Tax litigation in Japan: overview

A Q&A guide to civil and criminal tax litigation in Japan.

This Q&A provides a high level overview of the key practical issues in civil and criminal tax litigation, including: pre-court/pre-tribunal process, trial process, documentary evidence, witness evidence, expert evidence, closing the case in civil and criminal trials, decision, judgment or order, costs, appeals, and recent developments and proposals for reform.

To compare answers across multiple jurisdictions, visit the Tax Litigation: Country Q&A tool.

The Q&A is part of the global guide to tax litigation. For a full list of jurisdictional Q&As visit www.practicallaw.com/taxlitigation-guide.

Contents

Overview of tax litigation

Issues subject to tax litigation

1. What are the most common issues subject to tax litigation in your jurisdiction?

Criminal law matters subject to tax litigation are generally limited to cases involving violations of the penal provisions of any relevant tax statutes, including cases involving criminal tax evasion and other related illegal activities. According to a 2016 Government White Paper on crime, there were 346 tax prosecutions in 2015.

Civil tax litigation is by far the most common type of tax litigation in Japan. In 2014, there were (according to the 2015 statistical data of the National Tax Agency):

  • 2,755 Igi-Moushitate cases and 2,030 Sinsa-Seikyuu cases. Igi-Moushitate and Sinsa-Seikyuu are appeals under the Administrative Appeal Act (Igi-Moushitate appeals have since been abolished in 2014 through a revision of the Administrative Appeal Act).

  • 237 cases proceeding to trial in 2014.

Legislative framework

2. Outline the legislative framework and principal pieces of legislation governing both civil and criminal tax litigation.

Civil tax litigation

Civil tax litigation can be divided into:

  • Administrative tax litigation, such as actions for the revocation of administrative dispositions (that is, actions disputing the legality of decisions made by an administrative agency) (Articles 3(2) and 8 et seq., Administrative Case Litigation Act).

  • Civil tax litigation, such as state compensation suits made under Article 1 et seq. of the State Redress Act (that is, suits made against national or local governments for compensation for the illegal imposition and collection of taxes by these national or local governments).

Administrative tax litigation is subject to the Administrative Case Litigation Act, unless otherwise provided for in the Act on General Rules for National Taxes (National Tax Act) and other acts (Article 114, National Tax Act; Article 19-11, Local Tax Act). Any issues that are not provided for in the Administrative Case Litigation Act are subject to the Code of Civil Procedure (Article 7, Administrative Case Litigation Act).

Civil tax litigation, excluding administrative cases, is subject to the Code of Civil Procedure.

Criminal tax litigation

Criminal tax litigation is subject to the Code of Criminal Procedure. However, criminal cases are treated differently from other criminal cases, in accordance with the National Tax Violations Control Act. These differences include the following:

  • Criminal cases investigations concerning national tax are performed by tax officials (Articles 1 and 2, National Tax Violations Control Act) or, in the case of customs duties, by a customs official.

  • When a tax official conducting a criminal investigation becomes convinced that a criminal offence involving an indirect national tax has been committed, a criminal case can be prosecuted with respect to an indirect national tax.

  • The regional commissioner of a regional taxation bureau and the district director of a tax office can require the accused to provisionally pay an amount equal to the fine or petty fine in place of a penalty (written warning) (Article 14(1) and (2), National Tax Violations Control Act).

Criminal cases concerning customs duties (Article 119 et seq., Customs Act) and local taxes (Articles 71, 72-73, 73-41, 97, 700-43 and 701-23, Local Tax Act) are treated in the same manner as criminal cases concerning national taxes.

Tax evasion and other criminal tax offences

3. What are the key elements that constitute tax evasion and other main criminal tax offences in your jurisdiction?

Tax evasion is by far the most common charge brought in tax criminal cases. Examples of criminal tax evasion include where a taxpayer:

  • Evaded a tax or received a refund through deception or other wrongful acts (such as falsification of books or documents), or through the creation of a secret bank account.

  • Conceals or damages his/her property or takes any other action to deceive a tax official for the purpose of avoiding any execution on his/her property resulting from non-payment of taxes.

 

Pre-court/pre-tribunal process

Assessment, re-assessments and administrative determinations in civil law

4. Outline the procedure for tax assessments, re-assessments and administrative determinations in civil law.

National tax

The relevant statutes are the Administrative Appeal Act and the Act on General Rules for National Taxes (National Tax Act). The National Tax Act outlines the procedure for addressing petitions for the redress of grievances regarding national tax.

Generally, a taxpayer who is dissatisfied with his/her national tax bill must, before instituting a lawsuit, make a request for an administrative review of the original administrative disposition to the National Tax Tribunal (Sinsa-Seikyuu). This Tribunal was established under the National Tax Agency in accordance with Article 4 of the Administrative Appeal Act (Article 8(1), Administrative Case Litigation Act; Article 115, National Tax Act). The requirement to bring an administrative appeal before instituting a lawsuit is known as Sinsa-Seikyuu Zenchi-Syugi. Technical tax disputes (the number of which can be staggering) are reviewed by the administrative authority to:

  • Clarify issues.

  • Collect evidence.

  • Implement any appropriate and immediate processes that can be taken to resolve the tax dispute.

