TEI comments on Japan's guidelines regarding consumption taxes on cross-border supplies of services.

• Position: TECHNICAL SUBMISSIONS

On September 29, 2015, TEI submitted comments to the Japanese Ministry of Finance regarding proposed changes to Japan's taxation of cross-border supplies of services, as most recently articulated in Japan's May 2015 Revision of Consumption Taxation on Cross-Border Supplies of Services Guidelines. TEI recommended using a true object test to define "electronic services" and proposed changes to the classification of business-to-business and business-to-consumer electronic services, the reverse charge mechanism notification requirement, the business-to-consumer exemption threshold, eligibility criteria for the purchase tax credit, and the taxation of electronic services sold through app stores and portals. TEI's comments were prepared under the aegis of TEI's European Indirect Tax Committee, whose chair is Paula Regales. Pilar Mata, Tax Counsel for TEI, coordinated the preparation of TEI's comments.

The Japanese National Tax Authority (NTA) amended the Japanese Consumption Tax Act (JCTA) to change the taxation of cross-border supplies of services effective 1 October 2015. Tax Executives Institute, Inc. (TEI) appreciates the invitation from the Ministry of Finance (MOF) to submit stakeholder comments on the proposed changes, and sent a letter addressing the proposed changes on 29 October 2014. This letter supplements TEI's initial submission and addresses TEI's concerns with the additional proposed changes outlined in the Revision of Consumption Taxation on Cross-Border Supplies of Services guidelines issued in May 2015 (May 2015 Guidelines or Guidelines).

TEI Background

Founded in 1944 to serve the professional needs of business tax professionals, TEI is the preeminent association of in-house tax professionals worldwide. TEI's approximately 7,000 professionals manage the tax affairs of over 2,800 of the companies across all industry sectors around the world. TEI's members are accountants, lawyers, and other corporate and business employees responsible for the tax affairs of their employers in an executive, administrative, or managerial capacity.

Many of these companies are involved in the sale, distribution, and purchase of digital products and services globally, including Japan. TEI members working for these companies continually monitor consumption tax developments around the world. TEI espouses organizational values and goals that include integrity, effectiveness, efficiency, and dedication to improving the tax system for the benefit of taxpayers and tax administrators.

TEI believes it is critical to maintain a dialogue between businesses and revenue authorities when developing new rules for consumption taxes to ensure they are workable and not overly burdensome on businesses or tax authorities. In relation to cross-border transactions, it is also critical to protect the neutrality of the consumption tax system by ensuring that supplies are not subject to double taxation.

Comments on the May 2015 Guidelines

1. The "Provision of Electronic Services"

   The May 2015 Guidelines first address what constitutes the "provision of electronic services." The Guidelines state "services provided via electronic and telecommunication networks (e.g., internet) such as the provision of e-books, music, and advertisements" constitute electronic services. The...