Total Tax Contribution 2009

www.pwc.com/jp/tax
Total Tax
Contribution
2009
This survey by PwC Japan
Tax looks at the actual
amount of taxes and social
security contributions
borne and collected by large
Japanese companies for
FY07/08. It further looks
at the results by industry
sector and compares
Japan’s results with other
countries where similar
PwC country studies
have been carried out.
This report is expected to
contribute to the current
and future discussions
towards the tax reform in
Japan.
Total Tax Contribution 2009
Zeirishi-Hojin PricewaterhouseCoopers
Contents
Section I.
Introduction
1
Section II.
Executive summary
2
Section III.
Total Tax Contribution Framework
7
Taxes borne and collected
7
Total Tax Contribution (TTC)
7
Total Tax Rate (TTR)
7
Section IV.
Methodology used in FY 2007/08 survey
9
Section V.
Results of FY 2007/08 survey
14
Participants and their responses
14
Number of taxes borne and collected as reported
by participants
15
Tax compliance cost
15
Total Tax Contribution
16
Taxes borne
16
Taxes collected
20
Local taxes
21
Total Tax Contribution as a percentage of
value distributed
22
Total Tax Contribution as a percentage of
domestic turnover
26
Employment taxes
27
TTR analysis based on FY 2007/08 combined data
29
Industry comparisons
32
Section VI.
Section VII. Movements in FY 2007/08 period
36
Section VIII. Cost of tax compliance
39
Section IX.
46
International comparisons
Figure 1. List of taxes covered by the survey
10
Figure 2. Survey participants by industry sector
14
Figure 3. Turnover and other key information on the participants
15
Figure 4. Total Tax Contribution to government
16
Figure 5. Major taxes borne by participants as a % of government receipts
17
Figure 6. Corporation taxes as percentage of total taxes borne in FY 2007/08 18
Figure 7. Movements of the different taxes borne over FY 2007/08
19
Figure 8. Major taxes collected by participants as a% of government receipts
20
Figure 9. National and local taxes split of Total Tax Contribution (FY 2008)
21
Figure 10. Value distributed to stakeholders
23
Figure 11. Total Tax Rate for survey participants in FY 2007/08
25
Figure 12. Distribution of Total Tax Rate for survey participants in FY 2007/08 25
Figure 13. Distribution of TTC as percentage of turnover in FY 2007/08
26
Figure 14. Number of employees and total amount of salaries paid by
participants
27
Figure 15. Total employment taxes paid by survey participants
27
Figure 16. Employment taxes per employee
28
Figure 17. Employment taxes as a percentage of total amount of salaries
28
Figure 18. Composition of employment taxes per employee in FY 2007/08
29
Figure 19. Total Tax Rate (based on FY 2007/08 combined data)
30
Figure 20. Effective corporation tax rate, tax rate in narrow sense, overall
Total Tax Rate 31
Figure 21. The split of national and local taxes for TTR
31
Figure 22. Percentage of Total Tax Contribution by industry sector (FY 2008)
32
Figure 23. Overall changes in financial indicators by sector during FY 2007/08 34
Figure 24. Total Tax Contribution by sector (FY 2007/08)
34
Figure 25. Total Tax Rate in the Manufacturing, Wholesalers & Retailers,
and Electricity & Gas and Information & Communication sectors
Figure 26. Total Tax Rate by sector
35
35
Figure 27. Effective corporation tax rate, tax rate in narrow sense,
and Total Tax Rate by sector
35
Figure 28. Movement in financial data provided during FY 2007-08
36
Figure 29. Movements in major taxes borne and total taxes borne
37
Figure 30. Major local taxes
37
Figure 31. Movements major taxes collected
38
Figure 32. Distribution of the number of staff in the tax department
39
Figure 33. Total number of days required per annum for compliance activities - split
by department (central or shadow tax)
40
Figure 34. Total number of days required per annum for compliance activities
performed by central and shadow tax departments - by tax item
41
Figure 35. Total number of days required per annum for compliance activities
performed by central tax department - by tax item
41
Figure 36. Total number of days required per annum for compliance activities
performed by shadow tax departments - by tax item
42
Figure 37. Compliance costs split by type of tax
43
Figure 38. Components of tax compliance costs for corporation taxes per company
43
Figure 39. International tax compliance cost
44
Figure 40. Items that impose the heaviest administrative burden and largest cost
45
Figure 41. International comparison of Total Tax Rate
47
Figure 42. International comparison of effective corporation tax rate,
tax rate in narrow sense, and Total Tax Rate
Figure 43. International comparison of employment taxes
48
48
Figure 44. International comparison of Total Tax Rate for the manufacturing
industry
49
Figure 45. Composition of taxes borne by manufacturing industry
(international comparison)
Figure 46. International comparison of tax compliance cost and number of staff
50
50
Section I.
Introduction
The survey was carried out by the Tax
Practice of PricewaterhouseCoopers
Japan over the January -February 2010
period, using the PwC Total Tax
Contribution (TTC) Framework. The
PwC TTC Framework is used
internationally and surveys with leading
business organisation have been carried
out in a number of major countries. This
project has been commissioned by the
Corporate Affairs Division, Economic
and Industrial Policy Bureau of the
Ministry of Economy, Trade and
Industry (METI). Without the full
support of the Nippon Keidanren, the
success of this survey would not have
been possible. 95 companies
participated in the survey - a record
100% participation for the first year.
These 95 companies from 38 corporate
groups represent Japan’s leading players
in their sector.
The aim of the survey is to identify the
taxes and social security contributions
paid by these 95 companies for the
periods ended March 2008 (FY 2007)
and March 2009(FY 2008). Taxes, social
security contributions and other public
burdens inevitably arise as companies
conduct their business activities. With
globalisation, the burden of taxes in a
country of operation, more than ever,
affects a company’s decision of where to
operate. This will impact both its
domestic and international
competitiveness, hence overall business
performance. Effective tax rates are a
popular measure companies usually use
to compare their tax burdens across
their international operations. This
survey will shed light on the overall
taxes and contributions Japanese
companies make in the course of doing
business, and how they compare to their
counterparts in other countries.
In FY 2008, following the failure of
Lehman Brothers, economic conditions
deteriorated rapidly around the world
particularly in the US and in the
European financial markets. In this
global climate, the economy in Japan
also deteriorated. For companies, this
resulted in declines in exports,
decreases in corporate profits during the
economic downturn and reductions in
capital investments. For individuals, the
deterioration of income and employment
conditions resulted in consumption
activities slowing down. This report
looks at the Total Tax Contribution of
leading Japanese companies during this
recessionary period.
2010
Total Tax Contribution
1
Section II.
Executive summary
Purpose of survey
‒‒
‒‒
This survey was commissioned by the
Corporate Affairs Division, Economic
and Industrial Policy Bureau of METI
(Ministry of Economy, Trade and
Industry), and conducted with the
support of Nippon Keidanren.
The purpose of the survey is to:
• Measure the actual amount of taxes
and social security contributions
paid by large businesses in Japan;
and
• Provide comparable data to enable
comparison with the other
countries which conducted similar
surveys using the PwC TTC
Framework. The intention is to
make them available for future tax
reform discussions and
multidimensional analyses.
Total Tax Contribution
Framework
‒‒
2
Total Tax Contribution
2010
The Framework distinguishes
between ‘taxes borne’ and ‘taxes
collected. ‘Taxes borne’ are a cost to
the company when paid and affects its
net profit. ‘Taxes collected’ are taxes
collected by the company on behalf of
Government and are not a direct cost
other than administration.
‒‒
Total Tax Contribution includes all tax
payments made by a company;i.e, its
taxes borne and taxes collected.
‒‒
Corporation taxes borne are the actual
amount paid in Japan excluding
withholding taxes on payments of
interest or dividends, and after foreign
tax credit.
‒‒
One of the indicators used under the
TTC Framework is the Total Tax Rate
(TTR). TTR is total taxes borne as a
percentage of profit before all taxes
borne. TTR measures the burden of
all taxes borne in relation to
profitability.
Methodology for and
responses to the FY 2007/08
survey
‒‒
95 companies from 38 corporate
groups participated in the survey, in
response to invitations by METI and
Nippon Keidanren. Data requests were
prepared and sent in an electronic
form via email.
‒‒
28 of the 95 participating companies
rank among the top 50 Japanese
companies in terms of the market
capitalisation. Collectively, the
participants employ 1,058,752
employees and recorded a domestic
turnover of ¥125.5868 trillion for FY
2008.
‒‒
The survey covers 54 taxes including
social security contributions.
‒‒
For FY 2008, the average number of
taxes borne for a company in the
survey was 15.4. The average number
of taxes collected was 6.5.
Results of FY 2007/08 survey
key findings
FY 2008. Total taxes borne by survey
participants in FY 2007 accounted for
3.2% of government tax and social
security revenues in FY 2007.
Focusing on corporate income tax,
inhabitant tax, and enterprise tax,
only 95 participant companies paid
more than 10% of each tax revenue.
The following are the key results of the
survey:
‒‒
In FY 2007, survey participants (95
companies from 38 corporate groups)
made a Total Tax Contribution of
¥7.9933 trillion. This represents
approximately 5.4% of government
receipts.
‒‒
Total Tax Rate for survey participants
was 50.4% based on FY 2007/08
combined data,1 which is the second
highest in the world after Belgium.
‒‒
Total Tax Contribution made by
survey participants accounted for
39.7% of total value added in FY 2007.
The percentage increased to 47.7% in
FY 2008, when the companies’
performance deteriorated. This
suggests that in period of recession,
companies still contribute to public
finances through other taxes than
corporate income tax.
‒‒
While the amount of tax paid by
survey participants decreased
significantly over the FY 2007/08
period, it remained a constant
percentage of government corporate
income tax revenues, i.e. 10.4% for FY
2007 and 9.5% for FY 2008.
‒‒
In 2008, corporation taxes (corporate
income tax, corporate inhabitant tax,
income-based enterprise tax)
accounted for 44.1% of the total taxes
borne, demonstrating that they are
the largest taxes borne by survey
participants.
Collectively, the survey participants
made a Total Tax Contribution of
¥7.9933 trillion in FY 2007 and
¥7.1794 trillion in FY 2008. The FY
2007 amount represents 5.4 % of
government receipts. The decrease
over the FY 2007/08 period was
mainly attributable to the decrease in
corporation taxes (¥755.9 billion).
Taxes borne
‒‒
1
‒‒
In this survey, the total value-added
generated by participants is defined as
the sum of net profit after tax, net
interest paid, wages, and Total Tax
Contribution (sum of taxes borne and
collected). Labour’s share is
represented by wages as a percentage
of total value-added. Labour’s share
increased from 31.8% in FY 2007 to
42.2% in FY 2008, as a result of profits
decreasing whilst wages and salaries
remained fairly stable.
‒‒
The amount paid into public finances,
referred to as ‘public distribution ratio’
in this report, is represented by Total
Tax Contribution as a percentage of
total value-added accounted. The
public distribution ratio increased
from 39.7% in FY 2007 to 47.6% in FY
2008.