A request for an administrative review of an original administrative disposition must be filed within three months from the day following the day on which the taxpayer who seeks review became aware of the disposition (Article 77(1), National Tax Act).

In addition, a taxpayer can, before a Sinsa-Seikyuu, make a petition for an administrative disposition for redress to the original administrative agency (Sai-Chousa-Seikyuu) within three months from the day following the day on which this taxpayer became aware that the original administrative disposition was made (Articles 75(1) and 77(1), National Tax Act). The taxpayer can then request a Sinsa-Seikyuu within one month of receipt of a certified copy of the administrative decision concerning the Sai-Chousa-Seikyuu (Article 77(2), National Tax Act).

Therefore, a taxpayer dissatisfied with his/her national tax bill can choose to either (Article 5(1), Administrative Appeal Act):

  • Request a Sinsa-Seikyuu directly.

  • Request a Sinsa-Seikyuu after having obtained a decision concerning a Sai-Chousa-Seikyuu.

Local tax

The Administrative Appeal Act generally outlines the appeals process for challenges to local tax (Article 19, Local Tax Act).

The Sinsa-Seikyuu Zenchi-Syugi requirement (see above, National tax) is applicable to the appeals process for challenges to local tax (Article 8(1), Administrative Case Litigation Act; Article 19-12, Local Tax Act). Therefore, a taxpayer who is dissatisfied with his/her local tax bill can generally, within three months from the day following the day on which this taxpayer became aware of the original administrative disposition, direct a request for a Sinsa-Seikyuu (Article 18(1), Administrative Appeal Act) to an administrative agency overseeing the administrative agency that made the original determination. However, unlike in national tax cases, there are no provisions for a Sai-Chousa-Seikyuu process (see above, National tax) at the local level.

Resolving disputes before commencing court proceedings

5. What are the main procedures used to resolve disputes before commencing proceedings in a civil court/tribunal?

The National Tax Tribunal was established as an alternative dispute resolution body for national tax disputes. A taxpayer seeking redress is generally required, before instituting a lawsuit, to request a Sinsa-Seikyuu before the National Tax Tribunal (Article 115, National Tax Act).

In contrast, there are no alternative dispute resolution bodies dealing with local tax disputes, although the Sinsa-Seikyuu Zenchi-Syugi requirement is applicable to the local tax appeals process (Article 19-12, Local Tax Act).

See Question 4 for further information.

Elements of the offence in criminal law

6. What are the elements of the main criminal law offences in tax litigation?

The main criminal law offence in tax litigation is tax evasion (see Question 3).

In 2014, the total amount of tax evasion in cases where the National Tax Agency conducted a criminal investigation (that is, in instances when the National Tax Agency suspects that a taxpayer is in violation of the tax laws, and where charges are brought) was JPY12.3 billion. Since the conviction rate for cases that are brought to trial by the National Tax Agency following a criminal investigation is over 99%, it is essential to take preventive measures to avoid prosecution, such as submitting an amended tax return. For example, in 2014, out of 151 cases where the National Tax Act was suspected of being violated, the Public Prosecutor's Office chose to prosecute all but 12 of those cases (that is, a prosecution rate of about 90%).

Early resolution

7. What are the main procedures used for the early resolution of criminal law offences before trial?

On 24 May 2015, a statute was enacted that would allow for the use of plea agreements before a trial. Under the new legislation, a person who is suspected or accused of committing certain crimes can receive forbearance from prosecution from a prosecutor in exchange for a full and true statement or testimony concerning a crime committed by another party (see Question 37).

 

Trial process

Format of the hearing/trial

8. What format does the hearing/trial take?

Generally, civil and administrative litigation trials are held in public, and judgments are available to the public (Articles 37(1) and 82(1), Constitutional Law). Therefore, any request by a taxpayer to hold a trial in private will not be granted.

Oral arguments are generally required at trial, so that a trial cannot be conducted based on written statements alone. However, the Supreme Court, if it judges that a final appeal is groundless based on the documents presented to it, can make a decision to dismiss a final appeal without resorting to oral arguments (Article 319, Code of Civil Procedure). In addition, it is possible to conduct a trial and to obtain a judgment where one of the parties is absent (Articles 161(3) and 244, Code of Civil Procedure), but not when both parties are absent (Article 263, Code of Civil Procedure) or where the next date when both parties can be present has been determined (Article 93(1), Code of Civil Procedure). In tax litigation, there is virtually no risk that both parties will be absent, as a national or local government is never considered absent for litigation purposes.

In criminal cases, trials are also held in public and judgments are made publicly available. A defendant's request for a private trial/judgment will not be granted. In certain minor cases, the defendant is not required to appear at trial (Article 284, Code of Criminal Procedure).

Role of the judge/arbitrator/tribunal members

9. What is the role of the judge/arbitrator/tribunal members in both civil and criminal tax litigation?

Civil tax litigation

When administrative litigation is pending before a court, there is typically a section of the court that deals specifically with administrative cases (this is the case for the Tokyo District Court and other courts). These sections usually comprise of judges who are experts in administrative tax cases. In courts that do not have designated sections, the regular civil section will handle administrative litigation.

