Outcome of Japan Tax Issue Hard to Call, Says BoTM

One of the hottest topics in Japanese sub custody today is the impending obligation laid on custodian banks to disclose the ultimate beneficiary of withholding tax reclaims rather than simply submitting them in the name of the bank. To discuss

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One of the hottest topics in Japanese sub-custody today is the impending obligation laid on custodian banks to disclose the ultimate beneficiary of withholding tax reclaims rather than simply submitting them in the name of the bank.

To discuss this problem, representatives of all the major sub-custodian banks in Japan (BoTM, Mizuho CB, Sumitomo Mitsui, Citibank, HSBC and Standard Chartered Bank) met in Tokyo yesterday with the National Tax Agency (NTA)official in charge of international tax administration affairs.

The NTA wants the banks to submit to it a list of the final beneficiaries of tax reclaims. The custodian bank submitted a letter arguing that “it is difficult to meet the authorities’ request in terms of enormous burdens on the side of Global Custodians and the parties concerned.”

According to BoTM, which was at the meeting, the NTA explained that – in terms of “impartiality of taxation” -it was difficult to meet the request from custodian banks as it stands. It added that the NTA will continue the tax investigation into banks on an individual basis for the moment and, if any mistakes are found, it will ask for corrections.

In the estimation of BoTM, this amounts to neither approval of the existing disclosure procedures nor to complete rejection of the opinion of the custodian banks. “The NTA, seemingly, would not reveal its clear stance on this matter and continue tax investigation for the time being,” explains BoTM. “BoTM itself cannot deny the possibilities of tax investigation in the future. It is unlikely that NTA will ask us for the disclosure of final investors automatically, however, the tax investigation will be conducted on an individual basis from time to time. Under this circumstance, you will be kindly asked for your cooperation in disclosing the final investors upon specific requests by NTA.”

BoTM has prepared the following briefing for its clients:

Q) What is the frequency and the details of the tax investigation hereafter?

A) There is no unified view on it as the frequency and details of tax investigation are basically at the discretion of each Tax Office.

Q) What is the future course of the tax investigation after the results ofthe investigation this time reveal themselves?

A) If the tax investigation successfully proves that things are controlled tightly enough, the frequency of tax investigation will be reduced in the future and furthermore, tax investigation itself may be considered unnecessary, or vice versa.

Q) If the taxation authorities point out specific problems after the investigation, is it enough to mention the name and address (of the country) of underlying beneficial owner?

A) The controlling Tax Office judges the results of individual tax investigation. Even so, name and address (of the country) of the underlying beneficial owner should be required.

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