The National Tax Agency on April 9, 2024, updated its common reporting standard (CRS) “frequently asked questions” (FAQs) to revise Q.5, “Please provide an overview of the reporting system for automatic exchange of financial account information regarding non-residents.”
The revised overview includes the following additional guidance:
- Specified transactions conducted by foreign reporting financial institutions as defined under the Act 10-6(1) and the Ordinance 6-14(1) are generally not required to be reported. However, if it is uncertain whether the financial institution qualifies as a foreign reporting financial institution, the transaction must be reported.
- In addition, contracts related to specific transactions conducted by a reporting financial institution resident in Japan are not reportable.
- Per the fiscal year 2020 tax reform, any person (including related party of the person) conducting a specified transaction with a reporting financial institution or if the reporting financial institution engages in actions intended to circumvent reporting requirements, those actions will be disregarded.
- Under the citizenship or residence by investment (CBI/RBI) schemes, individuals obtain residency rights, including citizenship, temporary residency, and permanent residency, by investing or paying fees in a specific jurisdiction. These schemes may be used to avoid reporting of financial account information to the tax authorities. The OECD portal lists the CBI/RBI schemes, along with the countries and regions in which the schemes are used.
- The OECD guidance reminds that if a reporting financial institution cannot trust a claimed tax residency on a new notification form, particularly if the claim involves a country or jurisdiction where the CBI/RBI schemes are used, the reporting financial institution must verify the information on the notification form by asking follow-up questions, as provided under the OECD guidance:
- Did you obtain residence rights under an CBI/RBI scheme?
- Do you hold residence rights in any other jurisdiction(s)?
- Have you spent more than 90 days in any other jurisdiction(s) during the previous year?
- In which jurisdiction(s) have you filed individual (personal) income tax returns during the previous year?
Read a May 2024 report prepared by the KPMG member firm in Japan