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Be wary of your investments -- the TAXMAN is watching

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  • Originally posted by chainbolt View Post
    .....of course when your home tax office is reporting income at home to the NTA (which seems to be regularly the case for US, UK and Australian citizens) and you "forgot" to declare it here.
    What do you mean by “home tax office?" Are you referring to the tax authorities back in your own country?

    If so, the US Internal Revenue Service (IRS) doesn`t regularly provide NTA with a copy of my US tax return. It fact it doesn`t do it at all unless requested


    Originally posted by chainbolt View Post
    .... If anything, a transfer could be a trigger for an audit -
    It`s my understanding it isn`t the transfer which triggers the audit but the amount of money being sent which catches the attention of the tax authorities.

    Comment


    • Originally posted by Ken44 View Post
      If so, the US Internal Revenue Service (IRS) doesn`t regularly provide NTA with a copy of my US tax return. It fact it doesn`t do it at all unless requested
      I don't know how it works. But the US, UK, and Australia, and some other countries have special tax agreements with Japan regarding the exchange of income tax related information. They report any sort of income they know about, including interest and dividend payments of their nationals to the NTA. I cannot imagine though they know everything and that each and every $$ get reported, but clearly such exchange takes place

      An objective of Japan’s 2010 tax reform program has been the extension of the network of tax treaties that allow Japan to exchange taxpayer information with tax authorities in other jurisdictions. Such extension should be of help in allowing Japan to more effectively pursue international tax evasion.
      Source: http://japantax.org/?p=3131 and here: http://www.nta.go.jp/shiraberu/zeiho...0623/index.htm

      I do know, for example, with 100% certainty that the Australian tax authority is proactively (not only on request) informing income of Australian citizens living in Japan to the NTA.
      Last edited by chainbolt; 2012-04-29, 11:58 PM.

      Comment


      • An old thread, but I've enjoyed reading it enough that I've registered, if only to thank all the posters for sharing on the preceding pages.

        Thanks!

        Comment


        • Originally posted by chainbolt View Post
          I don't know how it works. But the US, UK, and Australia, and some other countries have special tax agreements with Japan regarding the exchange of income tax related information. They report any sort of income they know about, including interest and dividend payments of their nationals to the NTA..
          No they don`t.

          The US IRS is not required to report US income to the NTA unless requested and the NTA isn`t required to report Japanese income to the US IRS unless requested.

          In other words if you don`t draw attention to yourself with large sums of money flowing into either the US or Japan you shouldn`t have any problems.
          Last edited by Ken44; 2012-05-26, 10:14 PM.

          Comment


          • The FSA's Bureau of Supervision is required to oversee all transactions between Japanese and non Japanese banks. They are required to receive and check reports on all transactions made between banks for both Japanese and non Japanese nationals. Some non Japanese banks have been filing these reports on a regular basis whereas others only file upon being specifically requested to and others will only file these reports when they have been ordered to do so by the appropriate legal authorities.

            The above is direct from the horse's mouth.

            Comment


            • Without a request from NTA there would be no reason for the IRS to report US source income by Americans living in Japan.

              Nor would NAT be sending over tax information pertaining to US citizens here to the IRS without cause.

              I`ve never heard of an instance where IRS decided to randomly request foreign tax information on a US citizen living a broad. There was always a reason for the investagaton.

              Yes, random checks without cause/suspicion can be made by either the IRS or NAT (see below) but isn`t cost effective and likely a waste of time esp. for wage earners making under a 100 grand a year. The idea that the US govt is secretly sending tax info to Japan regarding US source income or NAT doing the same is just more gaijin paranoia.

              I wouldn’t worry too much as long as you keep a low profile regarding the amount of money you send/receive.



              How Does the IRS Get Information About Foreign Source Income and Foreign Transactions?

              While the IRS does not have the same level of information reporting on foreign source income as it does for U.S. source income, they do have several means by which they can secure information on foreign source income and transactions. The U.S. has over 60 bilateral tax treaties with other countries, and over 20 Tax Information Exchange Agreements (TIEA) in effect with various countries and jurisdictions where a bilateral tax treaty is not in place. These treaties and agreements facilitate the exchange of information, and generally allow for mutual assistance for both civil and criminal investigations. The tax treaties allow for information exchange by specific request, and in most cases, through spontaneous and automatic exchanges as well.

