“There are only a small number of licensed tax advisors who can provide this kind of advice in English in Japan”

Going by the book

Yukiyasu Nakata International Tax Office gives specialist advice to firms’ Japan subsidiaries


MARCH 2021 Business Spotlight / Text by Toby Waters / Photos by Michael Holmes

Even at the best of times, it can be difficult to get a firm understanding of the taxes for which your business is liable. For Japan-based subsidiaries, filing taxes both here and in the country where they are headquartered can be even more challenging, especially for smaller outfits. Luckily, they can rely on Yukiyasu Nakata, a tax specialist who wrote the book on Japanese tax compliance for foreign companies — literally.

Nakata, founder and head of Yukiyasu Nakata International Tax Office, has more than two decades of experience advising on tax issues, including with one of the world’s largest professional services firms. After realising that the big accountancy firm model was ineffective and out of reach for smaller businesses that don’t have their own in-house accountants, he decided to start his own practice in 2017.

“When I was at my previous firm, I felt that things moved quite slowly because of the many layers of staff that these big companies have working for their clients,” he says. “Having so many people involved is good in terms of quality, but for smaller businesses, which have rapidly changing needs, things need to move a little more quickly.”

Nakata works closely with clients in sectors such as financial services, automotive, technology, and pharmaceuticals on a number of matters. These include tax return preparation, indirect taxation, and tax support for M&A and reorganisations.

Although Nakata counts a number of Japanese businesses among his clients — those that require assistance with domestic issues or help with their branches overseas — his real strength is in advising companies based abroad with branches or subsidiaries in Japan.

At his previous firm, he spent three and a half years in Germany working for Japanese businesses with subsidiaries there. It was a great opportunity that helped him refine his expertise in international tax law. During this period, he advised on a number of pan-European projects, which gave him insight into the differences between European and Japanese tax codes — something that is rare in Japan.

“There are only a small number of licensed tax advisors who can provide this kind of advice in English in Japan, and those who can almost all belong to one of the Big Four accountancy firms,” Nakata says. “But because we’re small, we can be flexible. Before the Covid-19 pandemic, I went abroad at least once a year, both to attend international tax seminars and to visit our clients’ headquarters in person. I will do the same when the Covid-19 pandemic subsides.”

It is important to Nakata to stay in close contact with his clients, keeping them up to date with changes to Japan’s tax law and helping them avoid what he calls “don’t know situations”, where they assume that Japanese tax laws are the same as those in their own country. This is especially common for transactions that are routine in their home jurisdictions.

“There are instances when clients want to change their corporate structure, and must transfer their Japanese shares to another company. Although the transferred shares are not commonly taxed in Europe, they are in Japan,” Nakata explains. “Additionally, Japan’s consumption tax is based on European VAT, but there are small differences that can cause misunderstandings and lead to problems.”

Making a mistake can open up a company to unnecessary tax obligations that may eat deeply into profits. Before consulting Nakata, one of his clients would have been liable to pay ¥20 million for a simple reorganisation. Careful due diligence is especially crucial given the increase in cross-border transactions and the current changeable state of the international tax world.

Japan is one of many countries cracking down on international tax evasion and avoidance by multinationals. The rules and regulations have changed substantially in recent years, and there have been numerous books published with advice for Japanese businesses on how to navigate these changes. Nakata realised that international firms investing in Japan also need assistance, so he resolved to write A Q&A on Japanese Taxation for Foreign-based Companies.

The book, currently available only in Japanese, is a guide for businesses with subsidiaries in Japan to help them understand the basics of Japanese tax laws and what they should be doing to minimise their own liabilities. Readers will be better equipped to identify and avoid potential “don’t know situations” themselves.

“The book is written for the accounting and tax divisions of companies in Japan that have their headquarters abroad,” he explains. “I receive a lot of questions that are not relevant to Japanese tax, but that are based on knowledge of another country’s regulations. This book will help them to understand what is and what is not pertinent to Japan transactions.”

Nakata includes a Q&A section that answers the most common questions he has encountered in his career regarding areas such as corporation tax, withholding tax, and consumption tax. Although it was only released in February, Nakata has already received good feedback from readers.

“My clients said that there were many cases detailed in the book that they had faced and that they would have found easier to deal with if the book had been available back then,” he says. “As far as I know, there are no other books about international tax written from the perspective of a subsidiary or branch company based in Japan, so I hope that the book will prove useful.”

With the Japanese economy forecast to grow strongly in 2021, many businesses are looking forward to turning the page on last year’s upheaval and reaping the benefits expected during the period of post-Covid-19 recovery. With the help of Yukiyasu Nakata International Tax Office, their Japan operations can look forward to starting an exciting new chapter.

“because we’re small, we can be flexible”