Before the National Tax Tribunal, panels are comprised of at least three or more independent appeals judges (with one lead judge and at least two participant judges). The President of the National Tax Tribunal is responsible for handing down any decisions (Article 75(3), National Tax Act).

Criminal tax litigation

Criminal tax cases that are pending before a court can be handled by a designated section that specialises in tax cases and which has presiding judges who are experts in criminal tax law (such as the Tokyo District Court). In courts that do not have a designated tax section, the regular criminal section will handle any criminal tax cases.

Commencement of proceedings: civil law

10. What is the procedure for commencing tax litigation proceedings in civil law and/or a taxpayer appealing a decision of the tax authority?

Administrative tax cases typically involve a litigant seeking the reversal of an administrative decision. A court action cannot be filed without first bringing an administrative appeal against the administrative decision and obtaining a decision on such appeal (see Question 4). A court action for the revocation of an administrative decision must be filed within six months from the day on which the person who seeks revocation became aware of the fact that the administrative disposition appealed was made. No court action for revocation can be filed after one year has elapsed from the date of the administrative disposition appealed (Article 14(1) and 14(2), Administrative Case Litigation Act).

A civil tax case can be filed after the taxes are applied, without any requirement to bring an administrative appeal.

There are no costs to appeal an administrative decision. However, stamp duty is payable when an action is filed with a court, the amount of which will vary depending on the value of the suit. For example, in a revocation case seeking a tax reduction, the value of the suit will be the amount of tax sought to be revoked.

 
11. Must a taxpayer pay the disputed tax before leave to appeal the tax authority's decision is granted?

A taxpayer must pay his/her tax by the date stipulated in the invoice, even if the taxpayer files an action to dispute his/her tax bill. The taxpayer will otherwise be considered as a delinquent by the relevant tax authority (Article 25.1, Administrative Case Litigation Act).

If the taxpayer loses the lawsuit without having made any payment on his/her taxes, a delinquency charge will be levied on the taxpayer. Therefore, in practice, even when a taxpayer files an action to dispute a tax bill issued by an administrative tax office, the taxpayer will typically pay the tax in accordance with the invoice issued to him/her, even if this is not technically required when filing a lawsuit.

If the taxpayer wins the lawsuit, he/she can receive:

  • A refund of any excess payments he/she made over what the court determined to be the proper amount of taxes.

  • Interest on any such refund, calculated by multiplying the amount to be refunded by the rate of 7.3% per annum (Articles 56(1) and 58 et seq., National Tax Act).

Commencement of proceedings: criminal law

12. What is the procedure for commencing tax litigation proceedings in criminal law?

After a tax inquiry is conducted by tax officials (Article 74-2 et seq., National Tax Act), if there is a specific suspicion that a criminal offence has been committed, an investigation into the criminal case will be conducted by tax officials (or customs officials in cases involving customs duties) in order to clarify the facts of the case (Article 1 et seq., National Tax Violations Control). If, after this investigation, there are facts that indicate that a crime has occurred, the tax collector will immediately commence a formal accusation process (Article 12-2, National Tax Violations Control Act). Once a taxpayer has been formally accused, prosecutors start an investigation. When a crime is suspected to have occurred, a prosecution will be instituted and a criminal trial commenced.

Government response

13. How has the government responded to recent civil and criminal law cases to improve the court procedure?

Civil law

Due to revisions of the Code of Civil Procedure in 2003, the court and the parties must co-operate to ensure the organised progress of court proceedings and to achieve a proper and prompt trial (Article 147-2 et seq., Code of Civil Procedure). Where a period for making allegations and providing evidence on a specific matter is specified, the court can make an order of dismissal, either on petition or on its own authority if, with regard to allegations or evidence that a party has advanced after the expiration of this period, it finds that such allegations or evidence are substantially detrimental to the progress of court proceedings based on the plans for trial (Article 157-2, Code of Civil Procedure).

Criminal law

In 2004, amendments of the Code of Criminal Procedure introduced a pre-trial arrangement process (Article 316-2 et seq., Code of Criminal Procedure). Under this process, the public prosecutor submits documents to the court which detail the facts planned to be proved at trial. The public prosecutor also sends these documents to the accused and his/her counsel (Article 316-13, Code of Criminal Procedure), and must promptly disclose to the accused or his/her counsel any evidence that he/she intends to present at trial (Article 316-14, Code of Criminal Procedure).

Burden of proof

14. What is the burden of proof in both civil and criminal tax litigation proceedings?

Civil law

In a case brought by a taxpayer to challenge his/her taxes, the national or local tax authority (defendant) bears the burden of proving the:

  • Basis for the tax levied.

  • Legitimacy of the tax bill issued.

However, it is important to note that certain cases have held that there is a presumption that a tax bill is legitimate, and that a taxpayer challenging the bill must present evidence to rebut this presumption. Other cases have reversed the burden of proof based on the difficulty to provide evidence in the particular case, or based on principles of equity.

However, where a taxpayer files a suit against a national or local government for state compensation, the taxpayer is generally required to prove each element provided under the State Redress Act. The taxpayer's claim will be dismissed if any one of these elements cannot be proven.

