A tax offense investigation(commonly called a criminal tax investigation): what happens after it ends? The General Act of National Taxes providesCriminal referralandan administrative penalty notificationas one of two possible outcomes in Articles 155 through 160.

The route depends on whether the tax is an “indirect national tax.” This is the framework of the system.

The distinction is whether the tax is an indirect national tax

Article 155 provides that, for the following tax offense cases, where the official considers an offense to have occurred, the officialmust file an accusation with a public prosecutor.This is the appointment procedure.

• Item (i)Taxes other than indirect national taxes:offense cases concerning those national taxes
• Item (ii): Offense cases concerning indirect national taxes under the self-assessment system, limited to offenses under Article 55(1) or (3) of the Liquor Tax Act and other offenses prescribed by Cabinet Order

The wording is “must.” There is no discretion.

Income tax, corporation tax, and inheritance tax are national taxes other than indirect national taxes. Therefore, if an offense is considered to have occurred in a case of evasion of these taxes,an administrative penalty notification is not an option; accusation is the only route.That is the result.

“Indirect national taxes” are defined in the parenthesis in Article 135(1) as “consumption tax imposed on taxable goods specified in Article 47(2) of the Consumption Tax Act and other national taxes prescribed by Cabinet Order.” Part of the definition is delegated to Cabinet Order.

For indirect national taxes: first a report, then an administrative penalty notification

Article 156(1) provides that when an official of a regional taxation bureau or tax office finishes investigating an offense concerning indirect national taxes, excluding those in Article 155(ii), the officialmust report the resultsThat is the consequence.

to the competent director-general of the regional taxation bureau or district director of the tax office. However, in any of the following cases,an accusation must immediately be filed with a public prosecutor.This is mandatory.

• (i) The suspect's whereabouts are unknown
• (ii) There is a risk that the suspect may flee
• (iii) There is a risk that potential evidence may be destroyed or concealed

Upon receiving the report, if the director-general of the regional taxation bureau or district director of the tax officebecomes convinced through the investigation that an offense occurred,they issue an administrative penalty notification under Article 157(1).

The statute lists the contents of the notification.

• An amount equivalent to a fine
• Objects subject to confiscation
• An amount equivalent to a collection in lieu of confiscation
• Expenses incurred for serving documents and transporting and storing seized objects and similar items

The person is instructed to pay or deliver these at a specified place,by written notification stating the reasons.will do so.

Compliance with the administrative penalty notification prevents prosecution

Article 157(5) provides:

An offender who complies with the notification under paragraph (1) shall not be prosecuted for the same case.

This is the effect of the administrative penalty notification. It enables resolution through an administrative procedure, with a structure similar to traffic infringement payments.

Under paragraph (4), once notification is given,the limitation period for prosecution is suspendedand resumes when 20 days have elapsed, calculated from the day following receipt of the notification.

When an administrative penalty notification case instead leads to accusation

Under Article 157(2), if either of the following is found, the authority proceeds without issuing a notification:an accusation must immediately be filed with a public prosecutor.This is mandatory.

• (i) The circumstances warrant a custodial sentence
• (ii) The offender lacks the financial means to comply with the notification

Failure to comply leads to accusation

Under Article 158(1), if the person fails to comply within20 dayscalculated from the day following receipt of the notification or similar notice, the director-general of the regional taxation bureau or district director of the tax office must file an accusation with a public prosecutor.

However, even after 20 days,this does not apply if compliance occurs before accusation.Expiry of the period alone does not automatically result in an accusation.

Paragraph (2) applies the same rule where notification cannot be made because the offender's whereabouts are unknown, they refuse to receive documents, or for another reason.

An accusation concerning indirect national taxes cannot be withdrawn

Article 159(1) provides that an offense case concerning indirect national taxes may be prosecuted only following an accusation by an official, a director-general of a regional taxation bureau, or a district director of a tax office. An accusation is therefore a procedural prerequisite for prosecution.

Paragraph (5) then states succinctly:

An accusation under paragraph (1) may not be withdrawn.

The accusation referred to in paragraph (5) is the one in paragraph (1), namely,an accusation concerning an offense involving indirect national taxes.It is.

Together with the accusation, records and retained or seized objects are handed over to the public prosecutor (paragraph (2)), and those objectsare deemed to have been seized by the public prosecutor under the Code of Criminal Procedure(paragraph (4)).

Where the authority is not convinced an offense occurred

Under Article 160, if the director-general of a regional taxation bureau or district director of a tax office investigates an offense case concerning indirect national taxes and is not convinced that an offense occurred, they mustnotify the suspect accordinglyand, if objects have been retained or seized or similar measures taken, order their release.

This statutory provision concerns indirect national taxes.

The structure to keep in mind

• Income tax and corporation tax evasion cannot be resolved through an administrative penalty notification. An accusation is filed if an offense is considered to have occurred.
• Administrative penalty notifications are a system for indirect national taxes; compliance prevents prosecution.
• An accusation in an offense case concerning indirect national taxes cannot be withdrawn (Article 159(5)).

From this point, criminal proceedings begin. This is an area requiring coordination with a lawyer, rather than a tax accountant acting alone.

Legal basis

• Article 135 of the General Act of National Taxes (On-Site Inspection, Search, or Seizure in Flagrante Delicto Cases)
• Article 155 of the General Act of National Taxes (Accusations in Offense Cases Concerning National Taxes Other Than Indirect National Taxes and Related Cases)
• Article 156 of the General Act of National Taxes (Reports on Offense Cases Concerning Indirect National Taxes and Related Matters)
• Article 157 of the General Act of National Taxes (Administrative Penalty Notifications in Offense Cases Concerning Indirect National Taxes and Related Matters)
• Article 158 of the General Act of National Taxes (Failure to Comply with Administrative Penalty Notifications in Offense Cases Concerning Indirect National Taxes)
• Article 159 of the General Act of National Taxes (Handover to Public Prosecutors)
• Article 160 of the General Act of National Taxes (Notification Where an Offense Is Not Established and Related Matters)
• Article 55 of the Liquor Tax Act
• Article 47 of the Consumption Tax Act (Returns of Taxable Bases and Tax Amounts for Taxable Goods Withdrawn from Bonded Areas and Related Matters)

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