Japan stakes out position in OECD-led international tax negotiations

By Yoshimura Masao, Professor, Hitotsubashi University

Japan’s ruling coalition has expressed its views on the OECD’s project to update the international tax rules to address the digitalisation of the economy and has asked the Japanese government to follow these principles in international negotiations.

In a December 12, 2019, document, Japan’s ruling coalition said that it supports the OECD-led process and has asked the Japanese government to play a leading role in building global consensus around new international tax rules. The government should emphasize five points in global discussions at the OECD, the ruling parties said.

First, the ruling parties said that an objective of the negotiations should be to create a stable and predictable investment environment for companies. It is, therefore, important to find a solution based on an international agreement without delay. Uncoordinated unilateral tax measures will increase uncertainties for cross-border expansion of businesses and suppress legitimate business activities, the parties said.

In addition, integrated and coordinated implementation based on international cooperation is necessary for ensuring the effectiveness of the OECD/G20’s project to rewrite global tax rules, the parties observed.

Second, any outcome of the OECD’s digitalisation project must result in a leveling of the playing field for all firms. Any solution addressing digitalization of the economy should create a level playing field among businesses and contribute to maintaining and improving the international competitiveness of Japanese companies, the ruling parties state.

Third, any new rules should be reasonable and clear to prevent unexpected effects on businesses. New rules should be limited to the appropriate range and clear definitions should be provided.  

Fourth, any new rules should avoid excessive administrative burden on taxpayers and avoid double taxation. It is important to establish a strong dispute prevention and resolution mechanisms to prevent double taxation, the ruling parties document states.

In this regard, making the new rules as clear and simple as possible will reduce administrative burdens on companies and will also prevent disputes between tax authorities and taxpayers.

Finally, the ruling parties say that the international tax update should address corporate tax competition.

Because the shift of profits related to intangible assets to tax havens has become increasingly easier, counties are unable to raise sufficient taxes and levy a greater tax burden on small businesses and individuals that do not have access to the same cross-border tax planning opportunities. If this problem is neglected, the problem of corporate tax competition, known as the “race to the bottom” will worsen, the paper says,

The Japanese government has been deeply engaged with the OECD/G20’s work on global tax reform and strongly supported the BEPS project and the ongoing project to address tax challenges from digitalisation of the economy.

For example, Masatsugu Asakawa, who was Vice Minister of Finance for International Affairs, was the chair of the OECD’s Committee on Fiscal Affairs from 2011 to 2016 and also served as Finance Deputy for the 2019 G20 Osaka Summit and the G20 Finance Ministers and Central Bank Governors meeting in Fukuoka, Japan.

Japanese business also supports the project but is concerned about the broad scope of the OECD secretariat’s “unified approach” and has asked for a clear definition of “consumer-facing”.

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Masao Yoshimura

Professor of Tax Law at Graduate School of Law, Hitotsubashi University

Masao Yoshimura is Professor of Tax Law at the Graduate School of Law, Hitotsubashi University, Tokyo, Japan.

He graduated from the University of Tokyo (LLB, 1999) and has written and lectured widely on corporate taxation, including international tax law. Among his publications, he recently co-authored a book in Japanese entitled “Treatise on Japanese Tax Law.”

@masayoshimu

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