Criminal law

In a criminal case, the accused is presumed to be innocent until the judgment becomes final. Therefore, prosecutors must prove the facts that are necessary to satisfy each element of the crime in question.

Main stages

15. What are the main stages of typical court proceedings for tax disputes?

Civil law

Generally, in civil and administrative litigation in Japan, the assessment of documentary evidence precedes any examination of witnesses. The examination of witnesses will be conducted only after both sides have made their allegations and produced documentary evidence, and after the points at issue have been clarified. This general rule is particularly relevant in tax litigation, as most tax cases do not involve factual disputes, but rather concern a dispute as to the proper legal interpretation to be given to tax legislation. Therefore, in tax litigation, the involvement of certified public tax accountants (Zeirishi) who are experts in taxation is important for the creation of evidentiary documents. Additionally, a certified public tax accountant can appear in court as an assistant to an attorney, and is allowed to make statements (Article 2-2(1), Certified Public Tax Accountant Act).

Criminal law

In a criminal case, any documents or statements containing witnessed facts that are not supported by witness testimony are generally not admissible as evidence, even if they are produced in court (Article 320, Code of Criminal Procedure). Therefore, it is usually necessary to request and proceed with an examination of the relevant witness. The examination process is especially important to determine whether or not a crime has occurred, or to take the circumstances of any crime into consideration.

 

Documentary evidence

Disclosure of documents in civil proceedings

16. What documents must the parties disclose to the other parties and/or the court in civil proceedings? Are there any detailed rules governing this procedure?

There are no rules providing for pre-trial discovery in Japan. Each party involved in tax litigation will be able to review the other parties' evidence only as part of the trial process.

Special rules/considerations

17. Are there any special rules or considerations concerning the disclosure or discovery of documents in civil tax litigation?

There are no rules providing for pre-trial discovery in Japan. In addition, litigants have no obligation to disclose evidence that may be detrimental to their case. However, each litigant has the right to request that the court order the holder of a relevant document to provide such document to the court (Article 221, Code of Civil Procedure). The court will then determine whether the petition is well-grounded, and if so, will order the holder of the document to submit it to the court (Article 223(1), Code of Civil Code Procedure). However, the holder of a relevant document can refuse to submit it where (Article 220(iv) (a)-(d), Code of Civil Procedure):

  • The document contains information that is likely to result in the holder of this document or his/her relatives (up to a certain degree of kinship) to be subject to criminal prosecution or conviction.

  • The document contains a secret relating to the duties of a public officer, which, if submitted and disseminated, would likely result in harm to the public interest or would substantially hinder the public officer in the performance of his/her public duties.

  • The document contains information that is subject to the right to refuse to testify (any communications between persons in certain professions and their clients are privileged from disclosure under this provision).

  • The document is prepared by the holder exclusively for the holder's use.

During litigation, there are often disputes between the parties as to whether a document falls into any of the exemptions listed above.

Disclosure in criminal proceedings

18. What documents must the parties disclose to the other parties and/or the court in criminal proceedings? Are there any detailed rules governing this procedure?

In criminal proceedings, an investigative agency can collect evidence held by an accused, while a prosecutor must give the accused an opportunity to inspect in advance any evidence to be used in the proceedings (Article 299, Code of Criminal Procedure).

In addition, pre-trial proceedings to plan the course of the litigation were introduced by an amendment to the Code of Criminal Procedure in 2004. These pre-trial proceedings are held in accordance with an order of the relevant court. The purposes of these proceedings are to:

  • Outline the issues at stake and evidence to be presented in the case.

  • Have the court, prosecutor and accused (via his/her counsel) discuss these issues and evidence to ensure that the litigation process goes smoothly.

If the court chooses to order a pre-trial proceeding (Article 316-2, Code of Criminal Procedure), the prosecutor must:

  • Promptly disclose to the defendant any evidence that the prosecutor intends to use at trial (Article 316-14, Code of Criminal Procedure).

  • On the request of the defendant or his/her counsel, promptly disclose any evidence that is deemed to be important to judge the credibility of the particular evidence that the prosecutor intends to use at trial (Article 316-15, Code of Criminal Procedure).

  • On the request of the defendant or his/her counsel, promptly disclose any evidence that is deemed to be relevant to an argument the defendant or his/her counsel plans to make at trial (Article 316-20, Code of Criminal Procedure).

The court generally orders pre-trial proceedings in major tax evasion cases, and disclosure is conducted in accordance with the procedure described above.

Special rules/considerations

19. Are there any special rules or considerations concerning the disclosure of documents in criminal tax litigation?

Regarding disclosure made in pre-trial proceedings under Articles 316-15 and 316-20 of the Code of Criminal Procedure (see Question 18), the prosecutor must promptly disclose evidence when he/she deems it appropriate, taking into consideration:

  • The importance of the evidence.

  • The necessity for disclosure to allow the defendant the opportunity to prepare a defence.

  • Any possible harmful effects of disclosure.

It is assumed that "possible harmful effects of disclosure" includes increased opportunities for suppression of evidence, intimidation of witnesses, defamation, and infringement of privacy. If such harm would occur on disclosure, the relevant evidence cannot be disclosed.

Communications between counsel and their clients are privileged from disclosure (Article 39, Code of Criminal Procedure).

