Further to our previous posts on this topic (here, here and here), the Japanese tax authorities recently issued a new Consumption Tax Law Basic Circular (Circular – in Japanese) as well as further guidance on electronically supplied services to provide further clarity on the Japanese Consumption Tax (JCT) impact of the new rules on an Offshore Business Person. In particular the leaflet further explains what is considered to be “B2C Telecommunication Online Services” (Links in Japanese for the leaflet for business customers and off-shore suppliers and to general Q&A).
The provision of B2C Telecommunication Online Services is defined on a residual basis and means that any provision of Telecommunication Online Services which does not constitute the provision of B2B Telecommunication Online Services by an Offshore Business Person, is in fact a B2C supply.
The Circular specifies the following examples for B2B supply of Telecommunication Online Services:
- It is clear in the objective view of the nature of such services such as an advertisement on the Internet that the recipient is normally a business Person.
- It is a provision of Telecommunication Online Services, which is based on a contract concluded with the business person and it is clear that the services will be used for business purposes.
It is interesting to note that electronically supplied services, such as e-books, music, games, various software and applications which can be used for both business (B2B) and private (B2C) purposes (Circular 5-8-4: “to the extent that any consumer makes an application to use the services and such application cannot be restricted in fact”), will always be regarded as provision of B2C Telecommunication Online Services, even if the terms and conditions indicate otherwise.
Under the new Consumption Tax Law, input tax credit on a taxable purchase of B2C Telecommunication Online Services on or after 1 October 2015 is only possible if the supplier is a “Registered Offshore Business Person” and the invoice or purchase receipt includes the registration number of the supplier and the special indication that the supplier is liable to account for consumption tax. (This is required in addition to the five regular invoicing attributes, namely i) supplier’s name, ii) transaction date, iii) description of the products / services, iv) amount inclusive JCT and v) purchaser’s name). A “Registered Offshore Business Person” is defined as an Offshore Business Person (limited to a taxpayer who does not have tax-exempt status) who satisfies certain conditions and submits an application to the Japanese National Tax Agency (“NTA”) Commissioner on or after 1 July 2015 and is duly registered with the NTA Commissioner.
A transitional measure is also introduced to deal with any continuous provision of electronically supplied services which is based on a contract concluded before 1 April 2015 and span over 1 October 2015. These supplies will be exempt from the new rules, except for cases where a contract or a renewal is made on a monthly basis or a contract term is changed. In cases where a contract is concluded on or after 1 April 2015, 8% JCT for the contract period completed during the period from 1 October 2015 to 31 March 2017 may be assessed under the new rules.
What does it mean for you?
As some of the B2B supplies can be regarded to be supplied to B2C purposes (as described above) you would need to pay special attention to evaluate if your supplies trigger a JCT registration obligation for you in Japan. In addition, as the effective date is fast approaching and the registration process also takes some time, not to mention any system changes you may need to deal with, it is high time to have an action plan in place.