This time, some commentary. There was news that disciplinary actions against tax accountants reached a record high of 59 cases in FY2014.
The number of tax accountants and tax accountant corporations receiving disciplinary action from the National Tax Agency for such conduct as advising tax evasion is increasing. The 59 actions in FY2014 were the most ever, about three times the number 10 years earlier. The background is thought to include more intense competition to acquire clients as the number of tax accountants increases, and the Japan Federation of Certified Public Tax Accountants’ Associations intends to strengthen its guidance through ethics training.
[Omitted]
In tax-evasion cases, the Tokyo District Public Prosecutors Office Special Investigation Department has repeatedly taken enforcement action against tax accountants. A defendant in their 70s who was formerly a tax accountant, who was indicted in October and November for two violations of the Corporation Tax Act, was also a former official of a regional taxation bureau, whose job was to keep a watchful eye on tax evasion. Another tax accountant was also indicted in the case, and a senior prosecutor observes that “in recent years, cases of people doing borderline work for money have stood out.” (December 5, 2015, Mainichi Shimbun (Japanese))
By the way, checking the National Tax Agency’s information now, it appears to be 33 cases as of November 2 (National Tax Agency website: Disciplinary Actions, etc. Against Tax Accountants and Tax Accountant Corporations (Japanese)).
The prevailing line of argument seems to be: “the number of tax accountants increases → competition intensifies → more tax accountants engage in improper conduct → disciplinary actions increase” (for example, September 22, 2015, Nikkei (Japanese)).
I find that very hard to accept.
Competition certainly has intensified. The fee regulations were abolished in the 2002 revision of the Tax Accountant Act, allowing flexible fee structures, so price competition is fierce.
However, the cases subject to disciplinary action and the like can mainly be divided into three types, and looking at them, I get the impression that saying they did it because fees fell misses the point.
Case 1: Preparing false tax returns
Reporting that a business is not doing well when it actually is. Until a few decades ago, unreported sales were fairly widespread in the restaurant industry. The spread of cash registers changed that to some extent. Tax office staff would stake out businesses, count customers, and investigate whether returns were accurate. We do not have clients like that, but I have heard of clients asking colleagues to leave sales off their returns. Of course, the tax accountant would refuse, admonish the client, and probably terminate the advisory agreement.
Case 2: Advising tax evasion
There is a wide range here too, but the conduct that results in discipline is quite malicious. For example:
There is suspicion that a tax accountant advised a Tokyo dating-site operator and a medical corporation on tax evasion, concealing total corporate income of approximately ¥1.3 billion and evading approximately ¥390 million in taxes (November 28, 2015, Asahi Shimbun (Japanese))
Using an advertising agency client as a conduit, the tax accountant booked fictitious advertising expenses and helped another company evade taxes (December 5, 2015, Mainichi Shimbun (Japanese))
It is difficult to draw the line between this and the “false tax return” in Case 1.
Case 3: Lending one’s name to someone who is not a tax accountant
This apparently happens very often, and the tax accountant associations are on edge about it. We tax accountants, too, are repeatedly instructed about it by the associations. Presumably because it accounts for the largest number of disciplinary actions. For example, there is a case like this.
While subject to a disciplinary action prohibiting practice, the person conducted business under another tax accountant’s name and allegedly evaded a total of approximately ¥136 million in income tax and consumption tax — [omitted] — Acting in conspiracy, the former tax accountant suspect, who had been disciplined and prohibited from practicing as a tax accountant in Heisei 23 [2011], changed the office name and continued operating under the name of another tax accountant suspect. From that year through Heisei 25 [2013], the suspects allegedly hid approximately ¥259 million of the former tax accountant suspect’s income by filing final tax returns under the name of the other tax accountant suspect and booking fictitious outsourcing expenses. (December 2, 2015, Sankei WEST (Japanese))
In this case, it is completely out of bounds. However, cases are not always this simple.
As part of BPO (business process outsourcing), it has also become common to outsource an accounting department externally. Since accounting and tax cannot be separated, companies that borrow a tax accountant’s name to provide broad services that include tax work are also seen as problematic.
In short, it has become a difficult world in which even the licensed professions face intense competition.
The prevailing narrative and the reality are different things.
As I think you will feel after reading this, there seems to be little causal relationship between advising tax evasion worth hundreds of millions of yen or lending one’s name and a lower level of advisory fees.