 

Witness evidence

Trial considerations

20. Do witnesses of fact give oral evidence or do they just submit written evidence? Is there a right to cross-examine witnesses of fact?

Civil law

Although there are no specific legal requirements, in practice, the parties usually submit evidence from any relevant third party witnesses in the form of written witness statements, before the examination of these witnesses. The parties can request that the court itself examine a non-party witness, in order for the judge to be assured of the accuracy of the facts as presented by such witness. Parties have a right to cross-examine an opposing party's witness after direct examination by the opposing party (Article 202(1), Code of Civil Procedure; Article 113(1)(ii), Rules of Civil Procedure).

Criminal law

Documents containing witnesses' recollections of relevant facts are generally not admissible as evidence on their own (Article 320, Code of Criminal Procedure). For such documents to be admitted as evidence, it is necessary to request and perform an examination of the witness at trial. As for civil cases, parties have a right to cross-examine an opposing party's witness after direct examination by the opposing party (Articles 199-4 and 199-5, Rules of Criminal Procedure).

Witness preparation

21. Provide a brief outline of the procedure for preparing witnesses in both civil and criminal cases. Are there any special or unique features to consider for witness evidence in criminal cases?

Civil law

There are no provisions in Japanese law prescribing a process for preparing witnesses. Each party, in an effort to swing the litigation in its favour, will start any witness preparation by considering the facts and arguments that must be reinforced by additional, non-party testimony, followed by a search for any witnesses who may be able to provide a testimony that would support these facts and arguments. On locating any non-party witness, the witness will be asked to make a written statement or to appear in court for examination. Preparatory meetings between the witness and the party seeking to use his/her testimony typically take place before the actual examination.

Criminal law

Witness preparation in criminal cases essentially mirrors the process in civil litigation, subject to a few unique features. For example, a court can examine a witness on a day other than the actual trial date (Articles 158 and 281, Code of Criminal Procedure) in order to facilitate the provision of testimony.

Hearsay evidence in civil and criminal trials

22. Are there any rules concerning the introduction of hearsay evidence in civil and criminal trials?

Civil trials

Hearsay evidence can be introduced in civil and administrative litigation, although its evidentiary weight is generally considered to be inferior to that of direct evidence.

Criminal trials

In criminal cases, testimony or utterances made outside of trial without cross-examination are generally not admissible as evidence under the hearsay evidence rule (Article 320, Code of Criminal Procedure). Therefore, examinations of witnesses are conducted at court. After cross-examination by the opposing party, a testimony can be submitted as evidence. However, the prosecutor and the defendant can mutually consent to the submission of hearsay evidence, in which case it will be considered admissible (Article 326, Code of Criminal Procedure).

 

Expert evidence

Expert reports in civil trials

23. What are the rules concerning the introduction of expert reports in civil trials?

An expert witness can be designated on a party's request (Articles 180(1) and 213, Code of Civil Procedure). A person who has the relevant knowledge and experience necessary to give expert testimony must give expert testimony if called upon to do so (Article 212(1), Code of Civil Procedure). The presiding judge can order an expert witness to state his/her opinions either in writing or orally (Article 215(1), Code of Civil Procedure). Although there are no differences between oral and written expert reports in terms of evidentiary weight, it is common practice to have an expert witness provide his/her opinions in writing.

Expert evidence in civil trials

24. What are the rules concerning the introduction of expert evidence in civil trials?

See Question 23. An expert witness can state his/her opinions in writing or orally, although in practice expert witnesses usually provide their opinions in writing.

Expert evidence in criminal trials

25. What are the rules concerning the introduction of expert evidence in criminal trials? Is it possible to introduce expert reports?

Expert evidence

The court can order an expert examination to be conducted by a person with relevant knowledge and experience (Article 165, Code of Criminal Procedure). In this case, the court will order the expert witness to provide his/her opinions either in writing or orally (Article 129(1), Rules of Criminal Procedure), although it is common practice for expert witnesses to provide opinions in writing.

Expert reports

If a written expert testimony is requested, the expert report will be created and subject to examination provided that the prosecutor and the defendant can consent to its use as evidence in accordance with Article 326 of the Code of Criminal Procedure (which provides that a document or statement that the prosecutor or the accused have consented to use as evidence can be used as evidence).

If the consent of the prosecutor or the accused is not obtained, the expert report can be used as evidence only if the expert witness attends the trial and verifies the authenticity of the report during his/her examination (Article 321(4), Code of Criminal Procedure).

Special considerations

26. Are there any special considerations for introducing expert evidence/reports in both civil and criminal trials?

Civil trials

Since the introduction of expert evidence is a procedure by which an expert testifies using his/her knowledge and experience, there are rigid requirements that expert testimony be independent and objective. Therefore, an expert witness cannot testify in relation to matters for which the expert witness or his/her relatives (up to a certain degree of kinship) are likely to be subject to criminal prosecution or conviction (Article 212(2), Code of Civil Procedure).

Criminal trials

Any person can refuse to give testimony when there is a fear that this testimony may result in the criminal prosecution or conviction of that person or his/her relatives (up to a certain degree of kinship). In addition, a physician, attorney, or other similar professional can refuse to testify on matters pertaining to confidential information that he/she came to know through his/her professional duties (Articles 146 to 149, Code of Criminal Procedure).