              Specific requests allow treaty partners to request and exchange information relative to a specific tax investigation or tax administration matter. A spontaneous exchange allows a country to spontaneously share information relative to tax administration that might be of interest to its treaty partner, even when a request has not been made. And the automatic exchange program allows treaties partners to routinely share information they maintain about income sourced in one country and paid to a resident of the other treaty partner country.

              As part of the IRS Servicewide Approach to International Tax Administration, there is a concerted effort to make better use of these information exchange tools and to coordinate with treaty partners to share information about international tax compliance issues.

              http://www.irs.gov/businesses/articl...180215,00.html
              Last edited by Ken44; 2012-05-27, 06:08 AM.

              Comment


              • Originally posted by Ken44 View Post
                No they don`t.
                I know for a fact that they do. I know this from the tax consultant (CPA), who is preparing my annual tax return. The company has hundreds of foreign companies and many of their expat managers as individual clients. He told me that he remembers several cases over the last 20 years where Australian, UK, and US citizens got audited by the NTA because of non-declared income that was reported by the tax office in their home countries. The last such case he told me happened last September (this is the usual audit time) for one of their Australian clients.

                In general the exchange of information between the tax authorities is based on mutual tax treaties between Japan and these countries. They are based on an OECD sample agreement. This indeed does not require the parties to exchange information pro-actively and in some cases national law would even prohibit this, as explained here:

                http://japantax.org/?p=3131

                The US however (and several other nations) has an agreement with Japan that is exceeding the OECD recommended exchange of information on request.
                Following are quotes from the US Japan tax treaty from 2004, as posted by the US treasury: http://www.treasury.gov/resource-cen.../tejapan04.pdf. Please go to Article 26 "exchange of information", Paragraph 1, page 103:

                Originally posted by Tax treaty US-Japan, page 103
                The article authorizes the competent authorities to exchange information on a routine basis, on request in relation to a specific case, or spontaneously. It is contemplated that the Contracting States will utilize this authority to engage in all of these forms of information exchange, as appropriate.
                and shockingly it goes even further:

                Originally posted by Tax treaty US-Japan, page 104
                A change in the domestic law of Japan in 2003 has allowed Japan to agree to this paragraph by similarly providing the competent authority of Japan with the power to obtain information for the exchange of information pursuant to a tax treaty regardless of whether Japan has a domestic tax interest in such information.
                I don't know whether they are "required" to exchange individual income tax related information on a routine basis, but the US Japan tax treaty is providing that they can and should do, because one purpose of the US Japan tax treaty is preventing tax evasion. And apparently at least occasionally they do.

                Originally posted by Ken44 View Post
                In other words if you don`t draw attention to yourself with large sums of money flowing into either the US or Japan you shouldn`t have any problems.
                This is probably true for most cases we discuss here. For practical reasons, I cannot imagine that local tax authorities start collecting information and reporting them to the Japanese NTA for smaller or occasional amounts of income from lets say dividend and interest income. I think the point here are long-term permanent residents who have constant income in their home countries that is exceeding a few thousand JPY. If you are such citizen of one of the countries Japan has a tax treaties with, I think the probability that such income is sooner or latter notified to the NTA is pretty high.

                The problem for a long-term permanent resident is that if once such non declared income is known to the NTA, they can go back up to 7 years (normally 5 years) and can impose heavy penalties.
                Last edited by chainbolt; 2012-05-27, 10:37 AM.

                Comment


                • Originally posted by chainbolt View Post
                  I know for a fact that they do.
                  No you don`t. What you know is what one person told you.

                  I`ll gladly take the advice of my tax attorney who clearly told me the IRS does not randomly or without cause elected to audit US citizen living abroad. Those who get flagged do so because a particular transaction or transactions caught their attention..

                  I have also spoken with Citibank in Japan and only transactions exceeding 1,000,000 yen are reported to NAT.

                  On the US side: cashier checks over $3000 are subject to scrutiny as are wire transfers over $10,000.

                  Know the rules and you`re fine regardless of how long you`ve been here.

                  Comment


                  • Originally posted by Ken44 View Post
                    No you don`t. What you know is what one person told you.
                    Right, a CPA of one one of the biggest accounting and tax consultancies in Japan (PriceWaterhouseCoopers), with hundreds of foreign clients has told me about a number of such cases. Furthermore, by the text of the US Japan tax treaty which I have posted it is evident that a "routine" exchange of information between the US's IRA and Japan's NTA to avoid tax evasion is legally possible and desired by the treaty. You are free to believe that a proactive exchange is not taking place. I would not. I say "would" because I am not US citizen.

