Tax Office Says Foreigners Not Paying Consumption Tax

[Mulboyne]

Yomiuri: Foreign stars said failing to pay consumption tax
Tax authorities have ordered many foreigners involved in the fields of professional sport and entertainment to pay consumption tax due on such payments as prize money and television appearance fees they have earned in Japan. Dozens of entertainers and athletes, including K-1 fighters, professional golfers and South Korean movie stars, were subject to consumption tax in the 12 months to June, sources said. The number of those obliged to pay the tax increased soon after the amount of earnings on which payment of consumption tax is exempt was lowered three years ago, leaving tax authorities on the lookout for nondeclarers...Even those that do not reside here and merely come to Japan on a short visit have to pay income tax on their earnings. As this is often deducted at source from prize money and similar earnings, the individual is often not able to declare them. Things are different, however, when it comes to consumption tax. Under the taxation system, athletes and entertainers who earn prize or appearance money for providing their services are considered to be "enterprises," and consumption tax is levied against such earnings. This makes it necessary for them to notify and declare their earnings as taxable enterprises to tax offices. But few of these foreigners are aware of this system or the fact they have to pay consumption tax. On the other hand, no procedure has been established for such stars to pay consumption tax, and the organizations that invite them to appear at events have no legal obligation to deal with or explain about the payment of the tax. This means the stars often leave the country without making declarations and the opportunity to collect due tax is lost...more...

(Also continued in the next post)

[Mulboyne]

Continued...

The amount of revenue on which enterprises are exempt from paying consumption tax was reduced from 30 million yen to 10 million yen in April 2004--leading to an immediate increase in those obliged to pay. The numbers of foreign professional athletes and artists performing in Japan is growing year on year, and their nondeclarations cannot be overlooked. A certain foreign athlete who comes to Japan almost every year has, depending on the year, taken home close to 100 million yen in prize money annually, but that athlete has never filed a consumption tax return. This individual has had about 5 million yen imposed in penalty taxation for matters including failing to make tax returns, but is believed not to be aware of the consumption tax system.

Some organizations do deal with this situation, but such cases are rare. "As we sign entertainers on contracts with certified tax accountants as proxies, we hand over appearance fees with consumption tax deducted," said a spokesman for a Tokyo talent agency that includes major South Korean entertainers on its books. "It's believed that many foreigners aren't aware of the system of filing consumption tax returns," a National Tax Agency official said. "But as well as conducting thorough investigations, we also should push ahead with educating organizations that invite these foreigners to Japan."

Ignorance is no defence but I'm not surprised that people aren't aware of their obligations. You would tend to assume prizes and appearance money would constitute income tax. I'm wonder what the incidence of non-payment is among Japanese athletes and entertainers?

[TennoChinko]

Continued...



Ignorance is no defence but I'm not surprised that people aren't aware of their obligations. You would tend to assume prizes and appearance money would constitute income tax. I'm wonder what the incidence of non-payment is among Japanese athletes and entertainers?

The article is talking about the failure of visiting (non-resident) foreign athletes and celebrities who owe additional 5% consumption tax. In almost all cases, a standard 20% tax (income tax) is already withheld.

In the case of the 5% consumption tax, it's the agency - not the celebrity - who ought to know better. Simply put, they need to withhold a total of 25% (20% income tax for non-resident + 5% consumption tax) and file accordingly.

However, to answer your question -- there have been a number of notable cases of tax evasion cases in the entertainment industry.

For example this old case:

http://search.japantimes.co.jp/cgi-bin/nn20010829a6.html

HOME OF AMURO, DA PUMP

Entertainment firm in tax evasion tangle

Entertainment production firm Rising Production Co., which counts pop stars Namie Amuro and Da Pump in its stable, was found by tax officials to have evaded taxes on income of 2 billion yen in the three years to August 1999, sources said Tuesday.

The Tokyo Regional Taxation Bureau plans to file a criminal complaint as the amount of unpaid taxes is excessively large at over 500 million yen and the Tokyo-based firm used "malicious" means as logging fictitious expenses to hide its income, the sources said.

The firm revised its tax report after the discrepancies were discovered.

Rising Production announced Tuesday that its president, Tetsuo Taira, would step down to take responsibility for the matter.

"An inspection by tax officials showed that several things were wrong with our tax declaration, such as having costs listed in the wrong time period," the firm said. "In future, we would like to ensure that such things do not happen."

This is the third time Rising Production has failed to pay the proper amount of corporate taxes on its earnings, according to tax officials.

Of the 2 billion yen in question, 1.4 billion yen was improperly declared, for example, by purposely making misleading records of advertising costs and concert production fees, according to sources close to the firm.

The firm also claimed it had shouldered costs that did not exist, the sources said.

Rising Production did not properly declare the remaining 500 million yen to 600 million yen by falsely claiming it had placed outside orders with other companies. The firm then received margins from these companies in return, the sources added.

Taira used a portion of his firm's hidden income to gamble at casinos in Las Vegas and Hong Kong, according to the sources, who added Taira would give money to acquaintances after taking the money from the company in the name of "loans."