 

Closing the case in civil trials

27. What are the rules governing the submission of both written and oral argument in closing a civil trial?

Although there are no specific rules governing this matter, in most cases, each party summarises its own allegations and arguments at the conclusion of oral arguments. Each party can reorganise and/or add to these allegations and arguments based on what occurs during the examination of evidence, and will, over the course of a trial, present papers to rebut any legal arguments or evidence presented by the opposing party. No further allegations or evidence can be submitted after the conclusion of oral arguments, unless the court allows oral arguments to be resumed (Article 153, Code of Civil Procedure). Therefore, by the conclusion of oral arguments, each party must have:

  • Made all factual or legal arguments that are appropriate to the case.

  • Produced all effective and relevant testimony.

Due to these constraints, along with those imposed by other Japanese litigation rules, litigants are advised to select a law firm that has an experienced litigation practice to represent him/her, particularly in cases involving complex issues.

 

Closing the case in criminal trials

28. What are the rules governing the submission of both written and oral argument in closing a criminal trial?

After the examination of evidence, the prosecutor will make a closing argument on the facts and/or the application of law, and a recommendation for an appropriate punishment (Article 293(1), Code of Criminal Procedure). The accused and his/her attorney will then make their own closing argument (Article 293(2), Code of Criminal Procedure; Article 211, Rules of Criminal Procedure). Thereafter, the court will render a judgment. No further allegations or evidence can be submitted once final arguments are concluded, unless the court orders arguments to be resumed (Article 313, Code of Criminal Procedure).

 

Decision, judgment or order

Civil law cases

29. What are the rules governing the issuance of a decision in civil cases?

The court will order the conclusion of oral arguments and make a final judgment when the case is ready for a judicial decision (Article 243(1), Code of Civil Procedure). The court must generally render a judgment within two months from the date of conclusion of oral arguments (Article 251(1), Code of Civil Procedure). The court must issue an original, written judgment (Article 251(2), Code of Civil Procedure).

A written judgment must contain certain specific information, including (Article 253(1), Code of Civil Procedure):

  • The main ruling.

  • The facts.

  • The reasons for the decision.

  • Other relevant information.

The statement of facts must support the ruling and provide the necessary background to show that the main ruling is justified (Article 253 (2), Code of Civil Procedure). A judgment is rendered by the presiding judge reading aloud the main ruling (Article 155(1), Rules of Civil Procedure). The presiding judge can also, when he/she finds it to be appropriate, read aloud the reasons for the judgment or orally summarise these reasons (Article 155(2), Rules of Civil Procedure). However, the presiding judge usually reads aloud the main ruling only.

Trials at first instance must conclude within two years (Article 2(1), Act on the Expediting of Trials). Generally, tax litigation takes one to one and a half years to conclude if there are no complex issues, but can otherwise exceed the two-year limit.

In rendering the judgment, the court must award interest on the amount payable at the following rates:

  • Civil statutory interest rate: 5% per annum (Article 404, Civil Code).

  • Statutory interest rate for commercial matters: 6% per annum (Article 514, Commercial Code).

Criminal law cases

30. What are the rules governing the issuance of a decision in criminal cases?

When a criminal conviction is ordered in a case that is being publicly prosecuted, the court will impose a punishment in a judgment (Article 333(1), Code of Criminal Procedure). When pronouncing a sentence, the court must highlight the facts that constitute the crime, the list of evidence and the applicable laws and regulations. The court must also issue an appropriate opinion when a reason to preclude conviction is argued, or if grounds for increasing or reducing a sentence have been argued (Article 335, Code of Criminal Procedure).

As for civil cases, a trial at first instance must conclude within two years (Article 2(1), Act on the Expediting of Trials). Criminal courts typically take about three months to deliberate and issue a decision.

 

Costs

31. How is the issue of costs determined in both civil and criminal cases?

Civil law

Generally, when litigation is concluded by a judicial decision, the defeated party bears all court costs (Article 61, Code of Civil Procedure). During the course of the trial, each party usually argues that the opposing party should bear the costs. When issuing a judicial decision, the court must make a costs order on its own initiative (Article 67.1, Code of Civil Procedure). However, if the case is settled, the parties usually bear their own settlement and court costs. If a claimant does not have any domicile, business office or other office in Japan, the court, on the petition of a defendant, can order the claimant to provide security for court costs (Article 75(1), Code of Civil Procedure).

Criminal law

When the court imposes a punishment following conviction, the defendant must bear all or part of the court costs, unless it is clear that the defendant cannot afford these costs because of indigence (in which case the requirement can be waived) (Article 181(1), Code of Criminal Procedure). When an acquittal becomes final and binding, the state must, under certain conditions, compensate the defendant for any necessary expenses accrued during trial (Articles 188-2 to 188-7, Code of Criminal Procedure).

 

Appeals

Right to appeal in civil law

32. What are the main grounds for appealing a civil law decision?

A potential appellant must demonstrate a "benefit offered by an appeal", otherwise the appeal will be dismissed. This requirement aims to prevent frivolous appeals and is also based on the idea that it would make little sense to provide appeal rights to litigants who are not disadvantaged by a judgment.