Taxes collected
‒‒
Total Tax Contribution
‒‒
Total Tax Contribution as a
percentage of value
distributed
‒‒
The total amount of taxes collected by
survey participants was ¥3.3058
trillion in FY 2007 and ¥3.1931 trillion
in FY 2008. The largest tax was
gasoline tax, followed by employees’
social security contributions and
withholding income tax from salary.
The amount of gasoline tax collected
reported in the survey accounted for
approx. 68% of total government
gasoline tax revenues. This data was
provided by four participants and
shows that the tax collection for this
tax is concentrated on a few number of
companies.
Taxes borne by survey participants
collectively totalled ¥4.6874 trillion
for FY 2007 and ¥3.9863 trillion for
Total Tax Rate
‒‒
The average Total Tax Rate increased
significantly from 41.6% in FY 2007 to
58.2% in FY 2008, reflecting the
deteriorating business performance in
the economic downturn.
Employment taxes
‒‒
In aggregate, survey participants
reported employer social security
contributions of ¥1.0301 trillion for FY
2007. This accounted for approx. 3.8%
of government receipts in the year.
‒‒
Employment taxes are the aggregate
A mean average of FY 2007/08 Total Tax Rates for survey participan.
2010
Total Tax Contribution
3
of employers’ social security
contributions (taxes borne) and
withholding income tax from salary,
withholding inhabitant tax, and
employees’ social security
contributions (taxes collected). The
average employment taxes per
employee remained fairly flat, i.e.
¥2,607,441 in FY 2007 and
¥2,650,864 in FY 2008.
made by all participants in FY 2008.
This sector was characterised by the
relatively stable business performance
and fixed tax payments (e.g. fixed
assets tax, electric power resources
development tax, etc.). The Total Tax
Rate for the sector was 66.5%.
‒‒
In the Oil & Gas sector, taxes collected
were significantly larger than taxes
borne. This sector reported total taxes
collected of ¥1.5643 trillion, most of
which was largely gasoline tax and
other oil-related taxes.
‒‒
The Total Tax Rate for trading houses
was low: in particular, due to lower
corporation taxes payments. Trading
houses reported a higher ratio of other
taxes borne, most of which (98%)
were custom duty payments.
Analysis based on the FY
2007/08 combined data
‒‒
‒‒
Total Tax Rate for FY 2008 was higher
than that for FY 2007, affected by the
economic down turn and deterioration
in business performance and the
resulting decrease in net profit before
tax. In order to remove the effect of
the latter and eliminate disparities
between FY 2007 and FY 2008, the
Total Tax Rate was calculated using an
average of the data from the two
years.
Tax compliance cost
‒‒
On average, survey participants had
15.5 staff members in their central tax
department. The median value was 8.
In addition, with regard to the average
number of employees engaged in
international and domestic tax
compliance, it was calculated by
summing annual number of days
worked by central and shadow tax
department employees and then
dividing the sum by 240, an assumed
number of days worked per employee
per annum. As a result, it was found
that 8 employees were engaged in
domestic tax compliance and 2
employees were engaged in
international tax compliance.
‒‒
The average tax compliance cost can
be split into domestic tax compliance
cost of ¥116.77 million and
international tax compliance cost of
¥44.3 million. 55% of the average tax
compliance cost relates to the cost for
administrating corporation taxes
The mean average of the Total Tax
Rate for this survey was 50.4%.
Industry comparison
‒‒
‒‒
4
Total Tax Contribution
2010
Further analysis was performed by
classifying the survey participants of
38 corporate groups into three major
categories; ‘Manufacturing’,
‘Wholesalers & Retailers’, ‘Electricity
& Gas and Information &
Communication’) and eight sectors
namely ‘Automobile’, ‘Chemical &
Pharmaceutical’, ‘Electricity & Gas and
Information & Communication’,
‘Machinery’, Iron & Steel and Metal’,
‘Oil & Gas’, ‘Retailers’, and ‘Trading
Houses’.
The Electricity & Gas and Information
& Communication sector accounted
for 35.6% of Total Tax Contribution
while 52% of international tax
compliance cost was assigned to
dealing with transfer pricing.
‒‒
Participants indicated that the three
tax compliance areas which they felt
carried the heaviest burden were tax
investigations, adjustments in filing
corporate income tax return, and
preparation of supporting documents
for corporate income tax returns.
International comparisons
‒‒
International comparisons were made
using the results from previous PwC
Total Tax Contribution surveys in nine
other countries.
‒‒
Japan had the second highest Total
Tax Rate after Belgium.
‒‒
It is a common knowledge that Japan’s
nominal effective tax rate is similar to
that of the US (40-50%). However, the
survey shows that Japan’s tax rates
were higher than the UK and the US
by approx. 8% for effective
corporation tax rate, and in terms of
Total Tax Rate.
‒‒
Total Tax Rate for the Japanese
manufacturing sector was 47.9%,
second highest after Belgium, and
higher by approx. 10% and approx.
25% than the US and India
respectively.
2010
Total Tax Contribution
5
6
Total Tax Contribution
2010
Section III.
Total Tax Contribution Framework
Taxes borne and collected
Total Tax Contribution (TTC)
The Framework distinguishes taxes into
‘taxes borne’ and ‘taxes collected.’ ‘Taxes
borne’ refers to a direct cost borne by
companies and these costs will affect
their net profit. ‘Taxes collected’ refers to
taxes that are collected by companies on
behalf of Government. In general, they
involve no costs when being paid except
for the administrative expenses
associated with their collection and
management.
Total Tax Contribution refers to all the
direct and indirect taxes payments of a
company to government; TTC represents
the aggregate of taxes borne and taxes
collected.
Taxes collected are of importance to
companies: firstly, they represent tax
revenues that will not be generated if
companies do not perform their business
activities; and secondly, they will bring
about administrative costs, impact
business cash flow, and involve tax
compliance risk where they are unable
to collect and pay these over to tax
authorities.
Total Tax Rate (TTR)
TTR is total taxes borne expressed as a
percentage of profit before all taxes
borne in a financial year. TTR measures
the burden of all taxes borne in relation
to profitability.
2010
Total Tax Contribution
7
Total taxes borne
Total Tax Rate
Net profit (loss) before tax
(Total taxes borne - Corporate income tax, inhabitant tax,
and income-based enterprise tax)
Adjustment to net profit (loss) before tax
in the denominator is based on the
concept that the amount of taxes borne
that were expensed in the calculation of
net profit (loss) before tax (e.g. fixed
assets tax included in taxes and public
charges account) should be added back.
However, because the amount of taxes
borne subject to the adjustment was
recognised on cash basis, it is different
from analyses based on accounting
values.
It must be noted that, because the survey
8
Total Tax Contribution
2010
recognises taxes borne on cash basis,
current year’s taxes borne (corporate
tax, inhabitant tax, and enterprise tax)
are recognised based on the amount due
with the previous year’s final return and
current year’s interim payment; as a
result, there will be a ‘period mismatch’
of one business year between net profit
(loss) before tax and the amount of
corporation taxes paid. Any refund of
corporation taxes paid in the previous
year is recognised as a deduction from
taxes borne.
Section IV.
Methodology used in FY 2007/08
survey
In response to the invitation by METI
and Nippon Keidanren, 95 companies in
38 corporate groups participated in the
survey. Given the increasinglyintegrated management of corporate
groups, it is desirable to measure a
corporate group’s overall tax
contributions on a consolidated basis.
However, in view of the special nature of
equity tie-ups prevailing across
Japanese companies, the scope of the
survey was limited to the parent
companies and where the activities of
corporate groups can easily be identified
(e.g. subsidiaries and affiliates included
in the consolidated financial statements,
major domestic companies only). In
cases where a subsidiary or affiliate
provided data to the survey, and its
2
turnover was less than 15% of that of its
parent company in both FY 2007 and FY
2008, the data was combined with the
parent company.
The survey was conducted using
electronic data requests. These were
distributed by email on January 13,
2010 and all responses were received by
the deadline, end of February 2010. The
Tax Practice of PricewaterhouseCoopers
Japan collated and anonymised the data
received and analysed it. PwC has not
verified, validated or audited the data,
and therefore cannot give any
undertaking as to the accuracy of the
study results.
The survey covered 54 taxes listed in the
next page.2
Social security contributions were counted as a single tax, however employment insurance
was counted separately. Consumption tax and irrecoverable consumption taxes were
counted as a single tax, although they are shown separately in the table; similarly, nuclear
fuel tax, nuclear fuel handling tax, and nuclear fuel material handling tax were also
counted as a single tax.
2010
Total Tax Contribution
9
Figure 1. List of taxes covered by the survey
Profit taxes
Corporate income tax
Enterprise tax – income basis
Municipal inhabitant tax
Prefectural inhabitant tax
Prefectural inhabitant tax – dividend levy
Prefectural inhabitant tax – interest levy
Withholding income tax (other than salary)
Temporary special enterprise tax
Mineral product tax
Property taxes
Automobile acquisition tax
Automobile tax
Automobile tonnage tax
Business premise tax
Common facilities tax
Fixed assets tax
Housing land development tax
Light vehicle tax
Mining allotment tax
Real property acquisition tax
Special land holding tax
Stamp tax
Tonnage tax and special tonnage tax
Villadom tax
Water supply tax
People taxes
Withholding income tax - salary
Withholding inhabitant tax
Employers’ social security contributions
Employees’ social security contributions
10
Total Tax Contribution
2010
Taxes borne
Taxes collected
Product taxes
Taxes borne
Taxes collected
Consumption tax and local consumption tax
Irrecoverable consumption taxes
Gasoline tax and local gasoline tax
Petroleum gas tax
Petroleum coal tax
Aircraft fuel tax
Diesel oil delivery tax
Oil price adjustment tax
Liquor tax
Tobacco tax and special tobacco tax
Prefectural tobacco tax
Municipal tobacco tax
Custom duty
Electric power resources development tax
Narrow and small apartment buildings tax
Golf course tax
Enterprise tax (capital basis and value-added basis)
Registration and license tax
Lodgment tax
Bathing tax
Planet taxes
Nuclear fuel tax
Nuclear fuel handling tax
Nuclear fuel material handling tax
Spent nuclear fuel tax
Industrial waste tax
Gravel extraction tax
Norikura environmental preservation tax
Environmental cooperation tax
Environment tax on history and culture
2010
Total Tax Contribution
11
Tax compliance cost
Domestic tax compliance activity was
clearly defined and examples of such
activities were provided to ensure that
participants provided the correct data.
Quantitative and qualitative data on tax
compliance activities were also
requested for both the central and
shadow tax departments, including
outsourcing costs associated with such
activities.
[1] Central and shadow tax departments
(1) The ‘central tax department' refers to, irrespective of its name, a division, section, group, etc., of employees who are
specialists in tax for the company.
(2) The ‘shadow tax department' refers to those established outside of the central specialist tax department who play a role
in tax management and compliance.
[2] Outsourcing cost
Outsourcing costs refer to cost incurred in respect of tax activities performed by external tax service providers.