                    In my case: The tax treaty my country has with Japan follows the OECD recommended wording to the word, and is unlike the US/Japan expressively stipulating that tax authorities exchange information only on request. And even this was confirmed by my tax consultant. He told that he does not recall a single case where one of their clients with the same nationality like me got audited because of undeclared income in my home country. Nonetheless, I assume that sooner or later such information anyway becomes known to the NTA by a routine audit, regardless of having certain money transfers (which of course enhance the risk) or not. As a long term resident here, I don't want to sit on a ticking time bomb, and hence each cent is declared.

                    As always, everybody has to decide based on his own situation what risk he is willing to take. Somebody who knows he will leave Japan sooner or later, comes maybe to a different conclusion.

                    Originally posted by Ken44 View Post
                    I have also spoken with Citibank in Japan and only transactions exceeding 1,000,000 yen are reported to NAT.
                    I got similar information from HSBC and Citi. For each of my transfers above 1,000,000 I anyway have to declare the purpose of the transfer on a given form which is as stated on the form reported to the Ministry of Finance. But this point we have already covered many times in this thread. That's really nothing new. A bigger transfer to and from abroad will automatically be noted by the NTA and might trigger investigation about the income generated by this money and its source. According to my CPA the NTA is by the way more interested in money transfers by residents to Japan, because they automatically assume that this money generated (undeclared) income abroad. But if you as an US citizens think you are "safe" in regard of your income abroad, just because you avoid high money transfers abroad, I think you make a mistake. The IRS can and for sure occasionally does report proactively US income to the NTA.
                    Last edited by chainbolt; 2012-05-27, 11:35 AM.

                    Comment


                    • Originally posted by chainbolt View Post
                      Right, a CPA of one of the biggest accounting and tax consultancies in Japan (PriceWaterhouseCoopers), with hundreds of foreign clients has told me about a number of such cases.
                      The fellow I uses is highly competent in both US and Japanese tax laws. He`s an accountant that specializes in international tax returns for foreign companies in Japan. He does my return as a favor and a bit of bit of pocket change.

                      Originally posted by chainbolt View Post
                      .... Furthermore, by the text of the US Japan tax treaty which I have posted it is evident that a "routine" exchange of information between the US's IRA and Japan's NTA to avoid tax evasion is legally possible and desired by the treaty.
                      Right and check what I posted a bit earlier direct from the IRS.
                      Yes, it possible for an exchange to take place without a request and I`m sure both the IRS and NAT do so with large corporation or companies. But individuals earning say 5-9 million yen a year? Get real. Unless a particular transaction is brought to their attention I seriously doubt.

                      Originally posted by chainbolt View Post
                      ...But if you as an US citizens think you are "safe" in regard of your income abroad, just because you avoid high money transfers abroad, I think you make a mistake. The IRS can and for sure occasionally does report proactively US income to the NTA.
                      Again I`m sure they do but mainly for companies or individuals they feel might be of interest. It`s not really any different than if you were living in the States. The higher the reported income or questionable deductions the higher the odds you get looked at. The odds of someone earning less than 100 grand randomly being audited in the States is almost nothing unless the IRS sees something questionable on the return.

                      Originally posted by chainbolt View Post
                      ... According to my CPA the NTA is by the way more interested in money transfers by residents to Japan, because they automatically assume that this money generated (undeclared) income abroad.
                      Yes, I`ve been told this as well but since I don`t transfer funds into Japan this really isn`t a concern.
                      Last edited by Ken44; 2012-05-27, 12:40 PM.

                      Comment


                      • Originally posted by Ken44 View Post
                        But individuals earning say 5-9 million yen a year? Get real. Unless a particular transaction is brought to their attention I seriously doubt.
                        It seems the proactive reporting by the tax authorities of certain countries that have such agreements with Japan such as Australia, UK and US to the NTA is driven by payments you receive and they become aware either because they are exceeding a certain threshold or they are continuously paid, such as a public pension. I think they would report this to the NTA even if your income in Japan is zero. Don't forget: In most countries such income is taxfree at the source for Japanese residents due to the tax treaty with Japan.