The court of second instance will judge a case based on the evidence submitted before the court of first instance and on any new evidence submitted to it, and will evaluate the original decision in light of this evidence. 50% of appeals are based on the lack of rationale in the judgment or on inconsistency in the reasons for the judgment (Article 312(2)(iv), Code of Civil Procedure).

In the case of a final appeal to the Supreme Court, a reason for the appeal is also required (Article 312, Code of Civil Procedure). Reasons for a final appeal include:

  • Misconstruction of the Constitution.

  • Any other violations of the Constitution.

  • Material procedural violations.

In addition, the Supreme Court can, on petition, accept an appeal where a judgment in a prior instance involves important issues regarding the proper interpretation of the law (Article 318(1), Code of Civil Procedure).

Procedure to appeal in civil law

 
33. What is the procedure for appealing a civil law decision?

The Japanese judicial system is based on a three-tier structure. An appeal to a court of second instance is filed by submitting a petition for appeal to the court of first instance within a period of two weeks (which cannot be extended) from the day on which service of a judgment is received (Articles 285 and 286(1), Code of Civil Procedure). When submitting a petition for appeal, an appellant must pay a fee to the court, for an amount that depends on the value of the claim.

A final appeal to the Supreme Court is filed by submitting a petition for final appeal to the court of prior instance within a period of two weeks (which cannot be extended) from the day on which service of the judgement is received (Articles 313 and 314(1), Code of Civil Procedure). An appellant must pay a fee to the court in the same way as when filing an appeal with a lower court. The fee amount does not differ in cases where a final appeal is filed under Article 314(1) of the Code of Civil Procedure and cases where a final petition is filed under Article 318(1) of the Code of Civil Procedure (see Question 32). An appellant that files an appeal using both routes will only be charged a single fee.

Right to appeal in criminal law

34. What are the main grounds for appealing a criminal law decision?

The reasons for appealing a criminal judgment include arguments that a lower court judgment:

  • Is in breach of the law.

  • Is factually erroneous.

  • Imposes an inappropriate sentence.

In the appeals court, appeals on the grounds of the inappropriateness of sentencing account for about 70% of the total number of appeals.

An appellant can file a final appeal to the Supreme Court only if it is alleging that a judgment violates the Constitution or conflicts with a Supreme Court precedent (Article 405, Code of Criminal Procedure).

Procedure to appeal in criminal law

35. What is the procedure for appealing a criminal law decision?

Japanese criminal courts have adopted a three-tier structure. The appeal period/final appeal period is two weeks from the day on which service of a judgment is rendered (Articles 373, 414 and 358, Code of Criminal Procedure). This period cannot be extended.

A person filing an appeal to a court of second instance must submit to this court a statement of the reasons for the appeal (Article 376 (1), Code of Criminal Procedure). This requirement also applies in the case of final appeal proceedings (Article 414, Code of Criminal Procedure).

 

Recent civil law developments and proposals for reform

36. Outline the main recent civil law developments in tax litigation in your jurisdiction. Are there any proposals to reform civil law tax litigation?

In a recent case, the main dispute concerned whether a limited partnership established under the laws of the US state of Delaware (Delaware LPS) could be regarded as a foreign corporation for Japanese tax law purposes. On 17 July 2015, the Supreme Court of Japan ruled that Delaware LPS fell under the definition of a foreign corporation in certain circumstances (No.166/Gyo-Hi/2013). On the question of whether income arising from the real estate leasing business conducted by Delaware LPS was attributable to Delaware LPS itself (making it subject to corporate taxation) or attributable directly to Delaware LPS investors (making it subject to pass-through taxation), the Supreme Court held that income arising from a real estate leasing business, as implemented by the limited partnership in the case, was attributable to the limited partnership, and did not fall within the scope of the investors' taxable income.

As lower court decisions differed widely on the question of whether or not a limited partnership should be considered a foreign corporation, the judgment of the Supreme Court was highly anticipated. In practice, pass-through taxation was levied even if there was no specific provision in the law on this matter. The recent judgment led to the introduction of tax based on new criteria listed in the judgment.

 

Recent criminal law developments and proposals for reform

37. Outline the main recent criminal law developments in tax litigation in your jurisdiction. Are there any proposals to reform criminal law tax litigation?

A legislative Bill partially amending the Code of Criminal Law was passed during the 2016 Ordinary Diet Session (190th Ordinary Diet Session). This legislation is applicable to certain suspects and accused persons, and will generally make it mandatory to record the entire interview of an accused person who has been placed in custody.

Additionally, the Bill introduces a plea agreement system under which persons suspected and accused of certain financial and economic crimes (including tax crimes) will, with the consent of their counsel, be able to agree to sentencing conditions with the prosecutor, with a full and truthful allocution regarding the crimes of another party usually required in exchange.

 

Online resources

Japanese Law Translation Database System

W www.japaneselawtranslation.go.jp/?re=02

Description. The Japanese Law Translation Database System is maintained by the Ministry of Justice. All the translations contained in the database are unofficial. Only the original Japanese texts of the laws and regulations have legal effect, and the translations should be used solely as reference materials to assist in the understanding of Japanese laws and regulations.