[3] Examples of domestic tax compliance activities
Activities common to all taxes
• Preparing and maintaining tax records to use such records as tax return filing data or complying with tax legislation
requirements
• Collecting information for the preparation of tax returns
• Preparing and filing tax returns
• Preparing and examining tax payment slips
• Paying taxes
• Responding to enquiries from tax authorities
• Responding to tax investigations
• Preparing and filing amended tax returns or request for tax corrections
• Making decisions related to requests for reinvestigation or filing litigation
• Making inquiries to authorities pertaining to specific matters
• Performing various activities to catch up with and responding to tax reforms (incl. IT system amendments)
• Providing staff members with internal or external training sessions on tax legislation and preparation of tax returns
Activities that do not qualify for tax compliance activities
•
•
•
•
Preparing tax returns and statements required under foreign tax laws
Evaluating acquisition risk in the course of corporate acquisitions
Tax planning
Providing tax advice to affiliate companies (If the affiliate company pays for the advice, the company incurs tax
compliance cost.)
• Indirect duties such as administration of tax department by managers in charge of the department
12
Total Tax Contribution
2010
[4] Examples of international tax compliance activities
• Confirming tax convention provisions pertaining to the payment of interests, dividends, and royalties to non-residents
• Preparing and filing application forms required under tax conventions
• Collecting information necessary for preparing a tax return for Japanese corporation taxes in relation to overseas
business activities (e.g. information on the CFC rule, foreign tax credits, etc.; filing in overseas countries should be
excluded)
• Calculating joint income under the CFC rule; examining exemption test requirements; preparing schedules
• Documenting transfer pricing policies, economic analyses, agreements, and obtaining APA to comply with the transfer
pricing taxation system from the perspective of Japanese corporate income tax
• Responding to tax investigations on transfer pricing
• Collecting and computing basic data that supports foreign tax credit application; preparing schedules to be attached to
the application
2010
Total Tax Contribution
13
Section V.
Results of FY 2007/08 survey
Participants and their
responses
of ¥7.1794 trillion. This represents 5.4%
of total government tax receipts.
28 companies of the 95 participating
companies from 38 corporate groups are
included in the top 50 companies in
Japan in terms of market capitalisation.
Collectively, 38 corporate groups
reported a turnover of ¥125.5868
trillion in FY 2008, 1,058,752
employees,3 and Total Tax Contribution
The 38 corporate groups which
participated in the survey operate in a
wide range of industry sectors, i.e.
Automobile, Chemical &
Pharmaceutical, Electricity & Gas and
Information & Communication,
Machinery, Iron & Steel and Metal, Oil &
Gas, Retailers, and Trading Houses.
Figure 2. Survey participants by industry sector (Number of corporate
groups in the sector)
Trading Houses
5
Automobile
3
Retailers 3
Oil & Gas 3
38 corporate
groups
Chemical
&
Pharmaceutical
7
Electricity & Gas
and Information &
Communication 4
Iron & Steel
and Metal 5
Machinery 8
Chart shows the number of corporate groups by industry sector.
The survey also collected the following
data from participants: turnover, net
profit (loss) before tax, number of
3
14
Total Tax Contribution
2010
employees, total amount of salaries, and
net interest paid.
Number of full time staff and full-time equivalent staff working at domestic premises. The
survey however used for convenience, the number of employees recognised as the basis to
division key for corporate inhabitant tax.
Figure 3. Turnover and other key information on the participants
Turnover
Net profit (loss) before tax
FY 2007
FY 2008
¥ 134.7943 trillion
¥ 125.5868 trillion
¥ 7.9560 trillion
¥ 2.9669 trillion
Number of employees
Total amount of salaries
1,046,420
1,058,752
¥ 8.1136 trillion
¥ 8.1013 trillion
Interest paid
¥ 777.4 billion
¥ 746.4 billion
Interest received
¥ 485.7 billion
¥ 423.1 billion
Figures show the overall amount figures provided by the 95 participants.
Number of taxes borne and
collected as reported by
participants
Since the survey covered a wide range of
taxes, most of the taxes were not
intensively controlled by the central tax
department. Therefore, the participants
collected relevant data in their own way
from business units, offices, etc. As a
result of analyzing the data, it was found
that the average number of taxes
actually paid in by the participants in FY
2008 was 15.4. There was no significant
difference in the average between FY
2007 and FY 2008.
The mean average number of taxes
collected was 6.5. There was no
significant difference in the average
between FY 2007 and FY 2008.
Tax compliance cost
In the survey, 92 out of 95 participants
(96.8%) provided data on their tax
compliance cost. Survey participants
were asked to provide data on the
number of staff in their central and
shadow tax departments engaged in tax
compliance activities, including costs
incurred for such activities. Most
participants were unable to identify the
accurate number of staff and the number
of days worked for tax compliance
activities, they provided estimates. Only
70 respondents reported the number of
shadow tax department staff,
illustrating the difficulty of obtaining
such information.
2010
Total Tax Contribution
15
Total Tax Contribution of 95
participants in FY 2007 accounts
for 5.4% of government tax
receipts.
Total Tax Contribution
Collectively, the survey respondents
reported Total Tax Contribution of
¥7.9933 trillion in FY 2007 and ¥7.1794
trillion in FY 2008. This accounts for
5.4% of government tax receipts in FY
2007. Total Tax Contribution decreased
by ¥813.9 billion (approx. 10.18%) over
the FY 2007/08 period. The principal
reason for this was the decrease of
¥755.9 billion in the total corporation
taxes paid during the recessionary
period.
The 95 participating companies
represent only 0.0037% of all Japanese
corporations (approx. 2.59 million
corporations in total). However, for FY
2007, their contributions accounted for
5.4% of government receipts. This shows
that a small number of large-sized
companies contribute significantly to
the Japanese government.
Figure 4. Total Tax Contribution to government
FY 2007
Taxes borne
Corporation taxes
FY 2008
¥2.5925 trillion
¥1.8366 trillion
Others
¥2.0949 trillion
¥2.1497 trillion
Subtotal
¥4.6874 trillion
¥3.9863 trillion
Taxes collected
¥3.3058 trillion
¥3.1931 trillion
Total Tax Contribution
¥7.9932 trillion
¥7.1794 trillion
Total Japanese government receipts
Percentage of TTC in government receipts
¥148.1591 trillion
4
5.4%
−
5
−
Table shows all the payments to government reported by participants.
Taxes borne
The overall amount of taxes borne for
the survey participants totalled ¥4.6874
4
5
16
Total Tax Contribution
2010
trillion in FY 2007 and ¥3.9863 trillion
in FY 2008. Taxes borne in FY 2007
accounted for 3.2% of government tax
receipts in FY 2007.
‘Total Japanese government receipts’ represents the sum of revenues from taxes, stamp duty,
social security contributions, and local taxes. It also includes inheritance and other taxes that
are not imposed on corporations.
Total Japanese government receipts in FY 2008 and the ratio of TTC to government receipts are
omitted due to the lack of data on total social security contributions (borne by employers and
employees) in FY 2008 as of the date of report preparation.
Figure 5. Major taxes borne by participants as a % of government receipts
FY 2007
Total amount
reported in the
survey (million yen)
Major taxes borne
FY 2008
Government
receipts
(million yen)
%
Total amount
reported in the
survey (million yen)
Government
receipts
(million yen)
%
Note
National taxes (incl. social security contributions)
Corporate income tax
1,536,766
14,744,398
10.4%
947,901
10,010,600
9.5%
Employers’ social security contributions
1,030,137
27,201,033
3.8%
1,062,773
-
-
95,894
940,991
10.2%
84,251
883,109
9.5%
115,486
352,157
32.8%
111,936
340,472
32.9%
2,242
739,857
0.3%
2,302
717,047
0.3%
17,929
1,201,845
1.5%
19,149
1,088,425
1.8%
2
Corporate inhabitant tax
457,557
4,198,230
10.9%
338,385
3,815,365
8.9%
3
Enterprise tax
598,236
5,607,734
10.7%
550,335
5,202,621
10.6%
4
Fixed assets tax
494,985
9,944,711
5.0%
493,291
10,118,854
4.9%
5
32,244
312,968
10.3%
32,578
322,686
10.1%
4,687,493
148,159,110
3.2%
3,986,321
-
-
Custom duty
Electric power resources development tax
Automobile tonnage tax
Stamp tax/Registration and license tax
1
Local taxes
Business premise tax
Total taxes borne
6
Source: Financial results announced by the Ministry of Finance (http://www.mof.go.jp/jouhou/syukei/syukei.htm), ‘White Paper on Local Public Finance', ‘The
Cost of Social Security in Japan FY 2007' issued by National Institute of Population and Social Security Research (http://www.ipss.go.jp/sscost/j/kyuhuhi-h19/kyuuhu_h19.asp)
Note 1. The amount of government receipts from social security contributions is the amount of employers' social security contributions. No data has been
provided for FY 2008.
Note 2. The amount of government receipts from stamp tax/registration and license tax is the amount of stamp revenue reported in the national financial
results.
Note 3. The amount of government receipts from corporate inhabitant tax include prefectural inhabitant tax paid by corporations and municipal inhabitant tax
per capita levy and corporate income tax levy, but exclude prefectural inhabitant tax paid by individuals and per interest levy and municipal inhabitant
tax per capita levy and income levy.
Note 4. The total amount of enterprise tax reported in the survey is the sum of both income-based and size-based enterprise taxes.
Note 5. The total amount of fixed assets tax reported in the survey and the government receipts from the tax include city planning tax.
Note 6. For the comparison of total taxes borne between FY 2007 and FY 2008, the amount of ‘government receipts' was calculated by aggregating the
revenues from taxes, stamps, social security contributions (no data for FY 2008), and local taxes. Note that the amount includes inheritance and other
taxes that are not imposed on corporations.
Government revenues from profit-based
taxes such as corporate income tax,
corporate inhabitant tax, and incomebased enterprise tax (hereinafter
‘corporation taxes’) are directly affected
by economic fluctuations. However, the
survey results showed that, during the
economic downturn, there was no
significant change in the ratio of total
taxes borne by the participants to the
government receipts from these taxes.
Participants’ net profit before tax
decreased by approx. 62.7% over the FY
2007/08 period, and in conjunction with
2010
Total Tax Contribution
17
Corporation taxes are the
largest tax burdens borne by the
most companies. The ratio of
corporation taxes to total taxes
borne was 53.4% and 44.1% for
FY 2007 and for FY 2008
respectively.
this, total corporation taxes decreased
by approx. 29.8% over the same period.
However, the amount of corporate
income tax paid by the participants
represented 10.4% and 9.5% of total
government tax revenues in FY 2007
and FY 2008, respectively. The same
trend was seen for corporate inhabitant
tax and enterprise tax.
Corporation taxes are the largest tax
burdens borne by the survey
participants in this survey. The ratio of
corporation taxes to total taxes borne
was 53.4% and 44.1% for FY 2007 and
for FY 2008 respectively.
TTC measures taxes on a cash basis. The
amount of corporation taxes shown in
the financial statements is on an
accruals basis. Consequently there is a
‘period mismatch’ of one year between
the charges based on profit before tax
and the amount of corporation taxes
paid in a financial year. Thus, any
deterioration in FY 2008 results will be
recognised as a decrease in FY 2009
corporation taxes.
