Draft Tax Applications for the Flat-rate Tax Reduction Released

Introduction

On February 16, the National Tax Agency released proposed forms for the flat-rate tax reduction. Other new documents are required to be submitted for it. Unfortunately,　the administrative burden on small and medium-sized businesses will only increase.

Contents of the New Applications

The new application forms are entitled, "Application for the Withholding Tax-related Flat-Rate Tax Reduction, and Application for Year-end Adjustment Tax Reduction for the Tax Year 2024" (hereafter, ”Form 1") and "Application for Spousal Exemption, etc. for Salaried Workers, and Year-end Adjustment Tax Reduction for the Tax Year 2024"

Form 1 is used by payroll personnel to ascertain the dependent spouse and dependents who are eligible for tax reduction. However, Form 1 is not required to be submitted by all employees.

【A dependent spouse】
A spouse who lives with the taxpayer and has a total income of 480,000 yen or less

First, if the employee has dependents or a dependent spouse who falls under the category of a spouse eligible for the withholding tax exemption (a spouse of an employee with total income of 9 million yen or less), you can confirm this on the “Application for (Change in) Exemption for Dependents of Employment Income Earner”*.  Among spouses eligible for the withholding tax exemption, those whose total income is 480,000 yen or less fall under the category of ‘dependent spouse’, so please check the "estimated amount of income".
* https://www.nta.go.jp/taxes/tetsuzuki/shinsei/annai/gensen/pdf/r06_01_en.pdf （PDF, in English）

Dependents under 16 years of age can also be ascertained using the particulars related to residence tax in the Application for (Change in) Exemption for Dependents of Employment Income Earner. Therefore, it is not necessary to submit Form 1 for this.

In contrast, Form 1) must be submitted by employees who have a dependent spouse who is not listed on the Application for (Change in) Exemption for Dependents of Employment Income Earner (i.e., the spouse of an employee whose total income exceeds 9 million yen, with that spouse not eligible for the withholding tax exemption).

Difference between a Spouse Eligible for the Withholding Tax Exemption and a Dependent Spouse

Whether a given spouse qualifies as a spouse eligible for the withholding tax exemption or as a dependent spouse depends not only on the spouse's income, but also on the income of the employee taxpayer.

For example, even for a housewife or househusband with no income,

• The spouse qualifies as both a spouse eligible for the withholding tax exemption and a dependent spouse;
• However, if the employee's total income exceeds 9 million yen, the spouse is considered only a dependent spouse.

Normally, payroll personnel can ascertain needed information about dependents on the Application for (Change in) Exemption for Dependents of Employment Income Earner, but they cannot ascertain information about a dependent spouse who is not eligible for the withholding tax exemption on the Application, so the payroll department needs to request Form 1, which contains information about the dependent spouse, from the employee.

The reason for this complication is that the spousal exemption and the flat-rate tax reduction have different coverage. If an employee's total income exceeds 10 million yen, the spousal exemption is not applicable, but if it exceeds 10 million yen while also being 18.05 million yen or less, the employee and his/her spouse are eligible for the flat-rate tax reduction.

Although it is very complicated, especially with regard to spouses, it is important to grasp overall that with regard to dependents, the necessary understanding is complete based on just the Application for (Change in) Exemption for Dependents of Employment Income Earner. However, with regard to spouses, the necessary understanding is basically obtained from the Application for (Change in) Exemption for Dependents of Employment Income Earner - but for higher income earners, it is possible that a Form 1 must be submitted.

What are the Tax Implications of Parking Meters?

Introduction

Have you ever used parking meters or parking ticket device installed in front of facilities such as train stations? The usage fees are of a different nature than for coin parking fees.

Charges for Using Parking Meters are not Parking Fees

The Metropolitan Police Department has announced on its website that fees for parking meters and parking ticket devices installed in urban areas and in front of train stations, etc., are “tax-exempt" under the Consumption Tax Law. Regardless of the invoice system, they have always been tax-exempt, but in practice, there is a common misconception that they are taxable transactions, as parking fees.

Parking meters, etc., are installed in accordance with traffic regulations called "time-restricted parking zones" under the Road Traffic Law, and the fees for their use are set by municipal ordinances.

According to the Metropolitan Police Department, fees for the use of parking meters, etc., are not parking fees, but rather fees paid by users for the maintenance of parking meters, etc., and thus fall under the category of "police fees”. Municipalities other than Tokyo seem to have similarly classified the fees for the use of parking meters, etc. as “(police) fees”.

Misconception that The Fees Are the Same as Coin-operated Parking Fees

The Consumption Tax Law designates these fees as being for "permitting" a vehicle to park at a place where it is not supposed to park, and exempts the fees from taxation, as falling under Appended Table 2.5.イ(1) of the Consumption Tax Law.