Contributor profiles

Kenji Hashidate, Managing Partner

Hashidate Law Office

T +81 3 3540 3800
F +81 3 3540 1009
E kenjihashidate@hashidatelaw.com
W www.hashidatelaw.com/en

Professional qualifications. Attorney-at-law, Japan, 1973

Areas of practice. Tax advice; tax litigation and disputes; corporate; finance.

Non-professional qualifications. LLM, University of Washington Law School, 1975; Visiting Scholar at PhD course, Columbia Law School, 1975-1976

Languages. Japanese, English

Professional associations/memberships.

  • Japan Federation of Bar Associations.

  • Daiichi Tokyo Bar Association.

  • International Bar Association.

  • Japan Association of Corporate Executives.

Publications.

  • Financing Corporations with Convertible Debentures in the U.S.A and Japan (English, Kinokuniya, 1976).

  • Transfer Pricing & Tax Avoidance: First edition 2014 (Thomson Reuters UK Limited., September 2014) (co-author).

  • The Asset Tracing and Recovery Review: Third Edition (Law Business Research Ltd., September 2015) (co-author).

Takahiro Mikami, Partner

Hashidate Law Office

T +81 3 3540 3800
F +81 3 3540 1009
E takahiromikami@hashidatelaw.com
W www.hashidatelaw.com/en

Professional qualifications. Attorney-at-law, Japan, 2004

Areas of practice. Tax advice; tax litigation and disputes; commercial law, litigation; international litigation; international arbitration.

Non-professional qualifications. LLB, Faculty of Law, Chuo University, 2000

Recent transactions

  • Representing a prominent Japanese food company in a significant number of litigation cases taking place in China.

  • Representing a trading company in a cross-border transaction involving the Japanese Government.

  • Advising a construction company and a medical institution on their attempts to enter the Asian market.

  • Advising on the establishment of joint ventures in China.

Languages. Japanese, English

Professional associations/memberships.

  • Japan Federation of Bar Associations.

  • Daiichi Tokyo Bar Association.

Publications. The Asset Tracing and Recovery Review: Third Edition (Law Business Research Ltd., September 2015) (co-author).

Makoto Sato, Associate

Hashidate Law Office

T +81 3 3540 3800
F +81 3 3540 1009
E makotosato@hashidatelaw.com
W www.hashidatelaw.com/en

Professional qualifications. Attorney-at-law, Japan, 2012

Areas of practice. Tax advice; tax litigation and disputes; corporate; mergers and acquisitions; international trade; finance.

Non-professional qualifications. BA, School of Political Science and Economics, Waseda University, 2008; JD, Waseda Law School, 2011

Recent transactions

  • Acted as legal adviser for a UK-based, London Stock Exchange listed company seeking to acquire 100% ownership of a globally-oriented Singaporean company.

  • Acted as legal adviser for a leading Japanese manufacturer seeking to acquire 100% ownership of a globally-oriented German company.

  • Acted as legal adviser for a leading Japanese manufacturer seeking to set up a joint venture in India with a leading Indian company.

Languages. Japanese, English

Professional associations/memberships.

  • Japan Federation of Bar Associations.

  • Daiichi Tokyo Bar Association.

Publications.

  • Transfer Pricing & Tax Avoidance: First edition 2014 (Thomson Reuters UK Limited., September 2014) (co-author).

  • The Asset Tracing and Recovery Review: Third Edition (Law Business Research Ltd., September 2015) (co-author).

Kaoru Akeda, Associate

Hashidate Law Office

T +81 3 3540 3800
F +81 3 3540 1009
E kaoruakeda@hashidatelaw.com
W www.hashidatelaw.com/en

Professional qualifications. Attorney-at-law, Japan, 2013

Areas of practice. Tax advice; tax litigation and disputes; corporate; mergers and acquisitions; international trade; intellectual property.

Non-professional qualifications. LLB, Faculty of Law, Keio University, 2009; LLM, Keio University Law School, 2011

Recent transactions

  • Acted as legal adviser for a Japanese taxpayer who contested a bill for additional tax. The main issue in the suit was whether certain taxable property was attributable to the taxpayer.

  • Acted as legal adviser for a leading Japanese manufacturer seeking to acquire 100% ownership of a globally-oriented German company.

  • Advised a Japanese company in the execution of a tender offer for the purpose of acquiring shares from a group company and making this company a subsidiary.

Languages. Japanese, English

Professional associations/memberships.

  • Japan Federation of Bar Associations.

  • Daiichi Tokyo Bar Association.

Publications. The Asset Tracing and Recovery Review: Third Edition (Law Business Research Ltd., September 2015) (co-author).

Erwin Condez, Associate

Hashidate Law Office

T +81 3 3540 3800
F +81 3 3540 1009
E erwincondez@hashidatelaw.com
W www.hashidatelaw.com/en

Professional qualifications. Admitted to practice, New York, California and Hawaii, US; Admitted to practice, England and Wales

Areas of practice. Litigation; contracts.

Non-professional qualifications. BA, Vanderbilt University, 1998; JD, Fordham University School of Law, 2001


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