Revision of Consumption Taxation on Cross-border Supplies of Services
Question:
Does the revised Consumption Tax (C-tax) Law requires foreign businesses to file the tax return in Japan, if they provide electronic service to customers in Japan?
Answer:
Foreign businesses providing electronic services to customers in Japan are not required to file the C-tax return as long as their services are “B2B electronic services.” On the other hand, customers have the obligation to file the tax return on behalf of the foreign businesses.
There are two categories of electronic services the following:
< B2B electronic services >
Distribution of advertisements on the internet.
Provision of market-place to sell application software including games at the websites on the internet, etc.
* Among provision of electronic services conducted by foreign businesses, “provision of services that normally are limited to businesses, considering the nature of the services, or the terms and conditions relating to the provision of the services” are classified as the provision of B2B electronic services. For the detail of classification, please refer to TOMA Consultants Group.
< B2C electronic services>
Provision of e-books, music, and videos that is generally provided for consumers.
Services that state on a website that they are intended for business use, but that cannot effectively restrict applications from consumers and others those who are not in businesses, etc.
* The “provision of B2C electronic services” is not limited to services that only consumers receive but also include services received by businesses.
In the case of B2B electronic services, a Japanese corporation, or business proprietor, receiving the services provided is liable to file and pay C-tax, instead of foreign businesses that provide the services. It is the obligation of the customers in Japan, they must declare the C-tax on sales of service provider overseas, as well as the C-tax on their purchase. The amount of sales C-tax and purchase C-tax above should be obviously same. It is the new taxation scheme called a “Reverse Charge Mechanism.”
Foreign businesses providing B2B electronic services are required to notify the service recipient beforehand that the transaction is subject to a “Reverse Charge Mechanism” when providing B2B electronic services. The notice must be easily recognizable for the service recipient. Although they are not obliged to file the tax return by themselves, they have to notify the obligation of customers.
Regarding the other case, i.e. B2C electronic services, “Reverse Charge Mechanism” is not applied.
【Reference】