Figure 6. Corporation taxes as a percentage of total taxes borne in FY 2007/08
100%
90%
80%
44.7%
53.9%
70%
60%
Size-based enterprise tax
50%
1.9%
10.9%
40%
4.5%
5.3%
30%
20%
Corporation taxes
53.4%
32.8%
10%
0%
Other taxes borne
FY 2007
2.0%
Income-based enterprise tax
11.8%
Municipal inhabitant tax
4.0%
4.5%
23.8%
Prefectural inhabitant tax
44.1%
Corporate income tax
FY 2008
Chart shows the different components of overall taxes borne for FY 2007 and FY 2008.
18
Total Tax Contribution
2010
Comparing the components of taxes
borne for FY 2007 and FY 2008
regarding the total amount paid by
participants for corporation tax,
employers’ social security contributions,
and fixed assets tax, as shown on Figure
7, while corporate income tax decreased
reflecting the deterioration in business
performance, employers’ social security
contributions remained virtually
unchanged. As a result, participants’
total employers’ social security
contributions exceeded total corporate
income tax. In FY 2008, corporate
income tax was ¥947.9 billion, and
employers’ social security contributions
were ¥1.0627 trillion. It shows that
employers’ social security contributions
would be necessary to take the factor
into consideration when discussing the
level of taxes to be levied on businesses,
because social security contribution is a
fixed tax borne for employers, therefore,
during a recession period, it is likely to
represent an increasing percentage of
total taxes borne together with other
fixed taxes borne (e.g. fixed assets tax).
Figure 7. Movements of the different taxes borne over FY 2007/08
(100 million yen)
18,000
16,000
15,368
14,000
12,000
10,000
10,301
9,479
8,000
6,000
10,628
Employers’ social security contributions
Corporate income tax
Fixed assets tax
4,950
4,000
4,933
2,000
0
FY 2007
FY 2008
Figure 7 shows movements for corporate income tax, employers’ social security contribution and fixed
assets tax (overall numbers).
2010
Total Tax Contribution
19
Taxes collected tend to depend
on limited industries. 68% of
government gasoline tax
revenues was collected by four
companies.
Taxes collected
Total taxes collected was ¥3.3058
trillion and ¥3.1931 trillion in FY 2007
and FY 2008 respectively. In aggregate,
the amount collected in FY 2007
represents 2.2% of government receipts.
Gasoline tax was the largest tax
collected overall, followed by
employees’ social security contributions
and withholding income tax from salary.
Approx. 68% of government gasoline tax
revenues was paid by four survey
participants who provided data on
gasoline tax. Similarly, approx. 54% of
government petroleum coal tax
revenues was accounted for by the
amount paid by eight respondents. This
demonstrated once again the heavy
dependence for the two taxes on a
limited number of companies.
Figure 8. Major taxes collected by participants as a% of government receipts
FY 2007
Major taxes collected
Total amount
reported in the
survey (million yen)
Government
receipts
(million yen)
FY 2008
%
Total amount
reported in the
survey (million yen)
Government
receipts
(million yen)
Note
%
National taxes (incl. social security contributions)
Withholding income tax (other than salary)
126,193
4,879,414
2.59%
129,384
4,444,043
2.91%
Withholding income tax (salary)
422,249
10,138,667
4.16%
418,092
9,987,965
4.19%
Employees’ social security contributions
910,284
29,673,014
3.07%
938,471
-
-
-221,631
12,841,069
-1.73%
-262,987
12,442,976
-2.11%
280,933
512,851
54.78%
276,725
511,044
54.15%
1,398,838
2,110,543
66.28%
1,285,378
1,889,385
68.03%
365,810
12,116,279
3.02%
387,271
12,422,453
3.12%
11,899
1,033,873
1.15%
9,526
918,784
1.04%
3,305,858
148,159,110
2.2%
3,193,132
-
-
Consumption tax (incl. local consumption tax)
Petroleum coal tax
Gasoline tax (incl. local gasoline tax)
1
Local taxes
Withholding inhabitant tax
Diesel oil delivery tax
Total taxes collected
2
3
Table shows national and local taxes collected reported by participants in context of government receipts for FY 2007 and FY 2008.
Source: Financial results announced by the Ministry of Finance (http://www.mof.go.jp/jouhou/syukei/syukei.htm), ‘White Paper on Local Public Finance', ‘The
Cost of Social Security in Japan FY 2007' issued by National Institute of Population and Social Security Research (http://www.ipss.go.jp/sscost/j/kyuhuhi-h19/kyuuhu_h19.asp)
Note 1. The amount of government receipt from social security contributions represents amounts for social security contributions paid by insured persons
(employees).
Note 2. The amount of government receipt from withholding inhabitant tax is the sum of prefectural inhabitant tax paid by individuals and municipal inhabitant
tax (per capita levy and income levy).
Note 3. For the comparison of total taxes collected between FY 2007 and FY 2008, the amount of ‘government receipts' was calculated by summing revenues
from taxes, stamps, social security contributions (no data for FY 2008), and local taxes. Note that the amount includes taxes that are not imposed on, or
collected by, corporations.
20
Total Tax Contribution
2010
Local taxes
companies pay in taxes? December
2007).
Japan operates a decentralized tax
system. National taxes represent 3/4 of
Total Tax Contribution and the
remainder relates to local taxes in FY
2007 and 2008. This is similar to the
proportion of national taxes to local
taxes in the US where federal taxes
represented 75.5% of Total Tax
Contribution. (Source: Total Tax
Contribution; How much do large U.S
Examining local taxes borne, incomebased enterprise tax is the largest
component at 31.6% of the total amount
in FY 2007, while in FY 2008, fixed
assets tax was the largest local tax at
34%. Fixed assets tax and size-based
enterprise tax were unaffected by the
economic cycle.
National taxes represent ¾ of
Total Tax Contribution and the
remainder relates to local
taxes. This proportion is
almost same between in FY
2007 and in FY 2008. Also this
is similar to the proportion of
national taxes to local taxes in
the US.
Figure 9. National and local taxes split of Total Tax Contribution (FY 2008)
Local tax
26%
National tax
74%
Chart shows the split between national and local taxes in Japan for the survey (overall basis).
2010
Total Tax Contribution
21
Total Tax Contribution as a
percentage of value
distributed
The value-added generated by
businesses is measured in terms of
wages, interests, dividends, retained
earnings, etc., and is national income
when distributed. In this survey,
value-added is taken to be the aggregate
of net interest payments, wages and
salaries (the value used as the tax base
for value-added based enterprise tax),
net profit after tax, and taxes borne and
collected (Total Tax Contribution).
Labour’s share is the ratio of wages and
salaries to the total value-added while
the ratio of Total Tax Contribution to the
total value-added is referred to as the
‘public distribution ratio’ in this report.
It refers to value distributed to
government and other public sector
organisations.
Participants’ labour’s share increased
from 31.8% in FY 2007 to 42.2% in FY
2008. This is mainly as a result of the
declining value-added due to falling net
profit after tax from FY 2007 to FY 2008.
The total amount of wages and salaries
remained fairly stable in the two-year
period at just over ¥8 trillion for the
participants.
Putting the above the results in context
of the Japanese economy, it is
worthwhile understanding what the
overall employment environment and
22
Total Tax Contribution
2010
statistics were. ‘Labour Force Surveys’
(2008-present) published by the
Ministry of Internal Affairs and
Communications, show that the number
of workers in employment in Japan
started to decline in May 2008 after
reaching the peak at 64.78 million. From
November 2008, the decrease in the
number of employees was significant
and continuous until March 2009 where
the number of employed workers stood
at 62.45 million. The ‘Labour Force
Surveys’ show that employment at its
lowest in February 2010 at 61.85 million
following a temporary recovery.
Following the collapse of Lehman
Brothers, business worsened drastically
from the second half of 2008, and
companies were forced to reduce labour
cost. The effect of this was not visible
before 2009 due to redundancy
restrictions in employment contracts,
etc. Accordingly, labour’s share of
value-added increased in this survey as
there were no reduced labour cost and
total value-added was smaller in 2008.
We will monitor the changes in labour’s
share in next year’s survey.
The public distribution ratio increased
from 39.7% in FY 2007 to 47.7% in FY
2008. As the total amount of valueadded distributed decrease in an
economic downturn, it is assumed in the
long term companies will be forced to
take actions to reduce labour’s share if
the amount of taxes borne and collected
remain stable.
Figure 10. Value distributed to stakeholders
Government
(Public distribution ratio)
Total
taxes collected
16.4%
39.7%
Investors and capital
investments
Net profit after tax
27.1%
Total
taxes borne
23.3%
Net interest paid
1.4%
Financial year
ended in March
2008
Total salaries
(excl. employment taxes
collected)
31.8%
Employees
Investors and capital investments
Government
(Public distribution ratio)
47.7%
Total
taxes collected
21.2%
Net profit
after tax
8.0%
Financial year
ended in March
2009
Total
taxes borne
26.5%
Net interest paid
2.1%
Total salaries
(excl.
employment
taxes
collected)
42.2%
Employees
The chart shows the % of value distributed to different stakeholders in FY 2007 and FY 2008.
2010
Total Tax Contribution
23
Total Tax Rate in FY 2007/08
The Total Tax Rate (TTR) is a measure of the burden of all taxes
borne on a particular business. The average Total Tax Rate for the
survey participants increased from 41.6% in FY 2007 to 58.2% in
FY 2008. In an economic downturn, we find that while profits and
taxes on profits may fall, other non-profit related taxes do not fall
to the same degree and thus become relatively more expensive. In
FY 2008, other taxes borne other than corporation taxes
accounted for more than 50% of total taxes borne. During a
recession, for example in the magnitude of collapse of Lehman
Brothers, it is expected that social security contributions are even
a bigger burden on businesses.
Total Tax Rate
41.6%
58.2%
(FY 2007)
24
Total Tax Contribution
2010
(FY 2008)
Figure 11. Total Tax Rate for survey participants in FY 2007/08
70%
58.2%
60%
50%
40%
30%
18.2%
41.6%
9.7%
18.8%
11.9%
20%
10%
20.0%
21.3%
FY 2007
FY 2008
0%
Corporation taxes
Employers’ social security contributions
Other taxes borne
Figure 12. Distribution of Total Tax Rate for survey participants in FY 2007/08
Financial year ended in March 2008
Number of data items
5
Mean average: 41.6%
4
3
2
1
10
%
12
14%
%
16
18%
20 %
22 %
24 %
26%
28 %
%
30
32%
34%
36 %
38 %
%
40
42%
44 %
46 %
%
48
50 %
52 %
54%
56%
58%
%
60
62%
64 %
%
66
68%
70%
72 %
%
74
76%
78 %
80%
82 %
84%
%
84
86 %
%
0
Total Tax Rate
Financial year ended in March 2009
Mean average: 58.2%
3
2
1
0
10
12 %
14 %
16 %
18 %
20 %
22 %
24 %
26 %
28 %
30 %
32 %
34 %
36 %
38 %
40 %
42 %
44 %
46 %
48 %
50 %
52 %
54 %
56 %
58 %
60 %
62 %
64 %
66 %
68 %
70 %
72 %
74 %
76 %
78 %
80 %
82 %
84 %
86 %
88 %
90 %
92 %
94 %
96 %
%
Number of data items
4
Total Tax Rate
2010
Total Tax Contribution
25
Total Tax Contribution as a
percentage of domestic
turnover
TTC as a % of turnover indicates the size
of the contribution in the context of the
size of the operations. Based on the
survey results, the average percentage
of turnover was 6.8% for FY 2007 and
6.4% for FY 2008. The decrease in the
TTC as a percentage of domestic
turnover is driven by the fall in both
total turnover (7.8%) and Total Tax
Contribution (10.2% in aggregate).