Rising Production was set up by Taira in 1985 with initial capital of 10 million yen, according to a private credit research firm. Its earnings surged as Amuro's popularity took off.

The firm was ordered to pay taxes on undeclared income in 1997 and again in 1998. Taira, who paid around 400 million yen in taxes in fiscal 2000, was ranked 64th among the nation's top 100 taxpayers. He is estimated to have earned roughly 1 billion yen in that period.

This incident comes just two months after the Tokyo-based production firm behind pop music duo B'z was found to have failed to declare 840 million yen in income.
The Japan Times: Wednesday, Aug. 29, 2001

Sumo is probably the most corrupt sport. As the Asashoryu case showed - top sumo wrestlers often are showered with all sorts of large cash gifts from jock/fundoshi-sniffing fans. Just showing up at a private party of some rich fart can net them $10,000 or more.

[Mulboyne]

I appreciate the difference between the taxes. There are many different classifications around the world, though, which would mean that some people simply wouldn't be looking to pay this. For instance, prize money is commonly not subject to VAT unless you have paid a participation fee but it does count as income. It sounds like it is subject to a sales tax in Japan, however, because I can't imagine the big names paying to compete in Japan. In the end, the responsibility lies with the individual to understand what the obligations are.

The reports about Japanese celebrities usually refer to evasion of income tax - thanks for posting yours since I'm always happy to read them - but I was really wondering whether they also evade consumption tax as described here.

[TennoChinko]

I appreciate the difference between the taxes. There are many different classifications around the world, though, which would mean that some people simply wouldn't be looking to pay this. For instance, prize money is commonly not subject to VAT unless you have paid a participation fee but it does count as income. It sounds like it is subject to a sales tax in Japan, however, because I can't imagine the big names paying to compete in Japan. In the end, the responsibility lies with the individual to understand what the obligations are.

The reports about Japanese celebrities usually refer to evasion of income tax - thanks for posting yours since I'm always happy to read them - but I was really wondering whether they also evade consumption tax as described here.

Sorry - I misunderstood your question. If the celebrity in question is evading income tax on a cash gift or payment, he or she will certainly be evading the 5% consumption tax. However, I believe in most cases, 5% consumption tax is added as standard practice. If the celebrity is resident in Japan, they may be able to claim that 5% back if the total annual taxable income is below Y50 million or something like that.

[Greji]

Sorry - I misunderstood your question. If the celebrity in question is evading income tax on a cash gift or payment, he or she will certainly be evading the 5% consumption tax. However, I believe in most cases, 5% consumption tax is added as standard practice. If the celebrity is resident in Japan, they may be able to claim that 5% back if the total annual taxable income is below Y50 million or something like that.

We avoid any problems by withholding all taxes prior to paying the individual/group, FG, or local J-people. This is so stipulated in any contracts.

However, I personally pay all taxes for any transactions involving performing goats...

[GomiGirl]

Sumo is probably the most corrupt sport. As the Asashoryu case showed - top sumo wrestlers often are showered with all sorts of large cash gifts from jock/fundoshi-sniffing fans. Just showing up at a private party of some rich fart can net them $10,000 or more.

Sounds like OJ Simpson..

[Buraku]

Japan's LDP panel to recommend hiking sales tax to 10 percent - report
http://www.forbes.com/afxnewslimited/feeds/afx/2007/11/14/afx4340899.html

[Mulboyne]

Asahi: Foreign Pride fighters hit by complicated tax rules

They may have had no problems grabbing opponents' necks, locking legs in submission holds or pinning rivals' backs to the mat. But a number of top foreign fighters in the former Pride mixed martial arts battles could not grasp Japan's complicated tax rules. The Tokyo Regional Taxation Bureau examined the earnings of nearly 10 fighters and found at least five of them failed to pay a combined 20 million yen in consumption tax on their winnings between 2004 and 2006... The five have filed corrected returns, the sources said. In principle, Japanese promoters deduct income tax when they pay athletes of foreign nationalities. However, foreign athletes are required to pay the consumption tax on their own if they earn 10 million yen or more a year in prize money and other income in Japan. Complicating the matter is the fact that the consumption tax is applied two years after that period, but the levies are made on earnings for the latest year. Foreign athletes are regarded as taxable sole proprietors, and their earnings are regarded as sales revenues, which are subject to the consumption tax as well as income tax. But few foreign athletes understand the confusing tax rules and procedures, often resulting in a failure to file consumption tax returns. Professional golfers, jockeys and other athletes who repeatedly visit Japan for short stays have also failed to provide proper tax returns on the consumption tax... Behind the growing number of failures are revisions in 2005 to the taxation rules. The consumption tax rule used to apply to earnings of 30 million yen or more a year. The revisions lowered the income level to 10 million yen, resulting in more foreign athletes required to pay...more...

[Behan]

Isn't it at least a bit odd that they have to pay a consumption tax on top of income tax? Sounds like the government is milking them.