                        I agree that all this is probably largely irrelevant for most readers of this thread, because their income is either below the "relevant" level for the taxman to be interested, because their income abroad is minuscule, or they anyway know that they leave within a few years and don't care. For a long term permanent resident with certain assets here and abroad, such as the starter of this thread, I would recommend though that you come clean for peace of mind and to avoid serious payments for taxes due, accumulated interest, and penalty tax reaching back at least 5 years, if they get you.

                        Comment


                        • Originally posted by chainbolt View Post
                          It seems the proactive reporting by the tax authorities of certain countries that have such agreements with Japan such as Australia, UK and US to the NTA is driven by payments you receive and they become aware either because they are exceeding a certain threshold or they are continuously paid, such as a public pension. I think they would report this to the NTA even if your income in Japan is zero. Don't forget: In most countries such income is taxfree at the source for Japanese residents due to the tax treaty with Japan.
                          Yes, it certainly is plausible that if you have a US pension and it is being directly deposited into a J-bank questions might be asked by the NTA. However, if funds are deposited into a US bank why would NTA know? Why would they begin an investigation unless money or something dodgy coming into Japan caught their attention?

                          I find it hard to believe NTA sits around going, "Oh, this gaijin is 66 years old. He`s lived here 30 years. He must have money somewhere. Let`s check him out."

                          They do that a few times and they`re going to quickly learn it`s a waste. Many of the older gaijin teachers I know that have been here for years have little or nothing back home and are just barely hanging on in Japan.

                          But again I find it hard to believe NTA would request tax info regarding foreign source income unless they have a reason. We (teachers) simply do not earn enough to warrant such attention.


                          Originally posted by chainbolt View Post
                          I agree that all this is probably largely irrelevant for most readers of this thread, because their income is either below the "relevant" level for the taxman to be interested...
                          And my guess is 5-9 million yen a year teaching in Japan just isn`t a lot of money in the eyes of NTA.



                          Originally posted by chainbolt View Post
                          ...For a long term permanent resident with certain assets here and abroad, such as the starter of this thread, I would recommend though that you come clean for peace of mind and to avoid serious payments for taxes due, accumulated interest, and penalty tax reaching back at least 5 years, if they get you.
                          And I recommend speaking with an experienced CPA who deals with the tax laws in Japan as well as your own country. And while there are plenty of write-offs in the J-tax code I personally find the idea of being double-taxed unappealing.

                          I would also recommend having your tax returns in order in both countries. The U.S. IRS has a multitude of various write-offs and currently I pay no US State or Federal tax mainly because my income has been erased with past written-off now carried over. In simple terms my excuse is I haven`t actually earn any income in the US so I wasn`t aware I needed to declare anything in Japan. This is no justification but it might be seen in a more favorable light than those who are caught hiding hide funds by other means.

                          So learn to fly under the radar, keep your paperwork in order, know the tax laws in your own country and don`t believe the gaijin hype. A gaijin gets audited? It likely has nothing to do with NTA looking closer at gajiins and everything to do with the gaijin ____ing up.
                          Last edited by Ken44; 2012-05-28, 06:11 AM.

                          Comment


                          • Originally posted by Ken44 View Post
                            Yes, it certainly is plausible that if you have a US pension and it is being directly deposited into a J-bank questions might be asked by the NTA.
                            You know quite well that I was not talking about a pension from an abroad source that is deposited into an account here in Japan. I was talking about a public pension that is paid abroad, in one of those countries Japan has a tax treaty with that allows and asks for the proactive exchange of tax related information. That regular pension payments from abroad that are transferred into your account here, will be eventually questioned by the NTA, if you don't declare them in your annual tax return, is anyway a given.

                            I'm not going to discuss this further with you. I have the strong feeling that you are for some reason in denial of risk reality. This is ok for you, but it's not fair for other readers here. While for most of them what we have discussed is probably irrelevant because the few 100 $ they might have made from capital gains or interest payment abroad will never draw any attention to them, or they anyway intend to leave Japan in the near future, for others it could be a substantial risk if they believe in your opinion that their taxable income aboard is "safe" because the IRS our certain other national tax authorities don't report it. I don't know at all to what extent or what is triggering it, but I do know for a fact that the tax authorities of certain countries at least occasionally report income of their citizens residing in Japan to the NTA. Take the risk for yourself if you want, but please don't tell others it does not exist.

                            Edit: If you read through the thread you will find other posters reporting the same: That during their audit they found out that the Japanese tax officers had information that could only have provided by their tax offices at home.