Figure 13. Distribution of TTC as percentage of turnover in FY 2007/08
Financial year ended in March 2009
n=36
Number of data items
6
5
Mean average : 6.8%
4
3
2
1
0
% % % % % % % % % % % % % % %
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
TTC to turnover ratio
Financial year ended in March 2009
n=36
Number of data items
6
5
4
3
2
1
0
26
Total Tax Contribution
2010
Mean average : 6.4%
% % % % % % % % % % % % % % %
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
TTC to turnover ratio
Employment taxes
The number of employees employed by
survey participants during FY 2007
totalled 1,046,420. This represents
approx. 1.6% of the number of
employees reported for the same year in
the Labour Force Survey,6 i.e. 64.12
million employees. Employer social
security contributions by survey
participants in FY 2007 totalled ¥1.0301
trillion, representing approx. 3.8% of
employer social security contributions
received by the government in FY 2007.
As survey participants are leading
large-scaled companies, the amount of
salary they pay to the employees is
higher than the national average.
Accordingly, the amount of their social
security contributions is considered to
be larger than others in proportion to
the level of salary.
The ratio of employers’ social security
contributions by survey participants to
government receipts for employers’
social security contributions is lower
than the ratio of corporate income tax
paid by survey participants to
government corporate income tax
revenues in FY 2007 (10.4%).
Figure 14. Number of employees and total amount of salaries paid by
participants
Number of employees
Total amount of salaries (yen)
FY 2007
FY 2008
1,046,420
1,058,752
1.2
8.1136 trillion
8.1013 trillion
-0.2
The total employment taxes paid by
survey participants are shown below. In
FY 2007, the total employment taxes
Year-over-year comparison(%)
paid by survey participants accounted
for 3.4% of total government receipts
corresponding to it.
Figure 15. Total employment taxes paid by survey participants
FY 2007
(yen)
FY 2008
(yen)
Year-over-year
comparison(%)
1.0301 trillion
1.0627 trillion
3.2
Withholding income tax - salary
422.2 billion
418.0 billion
-1.0
Withholding inhabitant tax
365.8 billion
387.2 billion
5.9
Employees’ social security
contributions
910.2 billion
938.4 billion
3.1
2.7284 trillion
2.8066 trillion
2.9
Employer’s social security
contributions
Total
6
‘Annual Report on the Labour Force Survey (Basic Tabulation)’ by the Labour Force
Statistics Office, Population Census Division, Statistical Survey Department, Statistics
Bureau, Ministry of Internal Affairs and Communications.
2010
Total Tax Contribution
27
The overall average of employment
taxes per employee paid by survey
participants was ¥2,650,864 in FY 2008
(¥2,607,441 in FY 2007). It is made up
of ¥1,003,797 for employees’ social
security contributions and ¥1,647,065
for withholding income tax from salary,
withholding inhabitant tax, and
contributions borne by employees.
Figure 16. Employment taxes per employee
All (38) company basis
Average
Individual Median
company Smallest
Largest
basis
Number of
samples
Taxes borne
984,438
1,149,338
1,013,459
219,306
3,679,468
FY 2007
Taxes collected
1,623,002
2,273,933
1,801,506
239,604
6,928,388
Total
Taxes borne
2,607,441 1,003,797
3,423,271 1,138,922
2,839,574 1,001,520
458,911
192,091
10,607,856 3,709,737
FY 2008
Taxes collected
1,647,065
2,220,913
1,825,699
210,764
6,872,502
(yen)
Total
2,650,863
3,359,836
2,842,476
402,856
10,582,239
38
38
Note: ‘Taxes borne' here represent employers' social security contributions; ‘taxes collected' represent
the sum of withholding income tax from salary, withholding inhabitant tax, and employees' social
security contributions.
This survey also looked at the ratio of
employment taxes to total amount of
salaries. The median value was 32.2%
for FY 2007 and 31.3% in FY 2008.
According to a survey conducted by
OECD in 2008,7 the ratio of withholding
income tax from salary and social
security contributions to labour cost was
29.5% for single persons without
children in Japan. Our survey results
show higher results than the OECD’s.
The ratio of employment taxes to total
amount of salaries depends on the
family composition of employees and
the income level in case where the rate is
progressive.
Figure 17. Employment taxes as a percentage of total amount of salaries
All (38) company basis
Average
Median
Individual
Smallest
company
Largest
basis
Number of
samples
FY 2007
Taxes borne Taxes collected
12.7%
20.9%
11.8%
22.0%
10.8%
20.5%
5.3%
11.5%
22.9%
43.1%
FY 2008
Total
Taxes borne Taxes collected
33.6%
13.1%
21.5%
33.8%
11.7%
21.7%
32.2%
11.4%
20.1%
17.0%
5.0%
11.4%
66.1%
25.1%
46.6%
Total
34.6%
33.4%
31.3%
16.8%
71.7%
38
38
Note: ‘Taxes borne' here represent employers’ social security contributions ; ‘taxes collected'
represent the sum of withholding income tax from salary, withholding inhabitant tax, and
employees’ social security contributions.
7
28
Total Tax Contribution
2010
‘Taxing Wages 2008/2009’ by OECD. The ‘single person at 100% of average earnings, no
child’ category was used for comparison purpose.
Figure 18. Composition of employment taxes per employee in FY 2007/08
(yen)
3,000,000
2,500,000
869,903
886,394
Employees’ social security contributions
2,000,000
1,500,000
349,582
365,781
403,517
394,892
984,439
1,003,798
FY 2007
FY 2008
Withholding inhabitant tax
Withholding income tax from salary
Employers’ social security contributions
1,000,000
500,000
0
TTR analysis based on FY
2007/08 combined data
In FY 2008, in the aftermath of the
collapse of Lehman Brothers, corporate
earnings decreased significantly. As the
survey was conducted on a cash basis,
corporation taxes payments in that year
related to the period ended in March
2007. The combination of these two
factors led to a generally higher TTR tax
rate for FY 2008. In order to eliminate
the fluctuations and the effects of the
latter in FY 2007 and FY 2008, the Total
Tax Rate was calculated by using the
8
9
average of the two years' data.
The overall Total Tax Rate (TTR) for the
38 corporate groups on the all-company
basis (A), was 56.6%. The overall
average TTR for each corporate group,
the lowest TTR was 17.6% and the
highest was 160.3%.The mean average
(B) and median value (C)8 were 50.4%
and 51.0%, respectively.
Comparing TTR and the effective
corporation tax rate,9 TTR is an index of
the ratio of all taxes borne to adjusted
net profit before all taxes borne while
the effective corporation tax rate is the
It is not possible to calculate TTR where a company has net loss after tax and TTR
cannot be negative or higher than 100%. These would be excluded from calculating
the TTR averages.
Effective corporation tax rate is the annual payment of corporation taxes as a
percentage of net profit before tax. The tax rate in narrow sense is the sum of annual
corporation taxes, and employers social security contributions as % of the sum of net
profit before tax and employers social security contributions. Both rates are simple
averages calculated excluding loss-making companies and companies with negative
values or values exceeding 100%. TTR is the mean average of TTRs of the
participating corporate groups, excluding loss-incurring companies and companies
with negative values or values exceeding 100%.
2010
Total Tax Contribution
29
ratio of corporation taxes to net profit
before tax. The average effective
corporation tax rate for survey
participants was 35.5% (excl. domestic
withholding income tax). The actual tax
rate calculated by adding employers'
social security contributions to the
above (hereinafter referred to as ‘tax
rate in narrow sense') was 44.5%.
Looking at TTR from the viewpoint of
local tax and national taxes, the mean
average TTR of 50.4% is made up of
31.8% national taxes and 18.6% local
taxes that represent a larger percentage
of the TTR are fixed assets tax (6.0%),
income-based enterprise tax (5.8%),
corporate inhabitant tax (4.3%). It must
be noted that, as seen in the industry
analysis, the ratios differ depending on
the industry.
Figure 19. Total Tax Rate (based on FY 2007/08 combined data)
Excl. TTR>100%
All company basis (A)
56.6%
Average (B)
54.1%
50.4%
Median (C)
51.8%
51.0%
Smallest ratio
17.6%
17.6%
Largest ratio
160.3%
91.0%
Number of sample companies
30
Total Tax Contribution
2010
30
-
29
Figure 20. Effective corporation tax rate, tax rate in narrow sense, overall
Total Tax Rate
60.0%
50.4%
50.0%
1.4%
0.7%
40.0%
30.0%
4.9%
6.0%
14.6%
Size-based enterprise tax
44.5%
20.0%
Other taxes
Business premise tax
35.5%
22.7%
10.0%
Fixed assets tax
Employers’ social security contributions
Corporation taxes
0.0%
Effective corporation Tax rate in narrow sense
(Corporation taxes+Social
tax rate
(Corporation taxes/ security contributions/
Profit before tax) Adjusted profit before tax)
Total Tax Rate
Figure 21. The split of national and local taxes for TTR
Local tax 18.6%
4.3%
National
tax
31.8%
5.8%
50.4%
Local tax
18.6%
1.4%
Corporation inhabitant tax
Income-based enterprise tax
Size-based enterprise tax
6.0%
Fixed assets tax
Business premise tax
0.7%
0.5%
Other taxes
2010
Total Tax Contribution
31
Section VI.
Industry comparisons
The 38 participant corporate groups
were divided into three major
categories: Manufacturing,10
Wholesalers & Retailers, Electricity &
Gas, and Information & Communication.
They were further categorised into eight
industry sectors:
1) Automobile
2) Chemical & Pharmaceutical
3) Electricity & Gas and Information
& Communication
4)
5)
6)
7)
8)
Machinery
Iron & Steel and Metal
Oil & Gas
Retailers
Trading houses.
The results show the composition and
level of tax burden differ significantly
depending on the industry.
Figure 22. Percentage of Total Tax Contribution by industry sector (FY 2008)
0.0%
3.0%
Automobile
9.5%
5.0%
Chemical & Pharmaceutical
Electricity & Gas and Information
& Communication
25.1%
Machinery
Iron & Steel and Metal
35.6%
9.6%
Effective corporation tax rate
for Electricity & Gas and
Information & Communication
companies was significantly
higher than the average of all
industries. Total Tax Rate for
these companies was 66.5%
which was also significantly
higher than the others.
Total Tax Contribution
2010
Retailers
Trading Houses
12.3%
The chart shows the overall taxes borne and collected by industry sector.
The four corporate groups in the
Electricity & Gas and Information &
Communication sector represent 10.5%
10
32
Oil & Gas
of all survey participants (38 corporate
groups) but represent 35.6% of all taxes
borne and collected (Total Tax
The results of Manufacturing industry reflect the results for survey participants who
belong to Automobile, Chemical & Pharmaceutical, Machinery, and Iron & Steel and Metal
industries.
