The Tax Office auditors seems to like visiting Hirafu as much as the tourists – many of the larger gaijin businesses here have been audited once if not twice in the last few years. As much as anything, it’s an awful drain on resources as it ties up staff in meetings and in digging out information going back up to six years.
If your business uses a Japanese tax agent, the Tax Office will deal directly with your agent rather than the business owners so it helps to have an agent on your side. Some tax agents charge extra for working on a tax audit whereas with others, it’s included in your annual fee. That’s something to be aware of if you’re shopping around for a tax agent.
There seems to be no shortage of auditors at the Tax Office and they could easily outnumber your accounting staff by sending about six auditors out on site. Remember that there are municipal, prefectural and national tax offices and different types of taxes so representatives from a variety of tax offices may want to be part of the action. Don’t expect a short sharp visit, either. They may stay for a week or more on site and their enquiries could drag on for another six months or more after that.
One of your best defenses against a tax audit is, of course, to keep proper books of account backed up by a good filing system so you can retrieve information easily.
Is there any good news, I hear you ask. Well, tax auditors in Japan seem to be a lot more amicable and tolerant than those in the west. They seem to understand that you’ve got a business to run and that their work is at the outset probably just a routine inspection; just because they’ve chosen to audit you it doesn’t mean they’re going for the jugular. If they do find any irregularities, penalties, late fees and repayment options are relatively lenient.
With the Olympus and AIJ scandals throwing doubt on Japanese business ethics at the top of the heap, you would think that the tax auditors would leave us alone but I guess, just like the rest of us, it’s the powder that keeps bringing them back.