We conduct business within the framework of society's rules.
Taxation is one of the foremost parts of that framework.
This time, I have one frightening little story from the world of tax.
It is a case in which a small oversight resulted in an enormous loss.
The tax was paid, but the filing document was forgotten!
Everyone makes mistakes. There is no such thing as a person who never makes a mistake.
Even people who are normally sharp can have a moment of carelessness and make a mistake.
What happens when you make a mistake in tax matters...?
This is what happens. They were required to pay an additional ¥1.2 billion in tax.
There is a special provision extending the filing deadline for consumption tax for corporations, while business office tax has no filing-deadline extension system except in disasters and similar circumstances
Government administration often falls short just where you need it most. Although the filing deadline for corporate tax and similar taxes can be extended, for some reason business office tax has no extension except in disasters and similar circumstances. However, at present, corporations that receive the special provision extending the corporate-tax filing deadline may, by filing a notification, extend their final consumption-tax return deadline by one month.
This time I will introduce a mistake arising from such a system. The reason for the mistake was that they thought they were safe because they had requested an extension of the deadline.
Kansai Electric forgot to submit its return
- June 2, 2003: Calculated and paid consumption tax within the filing deadline
- June 13, 2003: Realized that it had forgotten to submit the return and submitted its consumption-tax return
- September 30, 2003: Received from the tax office a notice of an assessment decision imposing a ¥1.2 billion non-filing penalty tax
- September 20, 2004: Filed an administrative lawsuit in the district court seeking cancellation
- September 16, 2005: The district court dismissed the claim
- September 22, 2005: The company commented that it would pursue the matter no further
¥1.2 billion simply for forgetting to submit it. In fact, that ¥1.2 billion was reduced in consideration of various circumstances, and the amount would normally have been several times greater.
I think many companies are reducing costs in their administrative divisions, but as managers, let us firmly recognize that even a small mistake by an administrative division can potentially create such an enormous risk.
Now, this case even went to court. Part of the court's written judgment was as follows. The phrase “no arguments accepted” feels fitting.
It is appropriate to understand “justifiable grounds” to mean cases in which there is no reason attributable to the taxpayer for the failure to submit a return within the deadline, and in which imposing an additional tax as a sanction would be considered improper. In this case, the reason X did not submit a tax return for the consumption tax and similar taxes for the tax period in question within the statutory filing deadline comes down to the fact that X simply forgot to submit that return, a failure for which X alone was responsible; imposing a non-filing penalty tax as an administrative sanction on X, who failed in this way to submit a tax return within the deadline, cannot be considered improper in any respect in light of the purpose of the law.
In response, the company commented:
~ Omitted ~
Although we lost the case, we believe that there was a certain significance for the Company in seeking a judicial determination rather than leaving the matter to the discretion of the administrative authority.
We sincerely apologize for causing concern to everyone as the matter developed into litigation due to the procedural mistake of the delayed submission of a final consumption-tax return, and we will strive to implement even more thorough measures to prevent a recurrence so that we never again cause such a situation.
In fact, in response to this case and others, the administrative rules changed slightly. A new route to relief was created for cases where payment had already been made and the mistake was procedural.
“Where a late return is submitted within two weeks of the statutory filing deadline, and where, among other things, the circumstances are recognized as showing an intention to submit a return within the deadline, such as where the amount of tax payable by the statutory payment deadline has been paid, the non-filing penalty tax will no longer be imposed.”
Two weeks is a short time, isn't it? It says two weeks, but in reality the closer one gets to that two-week limit, the less likely it is to be recognized, so in practice we prepare and submit it “as soon as possible.”
At present, a non-filing penalty tax will not be imposed where all requirements are met, including voluntarily filing a late return within one month from the statutory filing deadline and having paid the full amount of tax by the statutory payment deadline, and where an intention to file within the deadline is recognized (Article 66 of the General Rules for National Taxes Act).
Regarding the period for submitting late returns covered by the rules for relief from the non-filing penalty tax, approximately 70% of late-return cases (for corporate tax) in which payment had been made within the deadline had their late return submitted within two weeks. In light of the fact that this was not necessarily sufficient as a relief system for sincere taxpayers, this amendment extends the period to within one month from the statutory filing deadline (before the amendment: within two weeks).
Of the corporate-tax late-return cases in which payment was made within the deadline, about 70% had the return submitted within two weeks.
Urban legends about the Kansai Electric consumption-tax non-filing penalty tax case, whose truth is uncertain
- The person in charge put it in a desk and forgot about it
- The person who actually made the mistake was a tax accountant
Various rumors circulated.
The rate of tax-accountant involvement in corporate-tax returns for fiscal 2024 was 89.8%. If a tax accountant's careless mistake caused a ¥1.2 billion non-filing penalty tax like the one in this case, liability for damages against the tax accountant would likely be unavoidable.
Professional liability insurance for tax accountants is optional, and its coverage depends on the terms of the policy. If ¥1.2 billion in damages were awarded and became final, bankruptcy would ordinarily follow. A person who has received a decision commencing bankruptcy proceedings and has not obtained reinstatement is not qualified to be a tax accountant.
Let us work carefully with a tax accountant on tax matters so that we do not make mistakes
The 2015 article stated as follows.
No matter how excellent a company is, people do the actual work, so mistakes will inevitably occur.
The right approach is to partner with a reliable outside tax accountant to prevent mistakes.
It is far better to operate properly and pay modest regular costs than to face a sudden, enormous tax demand.
How was that?
When there is a procedural mistake, there is no room to argue back.
Let us run our companies so that we do not make careless mistakes.