Contribution) by survey participants in
FY 2008.
The Electricity & Gas and Information &
Communication companies are
characterised by stable business
performance, there was no decline in
turnovers (0% change) and a minor
decline in net profit before tax (only 14%
compared to 62.7% on average for all
survey participants) for the FY 2007/08
period. Furthermore, effective
corporation tax rate for Electricity & Gas
and Information & Communication
companies was 48.8%, or 50.6% when
withholding income tax was included,
which was significantly higher than the
average of all industries (35.5%). The
average Total Tax Rate for this sector
was 66.5% based on the FY 2007/08
combined data as companies in this
sector paid also relatively high fixed
assets tax and other taxes.
Oil & Gas companies have the second
largest Total Tax Contribution,
representing 25.1% of the survey Total
Tax Contribution. For Oil & Gas
companies, taxes collected were
significantly larger than taxes borne,
and the ratio of taxes borne to taxes
collected was 1 to 6.5 in FY 2008. This
means that for every ¥1 of tax a
company bears, it will also collect ¥6.5
on behalf of government. The TTC by
Oil & Gas companies in FY 2008 was
¥1.8037 trillion, out of which ¥1.5643
trillion was taxes collected. Most of the
taxes collected by Oil & Gas companies
were oil-related taxes. The oil-related
taxes collected by Oil & Gas companies
in FY 2008 totalled ¥1.4973 trillion:
made up of gasoline tax: ¥1.2780
trillion, other oil-related taxes: ¥0.2192
trillion.
Trading houses have a higher ratio of
other taxes borne, most of which (98%)
is accounted for by custom duty.
2010
Total Tax Contribution
33
Figure 23. Overall changes in financial indicators by sector during
FY 2007/08
Retailers Trading
Houses
Automobile Chem. Elec.
Machinery Iron &
Oil &
Steel and Gas
& Pharm. & Gas
Metal
and Info.
& Comm.
Turnover
-21.9%
-9.3%
Net profit
before tax
-94.9%
-65.0%
Number of
employees
-2.6%
2.2%
3.1%
1.9%
2.3%
4.6%
-0.5%
-1.9%
-0.5%
-3.8%
Wages and
salaries paid
0.0%
-8.5%
-9.2% -106.8%
7.3%
-2.2%
-1.8%
-6.3%
-41.0% -265.1%
5.6%
-51.1%
-1.7%
-2.5%
3.4%
-5.9%
5.5%
1.2%
Figure 24. Total Tax Contribution by sector (FY 2007/08)
FY 2007
(yen)
FY 2008
(yen)
FY 2008
682.2 billion
-15.2
10.1%
9.5%
Chem. & Pharm.
395.2 billion
355.4 billion
-10.2
5.0%
5.0%
Elec. & Gas and Info. & Comm.
2.7141 trillion
2.5549 trillion
-5.9
34.0%
35.6%
Machinery
1.0013 trillion
881.2 billion
-12.0
12.5%
12.3%
709.2 billion
686.3 billion
-3.2
8.9%
9.6%
Oil & Gas
2.0450 trillion
1.8037 trillion
-11.8
25.6%
25.1%
Retailers
214.2 billion
214.0 billion
-0.1
2.7%
3.0%
Trading houses
108.6 billion
1.3 billion
-98.7
1.4%
0.0%
7.9933 trillion
7.1794 trillion
-10.2
100%
100%
Using the above procedure, Total Tax
2010
FY 2007
804.7 billion
A comparison was made between
industries about effective corporation
tax rate, tax rate in narrow sense, and
Total Tax Rate. The basic data provided
by 38 corporate groups for FY 2007 and
FY 2008 was aggregated by corporate
group to eliminate disparities between
the two years. The TTR for each
corporate group excluding lossincurring companies and companies
with negative values or values exceeding
100% was then calculated. A mean
average of TTR by peer group was then
calculated.
Total Tax Contribution
Composition ratio
Automobile
Iron & Steel and Metal
34
Year-over-year
comparison (%)
Rate was calculated for three sectors, i.e.
Manufacturing, Wholesalers & Retailers,
and Electricity & Gas and Information &
Communication. TTR for Wholesalers &
Retailers was low at 40.1%, compared to
that for companies in the other two:
51.5% for Manufacturing companies
and 66.5% for Electricity & Gas and
Information & Communication companies.
For Electricity & Gas and Information &
Communication, Retailers, Machinery,
and Chemical & Pharmaceutical
companies, TTR was higher than the
overall average of 50.4%.
Figure 25. Total Tax Rate in the Manufacturing, Wholesalers & Retailers,
and Electricity & Gas and Information & Communication sectors
70.0%
60.0%
50.0%
66.5%
51.5%
0.5%
1.2%
1.5%
40.0%
5.0%
0.7%
17.0%
30.0%
40.1%
10.9%
1.5%
26.0%
10.0%
Other taxes borne
0.3%
Size-based enterprise tax
11.8%
Business premise tax
33.5%
Fixed assets tax
Employers’ social security contributions
Corporation taxes
0.7%
4.9%
12.0%
20.0%
8.2%
12.2%
10.1%
0.0%
Manufacturing
Wholesalers
and Retailers
Electricity & Gas
and Information
& Communication
Figure 26. Total Tax Rate by sector
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Other taxes borne
Size-based
enterprise tax
Business premise tax
Fixed assets tax
Automobile
Chemical &
Pharmaceutical
Retailers
Electricity & Gas Iron & Steel
and Information
and Metal
& Communication
Machinery
Employers’ social
security contributions
Trading
Houses
Corporation taxes
Figure 27. Effective corporation tax rate, tax rate in narrow sense, and Total
Tax Rate by sector
66.5
70.0%
59.8
56.3
60.0%
51.7
47.1
46.4
47.5
50.0%
40.0% 39.3
55.9
56.0
48.8
40.0 38.0
45.2
49.9
44.5
36.8
30.5
30.0%
35.5
25.9
18.5
12.5
20.0%
10.0%
0.0%
50.4
47.7
Automobile
Chemical &
Machinery
Pharmaceutical
Electricity &
Iron & Steel
Gas and
and Metal
Information &
Communication
Effective corporation
tax rate (Corporation
taxes/Profit before tax)
Tax rate in
narrow sense
Retailers
Trading Houses
Total
TTR
2010
Total Tax Contribution
35
Section VII.
Movements in FY 2007/08 period
Movements in participants’
financial conditions
Influenced by the volatile economic
situation in the FY 2007/08 period, the
overall net profit before tax of
participants decreased by approx. 62.7%
over the same period. Aggregate
turnover decreased by approx. 6.8%.
Total amount of salaries11 remained
almost unchanged (a 0.2% decrease)
between FY 2007 and FY 2008. The
number of employees increased slightly
by 1.2%. Both interest paid and interest
received decreased; there was a
significant decrease (12.9%) in interest
received.
Figure 28. Movement in financial data provided during FY 2007/08
FY 2007
Turnover
Net profit before tax
FY 2008
Year-over-year
comparison (%)
¥134.7943 trillion
¥125.5868 trillion
-6.8
¥7.9560 trillion
¥2.9669 trillion
-62.7
1,046,420
1,058,752
1.2
¥8.1136 trillion
¥8.1013 trillion
-0.2
Interest paid
¥777.4 billion
¥746.4 billion
-4.0
Interest received
¥485.7 billion
¥423.1 billion
-12.9
Number of employees
Total amount of salaries
Movements in taxes borne
In FY 2008, overall taxes borne
decreased by approx. 15% on a yearover-year basis, whereas corporation
taxes12 decreased by approx. 29.8%. This
decrease was greater than the decrease
in government revenues (22.4%) for
corporate income tax, corporate
inhabitant tax, and enterprise tax (incl.
amount levied based on the size-based
taxation). Taxes borne other than
corporation taxes increased slightly (an
increase of ¥45 billion over the FY
2007/08 period) as employers’ social
security contributions edged up
marginally and that there were only
minor fluctuations in fixed assets tax,
etc.
11 The sum of wages and salaries that are computed as the tax base for value-added-based
enterprise tax.
12 The sum of taxes that are levied on the basis of corporate income, such as corporate
income tax, income-based enterprise tax, and corporate inhabitant tax.
36
Total Tax Contribution
2010
Figure 29. Movements in major taxes borne and total taxes borne
FY 2007
(yen)
FY 2008
(yen)
Employers’ social security
contributions
1.0301 trillion
1.0625 trillion
3.2
Corporate income tax
1.5367 trillion
947.9 billion
-38.3
Fixed assets tax
494.9 billion
493.2 billion
-0.3
Enterprise tax-income basis
509.9 billion
471.1 billion
-7.6
Prefectural inhabitant tax
246.1 billion
179.9 billion
-26.9
Municipal inhabitant tax
211.3 billion
158.4 billion
-25.0
Custom duty
95.8 billion
84.2 billion
-12.1
Petroleum coal tax
57.0 billion
80.4 billion
41.0
Gasoline tax
(national and local)
26.6 billion
37.6 billion
41.3
4.6874 trillion
3.9863 trillion
-15.0
Total taxes borne
Year-over-year
com-parison (%)
Table shows total taxes borne paid by participants in the survey.
When looking at changes of the major
local taxes in the survey, it was found
that there was a significant decrease in
local inhabitant tax. Fixed assets tax and
business premise tax showed only minor
fluctuations.
Figure 30. Major local taxes
FY 2007(yen)
Prefectural inhabitant tax
246.1 billion
FY 2008(yen)
Year-over-year comparison (%)
179.9 billion
-26.9%
Municipal inhabitant tax
211.3 billion
158.4 billion
-25.0%
Enterprise tax-income basis
509.9 billion
471.1 billion
-7.6%
Fixed assets tax
494.9 billion
493.2 billion
-0.3%
Business premise tax
32.2 billion
32.5 billion
1.0%
Enterprise tax-capital basis
and value added basis
88.2 billion
79.1 billion
-10.3%
Table shows total taxes collected as reported by participants in the survey.
Movements in taxes collected
Taxes collected reported in FY 2007 and
FY 2008 were ¥3.3058 trillion and
¥3.1931 trillion respectively,
representing an approx. 3.4% decrease
year on year. This indicates that,
compared to taxes borne, taxes collected
tend to decrease at a lower rate. Taxes
collected that showed a significant
decrease were gasoline tax, withholding
income tax from salary, and petroleum
coal tax. In FY 2008, government
gasoline tax revenues decreased by
10.5% from FY 2007, whereas petroleum
coal tax decreased by 1.5%. It is difficult
2010
Total Tax Contribution
37
to determine the exact cause for the FY
2008 increase in the amount refunded
consumption tax.13 Although some
participants reported an increase in
amounts refunded, the amount of
consumption tax paid decreased at a
higher rate than the sum of overall
changes. Participants with a significant
decrease in the consumption tax
payment were not necessarily
manufacturers of export products. It is
assumed that, in addition to the increase
in sales qualifying for export exemption
as percentage of sales, there are other
factors that have influenced the decrease
in consumption tax, such as a decrease
in domestic sales when purchases and
capital investments remain constant,
and an increase in purchases and capital
investments when sales remain
constant, and the timing of tax refund
for interim payment.
