Japan and U.S. team up to tackle international tax evasion

July 25, 2012


Tax authorities in Japan and the United States will join forces to more effectively crack down on international tax evasion.

As part of an agreement reached this month under the Japan-U.S. tax treaty, Japan's National Tax Agency and the U.S. Internal Revenue Service (IRS) will be able to share information more effectively and conduct criminal investigations simultaneously.

The accord, the National Tax Agency’s first with a foreign tax authority, is intended to strengthen oversight of increasingly complex international transactions.

Keiji Aoyama, professor of tax law at Waseda University’s Graduate School of Accountancy and former deputy commissioner of international affairs at the agency, said the move will speed up investigations.

“If the two agencies can investigate a suspected tax dodger at the same time and create an accurate picture of the case, they will be able to confirm in a timely manner whether a transaction was committed by concealing or falsifying information,” he said.

According to sources in the agency, simultaneous investigations will likely cover cases in which a parent company in Japan and its subsidiary in the United States scheme to dodge taxes, or in which individuals in the two countries cheat on their taxes at the instruction of tax consultants.

In the past, it took up to two months for Japanese investigators to obtain information they had requested from the IRS because the two sides contacted each other through written documents.

That system prevented Japanese officials from moving swiftly to secure important evidence in suspected cases, according to the sources.

Under the new agreement, Japanese and U.S. investigators will coordinate details of their probes, including dates and locations, through video conferences and visits to each other’s office. They will also discuss what questions should be asked during interviews of suspected tax dodgers in order to file a criminal complaint in their countries.

The agency is expected to cultivate personnel who can communicate with foreign investigators without interpreters to fully benefit from the bilateral arrangement.

The National Tax Agency has a staff of about 1,400 investigators, commonly known as "marusa," who crack down on large tax evasion cases. The investigators filed complaints in about 117 cases in fiscal 2011.

The IRS, based in Washington DC, has a staff of about 2,700 special investigators in charge of tax evasion, money laundering and drug cases, and in the previous fiscal year opened about 1,600 such cases.

Cross-border tax evasion cases are on the rise, according to observers.

In fiscal 2011, one case was uncovered in which a transaction between companies in Japan was disguised as one between a Japanese company and a business in the British Virgin Islands, a well-known tax haven. The money from the transaction was hidden in Singapore.

There were 13 cases in which the National Tax Agency exchanged information with foreign tax authorities, according to agency officials, and the agency acted on five cases at the request of its foreign counterparts.

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