[Appended Table 2 of the Consumption Tax Act]
(v) Provision of the following services
　イ　 Provision of services pertaining to the following affairs which are performed by the national government, local governments, juridical persons listed in appended table 3 or other persons entrusted or designated by the national government or local governments pursuant to laws and regulations, and for which the collection of fees, patent fees, petition fees and other charges are based on laws and regulations (excluding those specified by a Cabinet Order).
(1) Registry (certificates), registrations, patents, licenses, permits, authorizations, approvals, certifications, confirmations and designations

Although the parking meter fees were tax-exempt before the start of the invoice system, there were many cases where the parking meter fees were treated as "taxable" just like the coin-operated parking meter fees. With the start of the invoice system, the Metropolitan Police Department and others received numerous inquiries regarding the issuance of invoices for parking meter usage fees, etc. In response to these inquiries, the Metropolitan Police Department has posted the following information on its website as "Responding to the Invoice System": "The fees for operating parking meters and issuing parking (permission) tickets from parking ticket-issuing machines are considered police fees, and are exempt from consumption tax according to Article 6 of the Consumption Tax Law”. So please be careful not to ask for an invoice by mistake when using a parking meter or parking (permission) ticket device.

【Statement on the Kanagawa Prefectural Police website】
Fees for the use of parking meters and parking (permission) tickets are fees stipulated in the Kanagawa Prefecture Road Traffic Law related fee ordinance, and said fees are exempt from taxation under Article 6 of the Consumption Tax Law. Therefore, the use of a parking meter, etc. is a tax-exempt transaction, and we do not issue qualified invoices.

【Statement on the Osaka Prefectural Police website】
The parking (permission) ticket fees are non-taxable fees as defined by the Osaka Prefectural Police Administration Fee Ordinance. Therefore, no qualifying invoices are issued, and the Osaka Prefectural Public Safety Commission does not plan to issue anything other than certificates of use.

How to Update/Renew Your Loan Rescheduling

Introduction

In the previous issue, we reported that companies should reschedule loans when cash flow is tight. However, many companies do not improve their cash flow just by rescheduling for six months or a year. It is important to understand how to update your rescheduling.

Approach from the Corporate Side

When a rescheduling is implemented, a modification agreement must be signed with the bank. The modification agreement will specify that the rescheduling period will typically be six months to one year, and that the amounts of repayment will be reduced or postponed during that period.

However, once the rescheduling deadline arrives, repayment terms revert to the original contractual terms. In reality, however, not many companies can increase profits significantly enough to fully resume repayment in as short a period as six months or one year.

Therefore, if a company finds it difficult to resume repayment by the deadline, it generally requests the bank to renew the rescheduling approximately one to two months before the rescheduling deadline.

When rescheduling for the first time, a business improvement plan, the trial balance, a cash flow chart, and other documents are submitted to the bank. At the time of a renewal, the progress of the business improvement plan is reported, and the latest trial balance, cash flow chart, etc., are submitted.

The progress report compares the planned profit/loss with the actual figures, and explains the degree to which the planned profit level has been achieved, and the status of implementation of the action plan.

Although the bank may inquire if the rescheduling is to be renewed before the deadline, the general principle is for the corporate borrower to request a rescheduling renewal even if the bank has not inquired. Otherwise, the rescheduling will not be renewed, and repayments will resume. You don’t want to be forced to rush to the bank to request a rescheduling renewal after seeing the resumed repayment amounts being deducted from your bank account.

Bank Perspectives

Upon receiving an application for rescheduling renewal from a company, the bank will consider whether resumption of repayment is truly difficult and, even if it is difficult, whether the amount of repayment can be increased even slightly.

The bank will confirm the extent to which the company has improved its profitability as a result of its business improvement, and discuss with the company an increase in the repayment amount based on this.

For example, if the monthly repayment amount was set at 0 yen due to the rescheduling, and the bank is now able to generate 500,000 yen of cash from the business each month as a result of its business improvement, the bank may suggest that repayments of 100,000 to 400,000 yen per month may be possible to resume.

While a company would like to resume repayments or increase the repayment amounts as suggested by the bank, it is not uncommon for companies to rush into situations where they later face (new) cashflow difficulties.

As a general rule, new loans cannot be obtained while a company is rescheduling. Even if profits start to rise, the amount to be repaid should be small, and the company should save those profits as deposits, so that they can be used for working capital, or in case the company goes into the red again.

We recommend that until your company has saved enough deposits, do not raise the repayment amounts all at once, but rather consider negotiating a rescheduling renewal.