Figure 31. Movements major taxes collected
FY 2007
(yen)
Gasoline tax (national and local)
1.3988 trillion
1.2853 trillion
-8.1
910.2 billion
938.4 billion
3.1
Withholding income tax – salary
422.2 billion
418.0 billion
-1.0
Withholding inhabitant tax
365.8 billion
387.2 billion
5.9
Petroleum coal tax
280.9 billion
276.7 billion
-1.5
Withholding income tax – other than salary
126.1 billion
129.3 billion
2.5
9.2 billion
9.7 billion
5.5
Diesel oil delivery tax
11.8 billion
9.5 billion
-19.9
Petroleum gas tax
800 million
900 million
10.6
Oil price adjustment tax
200 million
200 million
-8.9
800 million
100 million
-76.7
52.72 million
100 million
96.2
Prefectural inhabitant tax – interest levy
Liquor tax
Consumption tax
-221.6 billion
-262.9 billion
18.7
Sum of taxes collected14
3.3058 trillion
3.1931 trillion
-3.4
Movements in Total Tax
Contribution
The Total Tax Contribution of survey
participants (95 companies in 38
Total Tax Contribution
2010
Year-over-year
comparison (%)
Employers’ social security contributions
Prefectural inhabitant tax – dividend levy
38
FY 2008
(yen)
corporate groups) decreased by approx.
10.18% or ¥813.9 billion; from ¥7.9933
trillion in FY 2007 to ¥7.1794 trillion in
FY 2008. The decrease was driven by a
fall in corporate income tax payments.
13 The refund is made when the amount of consumption tax on purchase exceed the amount
of consumption tax paid on taxable turnover. The basis of the refund is that, to eliminate
the multiple taxation effect that increases a product’s ultimate price, business operators
are entitled to deduct the amount of consumption tax paid for their purchases during a
manufacturing or distribution process prior to the final consumption process because of
the nature of consumption tax. Commonly cited reasons for an increase in the refund are a
decrease in taxable turnover and an increase in tax-exempt turnover with input
consumption tax deduction. Because it is a refund of consumption tax paid as part of
purchase price, there is no effect on the company’s revenue.
14 The total amount also includes golf course tax, bathing tax, and lodgement tax.
Section VIII.
Cost of tax compliance
Taxes paid are not the only burden
imposed on businesses by the tax
authorities. Simplifying a taxation
system will ensure neutrality of taxation
of all economic activities and have the
same political effect as a tax rate
reduction.
Number of staff in the tax
department
There is no real data available to
understand the reality of tax compliance
costs incurred by Japanese companies.
In this survey, quantitative
measurements and analyses were made
in relation to the internal and external
costs required for the tax payment
process and other procedures associated
with taxes and social security
contributions.
The average number of employees
engaged in international and domestic
tax compliance was calculated by
summing each respondent’s annual
number of days worked by central or
shadow tax department employees and
then dividing the sum by 240, an
assumed number of days worked per
employee per annum. As a result, it was
found that a total of 8 employees were
engaged in domestic tax compliance
(based on valid responses from 87
companies) and 2 employees were
engaged in international tax compliance
(based on valid responses from 70
companies).
The average number of participants’ tax
department staff was 15.5, and the
median value was 8 (based on valid
responses from 92 companies).
Figure 32. Distribution of the number of staff in the tax department
n=92
Number of companies
12
Median:
8.0
Mean average:
15.5
10
8
6
4
2
0
1 2
3
4 5
6
7 8
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26- 51-76-101-201Number of tax department staff
2010
Total Tax Contribution
39
The survey was designed to analyse not
only corporate taxes, but also to look at
the various tax, therefore, the both of
compliance costs incurred by the central
tax department and the shadow tax
departments were subject to the survey.
Shadow tax departments often have
employees engaged in return filing,
payment, and collection of taxes and
social security contributions. The survey
found that 39% of total tax compliance
days was incurred by shadow tax
departments.
Figure 33. Total number of days required per annum for compliance activities
- split by department (central or shadow tax)
Shadow tax
departments
39%
Out of the total number of days required
per annum for tax compliance activities
performed by central and shadow tax
departments, 53% was related to
corporate income tax, 5% for corporate
inhabitant tax and enterprise tax, and
27% for withholding income tax from
salary, withholding inhabitant tax, and
40
Total Tax Contribution
2010
Central tax
department
61%
social security contributions.
On the other hand, where compliance
activities were limited to those
performed by the central tax
department only, 84% related to
corporate income tax, corporate
inhabitant tax, and enterprise tax.
Figure 34. Total number of days required per annum for compliance
activities performed by central and shadow tax departments
- by tax item
Fixed assets tax
3%
Stamp tax/Registration
and license tax 1%
Consumption tax
5%
Others
6%
Corporate
income
tax
Withholding income tax
from salary/
Withholding inhabitant tax/
Social security contributions
53%
27%
Corporate inhabitant tax/
Enterprise tax
5%
Figure 35. Total number of days required per annum for compliance
activities performed by central tax department - by tax item
Fixed assets tax
Others
3%
Stamp tax/Registration
3%
and license tax 1%
Consumption tax 6%
Withholding income tax from salary/
Withholding inhabitant tax/
Social security contributions 3%
Corporate inhabitant tax/
Enterprise tax
7%
Corporate income tax
77%
2010
Total Tax Contribution
41
In shadow tax departments, 64% of the
total number of days required per
annum for tax compliance activities
related to withholding income tax from
salary, withholding inhabitant tax and
social security contributions.
Figure 36. Total number of days required per annum for compliance
activities performed by shadow tax departments - by tax item
Fixed assets tax
3%
Stamp tax/
Registration and license tax
1%
Others
11%
Corporate
income
tax
17%
Consumption tax
3%
Corporate inhabitant tax/
Enterprise tax
1%
Withholding income tax from salary/
Withholding inhabitant tax/
Social security contributions
64%
Tax compliance cost
The cost of tax compliance includes not
only internal expenses mentioned
above, but external expenses incurred
when outsourcing tax related services.
The research on the tax compliance cost
focused on FY 2008. The tax compliance
cost was divided into domestic tax
compliance cost and international tax
compliance cost. The results were
measured by individual companies. 87
companies provided data on domestic
tax compliance, whereas 50 companies
provided data on international tax
compliance.
The term ‘international tax compliance'
herein exclusively refers to tax
compliance-related functions which
domestic companies are required to
perform under Japanese tax legislation.
The functions that are not included in
the latter are: parent companies' support
for their overseas subsidiaries to meet
compliance requirements under the host
42
Total Tax Contribution
2010
countries' tax legislation, and tax
compliance-related functions which
domestic companies are required to
perform to meet compliance
requirements under foreign tax
legislation. We requested the annual
total number of days during which
employees were engaged in tax
compliance activities, by tax item and by
job grade (general managers, managers,
assistant managers, and non-managerial
employees). For each job grade, we
obtained the cost of tax compliance by
multiplying the number of days by the
average daily charge out rate. The
average daily compensation amount per
day was obtained from the FY 2008
Basic Survey on Wage Structure using a
sampling of companies with 1,000
employees or more. Outsourcing cost
and amortisation of internallydeveloped computer systems were
included in the scope of domestic tax
compliance.
For the cost of international tax
compliance, we limited the scope of
taxes to corporation taxes and
calculated the annual total number of
days by job grade similarly to the
domestic tax compliance. Outsourcing
costs were also included in the scope.
¥116.77 million was spent for domestic
tax compliance and ¥44.3 million for
international tax compliance. The
average costs of corporation taxes
compliance per participant was ¥89.3
million. 55% of the total tax compliance
cost was incurred for the administration
of corporation taxes. Given that the
corporation taxes represent only 24% of
the sum of Japan's national and local
taxes (less personal income tax and
inheritance tax), this demonstrates that
the corporation taxes is ineffective tax
with associated compliance cost of over
50% of total tax compliance cost.
On the other hand, consumption tax
represents a minor percentage (3%),
which is a characteristic of tax
compliance cost incurred in Japan.
Figure 37. Compliance costs split by type of tax
Fixed assets tax
2%
Stamp tax/
Registration and license tax
1%
Others
6%
Consumption tax
3%
Withholding income tax
from salary/
Withholding
inhabitant tax/
Social security
contributions
33%
Corporate
income
tax
53%
Corporate inhabitant tax/
Enterprise tax
2%
Figure 38. Components of tax compliance costs for corporation taxes per company
(yen)
Compliance cost for corporation taxes
89.30 million
Components
Domestic tax compliance (labour costs)
34.70 million
Domestic tax compliance (outsourcing and other costs)
10.29 million
International tax compliance (labour costs)
12.23 million
International tax compliance (outsourcing and other costs)
32.07 million
The table shows the make-up of average tax compliance costs for a company in the study;
classified between domestic and international, distinguishing between internal and external costs.
2010
Total Tax Contribution
43
Simplification of taxation system will
require consideration of both domestic
and international taxes. The largest
component of the international tax
compliance cost relates to transfer
pricing taxation (52%), followed by
foreign tax credits (21%), and the CFC
rule (anti-tax haven legislation) (13%).
In the 2009 tax reform, the foreign
dividend exemption rule was
introduced, and in the 2010 tax reform,
the trigger tax rate under the CFC rule
was reduced from 25% to 20%. Results
from our surveys in the next and
subsequent years will clarify whether
these reforms were effective or not to
reduce the cost of tax compliance. On
the other hand, certain measures should
be taken in relation to the transfer
pricing taxation system, for which more
than 50% of international tax
compliance cost is incurred in view of
reducing the burdens imposed on
businesses.
Figure 39. International tax compliance cost
Others
14%
Foreign tax
credits
21%
Transfer
pricing
taxation
52%
CFC rule
13%
The chart shows average international tax compliance cost for a company in the study split by type
of tax.
Survey participants were also asked to
list “three items that impose the heaviest
administrative burden and largest cost
(e.g. difficult to manage using computer
system, a significant number of
personnel is required, etc.)." The top
44
Total Tax Contribution
2010
three responses were “responses to tax
investigations", “adjustments in filing
corporation taxes return" and
“preparation of attachments to
corporate income tax return".
Figure 40. Items that impose the heaviest administrative burden and largest cost
Responses to tax investigations
66
Adjustments in filing a final tax return for differences
between accounting and taxation rules
51
Attachments to corporate income tax return form
34
Calculation of value-added-based enterprise tax
25
Filing of local tax return for each municipal government
20
Withholding of employee income tax, etc.
20
Calculation of consolidated tax payment
17
Management of depreciable asset ledger
(accounting, national tax, fixed assets tax)
14
Filing of amended return for multiple prior periods
due to corporation tax correction
10
Calculation of consumption tax credits
on taxable purchases
9
Filing of business premise tax return
7
Administrative affairs for electronic filing
3
Others
3
Stamp tax management
1
Calculation of income tax on financial income
(e.g. dividends and interests)
1
0
10
20
30
40
50
2010
60
70
Total Tax Contribution
45
Section IX.