                            Originally posted by Ken44 View Post
                            And while there are plenty of write-offs in the J-tax code I personally find the idea of being double-taxed unappealing.
                            You are not "doubled taxed" here. For any income tax payed abroad on income that is also (and again) taxable in Japan, you get a credit by the NTA to exactly this extent. I'm exactly in this situation: I have real estate income that is taxed in my home country. I have and I do declare it again here, and the NTA deducts the tax payed in my home country from the income due here in Japan.

                            For those who are not familiar with the process, have a look at the NTA's "INCOME TAX GUIDE FOR FOREIGNERS 2011"
                            http://www.nta.go.jp/tetsuzuki/shink...011/pdf/43.pdf

                            The foreign "tax credits" are explained on page 51 and 61. Nobody is "doubled taxed" here for income abroad he was already taxed.
                            Last edited by chainbolt; 2012-05-28, 11:00 PM.

                            Comment


                            • Originally posted by chainbolt View Post
                              You know quite well that I was not talking about a pension from an abroad source that is deposited into an account here in Japan. I was talking about a public pension that is paid abroad, in one of those countries Japan has a tax treaty with that allows and asks for the proactive exchange of tax related information.
                              So what you are suggesting is that an American citizen who has lived in Japan much of their adult life and who has never earned a penny in foreign source income can suddenly find themselves audited when the begin collecting $900 in Social Security (SSI) at age 62 in the U.S.

                              And how would this happen? Because of the tax treaty between the US and Japan the IRS will without cause or prompting send the information the NTA? And I say the IRS is NOT going to suddenly start reporting the $900 to NTA because in the eyes of the IRS these funds have been accounted for and/or aren`t large enough warrant a closer look. You keep posting J-tax info but you know nothing about how the US IRS operates.



                              Originally posted by chainbolt View Post
                              ...I have the strong feeling that you are for some reason in denial of risk reality. This is ok for you, but it's not fair for other readers here. While for most of them what we have discussed is probably irrelevant because the few 100 $ they might have made from capital gains or interest payment abroad will never draw any attention to them...
                              What does it matter if it`s $100 or $100,000? How is NTA going to know how much you`ve got unless they request it or the info. is sent without a request. I can see this happening with corporations and high income individuals but someone with SSI or a state pension? Don`t think so.


                              Originally posted by chainbolt View Post
                              ...Edit: If you read through the thread you will find other posters reporting the same: That during their audit they found out that the Japanese tax officers had information that could only have provided by their tax offices at home.
                              Yes but WHY did NTA have the info? Because they requested it. And why did they request it? Because a transaction by the gaijin caught their attention and triggered the audit. How do you come to the conclusion foreign tax authorities took it upon themselves to notify NTA about the foreign income? Because they (gaijins) said so?

                              It`s far more likely the gaijins themselves ____ed up and a transaction was flagged by NTA.


                              Originally posted by chainbolt View Post
                              ...You are not "doubled taxed" here. For any income tax payed abroad on income that is also (and again) taxable in Japan, you get a credit by the NTA to exactly this extent. I'm exactly in this situation: I have real estate income that is taxed in my home country. I have and I do declare it again here, and the NTA deducts the tax payed in my home country from the income due here in Japan.
                              Yes, but I DON`T pay taxes on my income because the income is erased using past losses which the US IRS allows. Now this doesn`t exactly fall under the category of being double-taxed but I certainly don`t want to pay taxes on income which I have been exempt from in the US. The fair way would be for NTA to use income which the IRS determines after deductions are taken into account but that`s not the way it works. They (NTA) will look at the income and taxes paid (none in my case) and work off that.

                              The end result will likely be I likely will have to pay J-tax on a considerable amount of income that I don`t pay in the US.

                              Fuxk that!
                              Last edited by Ken44; 2012-05-29, 07:03 AM.

                              Comment


                              • Originally posted by Ken44 View Post
                                What does it matter if it`s $100 or $100,000? How is NTA going to know how much you`ve got unless they request it or the info. is sent without a request. I can see this happening with corporations and high income individuals but someone with SSI or a state pension? Don`t think so.
                                It's not the NTA that becomes active. What I wanted to say is that the tax authority in our home country would probably not waste its time to report some minor interest payments or capital gains. Again the example with the public pension: If such pension (or other constant income) is paid in your home country, it remains in many countries "tax free", if you reside in Japan, if this country has a tax treaty with Japan. I know this is different for the US. But the US are an exception, it's the only country that is taxing its citizens regardless where the live. Other countries don't do this.

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