only to employees who are on the payroll on the bonus payment date. This is written in Basic Corporate Tax Instruction 9-2-43.
In many companies, it is written in their payroll regulations that bonuses cannot be paid unless the employee is employed on the date of bonus payment. In such companies, even if the accrued bonuses for the fiscal year are recorded as accrued, they cannot be included in deductible expenses.
First, check your company's payroll regulations to see if you are required to pay bonuses only to employees who are employed on the date of payment.
Please note that if such a provision exists, year-end bonuses must be paid by your company's fiscal year end in order for them to be included in your deductible expenses.
How is the Balance Sheet Viewed?
Introduction
The balance sheet and income statement are both important in a bank's loan review, not that one is more important than the other. Let's examine how a balance sheet, which is checked during a bank's loan review, is viewed.
Most Important is Net Assets
When a banker looks at a balance sheet, the first place he or she checks is net assets.
This may be true not only for bankers but also for tax accountants. If you look at the lower right hand corner of the balance sheet, you will see "Total Net Assets".
If this is negative, it will be a major disadvantage in the bank's loan approval process.
Net assets (net worth) is total assets minus total liabilities, so a negative net worth means that the company cannot pay back all of its liabilities even if it sells all of its assets at that point. A negative net worth is called “insolvency”.
Even if net assets are positive, a close examination of the detailed statement of account titles in the financial statements for each asset item on the balance sheet may show that a company has recorded assets that have no value. An example is accounts receivable from customers who have already gone bankrupt, such that the amounts owed are not expected to be recovered.
Once a bank receives financial statements from a prospective borrower, it will look at the detailed statement of account titles to see if the assets recorded on the balance sheet are actually worth the amounts recorded.
The (actual) amount of total assets is calculated when items that have no asset value are subtracted from total assets.
For example, even if a balance sheet shows "total assets of 50 million yen, total liabilities of 45 million yen, and net assets of 5 million yen," if there is 10 million yen of uncollectible accounts receivable included in the total assets category, the actual total assets would be 40 million yen and the actual net assets would be -5 million yen.
Even if reported net assets are positive on the reported balance sheet, if the actual net assets (total assets minus total liabilities) are negative, the company is effectively insolvent. Such a case would also be disadvantageous in terms of approval of a loan.
Next, the Amount of Debt Owed
After net assets, the next part of the balance sheet examined is the amount of loans payable (debts) a loan applicant has. Total debt is the sum of short-term and long-term debt reported in the liabilities section of the balance sheet.
Since higher revenues tend to lead to more borrowing, banks look at the size of the borrowings based on the applicant’s monthly sales vs. the number of months of sales are owed. The number calculated as total loans divided by monthly sales is called the debt-to-monthly-sales ratio.
【Reference example】
For a company with annual sales of 240 million yen, the company's monthly sales are 240 million yen divided by 12 months = 20 million yen. If the total debt of the company is 60 million yen, the company's debt-to-monthly-sales ratio is calculated to be 3 months.
Although only a generalization, a company is considered to have a large debt load when the debt-to-monthly-sales ratio is 4 months or more.
Of course, some companies have correspondingly larger bank deposits, so please note that this is "just a generalization".