International comparisons
Overall comparison
Prior to the Total Tax Contribution
survey in Japan, PwC conducted similar
TTC surveys in nine countries
worldwide including the UK and the US
since 2004. In those countries, the
survey was conducted jointly with such
organisations as The Hundred Group in
the UK and Business Roundtable in the
US. In the US, taxes paid by survey
participants represents 3.0% of the
government receipts (TTC in the survey
focused on FY 2007: $94 billion; the
number of participants: 40 companies).
In the UK, the participants contributed
13.1% in taxes to the public finances
(TTC in the survey focused on FY 2009:
£58.9 billion; the number of
participants: 86 companies).
In comparison to these countries,15
Japan has the highest Total Tax Rate of
58.3%, for the financial year ended in
March 2009, when Japanese companies
were hit by the economic downturn.
When comparing Japan's TTR to that of
the UK for the same period, there is a
gap of 16.7% between the two countries.
15 The Total Tax Contribution survey is conducted by PricewaterhouseCoopers in various
countries using an internationally consistent framework. Therefore, the international
comparisons discussed in this section are based on the results of previous surveys that
were conducted in such countries for different financial years.
46
Total Tax Contribution
2010
Figure 41. International comparison of Total Tax Rate
16
80%
70%
58.3%
60%
52.1%
50%
42.8%
41.6%
40%
27.6%
30%
35.1%
31.8%
31.0%
30.2%
41.6%
40.0%
20%
10%
09
Ja
pa
n
n
20
20
08
06
pa
gi
el
A
B
us
Ja
um
20
20
07
9
S
U
K
tr
U
al
2
20
ia
a
di
In
th
S
ou
00
0
0
20
20
a
ic
fr
A
8
8
08
6
0
20
s
nd
la
er
h
et
N
S
w
C
it z
an
er
la
ad
a
nd
2
20
00
07
7
0%
Corporation taxes
Employment taxes
Other taxes borne
Chart shows the mean average TTR in each country split by corporate income tax, employment taxes and other
taxes borne
We estimated effective corporation tax
rate,17 tax rate in narrow sense, and the
Total Tax Rate separately for Japan, the
US, and the UK. We found that the
effective corporation tax rate for Japan
was higher by approx. 8% than that for
the US, although the two countries have
a similar level of nominal effective tax
rate in the range of 40-50%. Comparing
the UK and the US, the UK had a lower
effective corporation tax rate than the
US, but the same level of tax rate in
narrow sense (incl. employers' social
security contributions and related taxes)
and the Total Tax Rate. Japan was
approx. 8% higher than the two
countries for all indicators of effective
corporation tax rate, tax rate in narrow
sense, and the Total Tax Rate.
16 The latest values of each country are used because the timing of the survey and the
financial year covered by the survey differ depending on the country.
17 Effective corporation tax rate = Amount of corporation taxes paid/Net profit before tax
2010
Total Tax Contribution
47
Figure 42. International comparison of effective corporation tax rate, tax
rate in narrow sense, and Total Tax Rate
60%
50.4%
50%
41.6%
40%
44.5%
42.8%
34.7%
35.5%
35.3%
27.8%
30%
22.4%
20%
10%
0%
UK
US
TTR
second highest next only to Belgium for
FY 2008. It is higher than the UK and
the Netherlands (in FY 2007) when
businesses reported healthy business
performance.
It is commonly recognised that Japan is
a jurisdiction with a low social security
contribution rate. However, when
focusing on ‘employment taxes'18 only in
Figure 41 above, the level of employers'
social security contributions was the
Figure 43. Japan
Tax rate in narrow sense
Effective corporation tax rate
International comparison of employment taxes
80%
70%
60%
50%
40%
30%
20.8%
18.8%
20%
3.5%
10%
3.5%
1.0%
0.5%
11.1%
8.3%
5.6%
12.9%
11.9%
06
20
09
um
n
B
el
gi
pa
Ja
la
er
it z
20
20
nd
20
n
w
K
U
07
08
09
20
07
20
S
U
pa
S
he
et
A
Ja
tr
rl a
al
nd
ia
s
20
20
06
08
07
20
a
ad
an
C
us
N
S
ou
th
Af
In
di
ri c
a
a
20
20
08
08
0%
18 For Japan, the only employment tax borne is social security contributions borne by
employers. For other countries, taxes withheld from personal income and borne by
employers are also recognised as people taxes.
48
Total Tax Contribution
2010
Comparison by industry
We conducted an international
comparison between Japan and other
countries (the UK, the US, India,
Belgium, and South Africa) for the
manufacturing industry. In the
comparison, each country's industrial
structure and data comparability were
taken into consideration. Due to the
limited number of samples in the
population, the median value was used
in the international comparison by
industry to eliminate any bias in the
results. Japan had the second highest
Total Tax Rate of 47.9% following
Belgium. It was higher than the US and
India by some 10% and 25%
respectively.
Figure 44. International comparison of Total Tax Rate for the manufacturing industry
60.0%
54.2%
50.0%
40.0%
30.0%
38.7%
42.5%
44.9%
US
South Africa
UK
47.9%
23.7%
20.0%
10.0%
0.0%
India
The composition of taxes borne was
examined for the manufacturing
industry. In order to ensure
international comparability, the taxes
Belgium
Japan
borne were divided into profit taxes,
property taxes, people taxes, production
taxes, and planet taxes.
2010
Total Tax Contribution
49
Figure 45. Composition of taxes borne by manufacturing industry
(international comparison)
100%
90%
Planet
80%
70%
Product
60%
People
50%
40%
Property
30%
20%
Profit
10%
0%
UK
US
India
India had a very high profit tax rate of
76.2%, and the US had a relatively high
property tax rate. The UK had a low
profit tax rate but a higher people and
property tax rates compared to other
countries. Belgium had the highest
percentage of people tax rate.
Belgium
South Africa
Japan
Tax compliance cost
The ratio of total tax compliance cost to
total taxes borne was calculated for each
company and a mean average was taken
over all survey participants. As a result,
it was found that Japan had a ratio of
0.78 %, which was relatively low
compared to other countries.
Figure 46. International comparison of tax compliance cost and number of staff
50
3.50%
2.90%
43.9
3.00%
45
40
2.50%
35
2.00%
2.00%
1.60%
1.50%
1.00%
0.50%
30
1.70%
25
1.30%
20
15
0.78%
8.6
12.7
10
2.5
Japan
Switzerland
7
5
0.00%
0
UK
US
South Africa
Tax compliance cost as a percentage of total taxes borne
Total number of staff in central and shadow tax departments
50
Total Tax Contribution
2010
10
Australia
Closing
This TTC survey covered all tax items
which companies actually bear, and
analysed the data collected in the same
framework as in other countries. We
hope this report will provide a useful
perspective and actual data when
considering future tax reforms and
competitiveness of Japanese businesses.
We thank the 95 leading companies for
their participation in this first survey.
We would appreciate if they would
participate in the next survey. We also
welcome the participation of more
companies from various industries or of
medium/small sizes. We will make all
efforts so that this survey will gain more
statistical importance and social
recognition in Japan.
Total Tax Contribution Team
Kan Hayashi
Advisor/CPA, Certified Public Tax Accountant
He is fully dedicated to international tax service for
Japanese multinational clients and was as a partner at
PwC Japan Tax for more than 20 years. He is a
member of the BIAC Japan tax committee and Japan
Tax Institute.
Fumiko Amano
Senior Manager/ German Tax Advisor
She graduated from Tokyo University in 1996 and
started her first career at Ministry of Home Affairs.
She obfained a master degree from London School of
Economics in 1999. She joined PwC Germany 2001
and has been seconded to PwC Japan Tax since 2008.
She is specialized in tax consulting for outbound
investments and European VAT consulting.
2010
Total Tax Contribution
51
PwC Total Tax Contribution publications
Total Tax Contributions
By country
United Kingdom
Australia
Belgium
Total Tax Contribution:
PricewaterhouseCoopers LLP
2009 survey for The Hundred
Group in the UK
What is your company’s Total Tax
Contribution?
Total Tax Contribution:
PricewaterhouseCoopersand
the Federation of Enterprises in
Belgium 2009 update
Published
2010
Total Tax Contribution
PricewaterhouseCoopers LLP 2009 survey
for The Hundred Group
Published
2010
Published
2009
Total Tax Contribution
?
an
on
l
i
mp
t
a
co
t
Toax tribu
T on
C
t
ha
W
PricewaterhouseCoopers
and the Federation of Enterprises in Belgium
2009 update
r
ou
is y y’s
08
20
s
ult
es
yr
rve
su
Canada
India
South Africa
Total Tax Contribution Canada’s
Tax regime: complexity and competitiveness in
difficult times
Total Tax Contribution: How much in taxes do Indian
companies really pay?
Total Tax Contribution: What is the actual contribution of
large companies to the fiscus in
South Africa
Published
2009
2008 Survey
Published
2009
Total Tax Contribution
Industry
Tax
Total Tax Contribution
2008
How much in taxes do Indian companies really pay?*
What is the actual contribution of large
companies to the fiscus?
May 2009
*connectedthinking
Total Tax Contribution 2008
Canada’s tax regime: complexity and competitiveness in difficult times*
*connectedthinking
United States
Switzerland
Total Tax Contribution How much
do large U.S. companies pay in
taxes?*
Total Tax Contribution
Published
2009
How much do large U.S. companies pay in taxes?
Total Tax Contribution
Total Tax Contribution
Combien les grandes entreprises paient-elles d’impôts en Suisse?
Total Tax Contribution
52
How much income tax do large
companies pay in Switzerland?
2010
Published
2009
Published
2009
By industry
Total Tax Contribution:
PricewaterhouseCoopers LLP study of the
UK Financial Services
Sector for the City of London Corporation
Total Tax Contribution
PricewaterhouseCoopers LLP study of the UK Financial Services
Sector for the City of London Corporation
Published
2009
Total Tax Contribution:
A study of the economic contribution
mining companies make to
public fi nances
Total Tax Contribution
A study of the economic contribution mining companies make to
public finances
Published
2010
Paying Taxes
Paying Taxes 2011: The global picture
Published
2010
All publications can be found at: http://www.pwc.co.uk/eng/issues/total_tax_contribution.html
2010
Total Tax Contribution
53
About PwC
The firms of the PwC network provide industry-focused assurance, tax and advisory services to enhance value for clients. More than 161,000
people in 154 countries in PwC firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and
practical advice. For more information see www.pwc.com.
About Zeirihi-Hojin PricewaterhouseCoopers
The Tax Practice of PricewaterhouseCoopers Japan (Zeirishi-Hojin PricewaterhouseCoopers) is one of the largest professional tax corporations in
Japan with more than 560 people. In addition to tax compliance services our tax professionals are experienced in providing tax consulting advice
in all aspects of domestic/international taxation including financial and real estate, transfer pricing, M&A, group reorganization, global tax
planning, and the consolidated tax system to clients in various industries.
© 2010 Zeirihi-Hojin PricewaterhouseCoopers. All rights reserved.
In this document, “PwC” refers to Zeirihi-Hojin PricewaterhouseCoopers, which is a member firm of PricewaterhouseCoopers International
Limited, each member firm of which is a separate legal entity.
This document has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not
act upon the information contained in this document without obtaining specific professional advice. No representation or warranty (express or
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Issued in December 2010
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