Amounts imposed on top of the principal tax when filing or payment occurs after the original deadline are collectively calledancillary taxincidental taxes.

Each type has a separate statutory provision, rate, and conditions.Calling them all “penalties” obscures the opportunities to prevent or limit them.

“Incidental Taxes” Is a Statutory Term

General Act of National Taxes, Article 2(iv).

(iv)ancillary taxAmong national taxes,delinquent tax, interest tax, additional tax for underreporting, additional tax for nonfiling, additional tax for nonpayment, and heavy additional taxis what the term means.

are the six types. Of these,interest tax(Article 64 of the General Act) concerns deferred payment, payment in kind, and extensions of filing deadlines, and differs in nature from a sanction for delay. The remaining five types are discussed below.

delinquent tax interest

Article 60(2) of the General Act of National Taxes prescribes an annual rate of14.6%with a proviso for “the period up to the payment deadline orthe period from the day after the payment deadline until two months have elapsed,”for which the annual rate is7.3%That is the consequence.

Article 61 of the same Act provides special rules forthe period used to calculate delinquent tax,excluding certain periods in specified cases, while Article 63 provides forexempted.This is the prescribed penalty.It is not a system under which the amount necessarily accumulates without limit.

Additional Tax Has Three Stages Depending on When You Act

The rate depends on the stage reached when you discover the issue.That is why acting promptly matters.

heavy additional tax

If all or part of the relevant facts areconcealed or falsified,heavy additional tax is imposed in place of the ordinary additional tax.

• In place of additional tax for underreporting 35%(Article 68(1))
• In place of additional tax for nonfiling 40%(Article 68(2))
• In place of additional tax for nonpayment 35%(Article 68(3))

Cases Where the Rate Is Increased

• Additional tax for underreporting: where the tax payable exceeds “the greater of the amount of tax reported in the timely filed return andJPY 500,000”, the excess is subject to5%an additional increment (Article 65(2)).
• Additional tax for nonfiling: where the tax payableJPY 500,000exceeds the threshold, the excess is subject to5%an additional increment (Article 66(2)). If the amount3 million yenexceeds the higher threshold, the calculation is tiered: 15% on up to JPY 500,000, 20% on the portion over JPY 500,000 up to JPY 3 million, and 30% on the portion over JPY 3 million (Article 66(3); each rate is reduced by five percentage points where no determination is anticipated).
• Repeated violations — Additional tax for nonfiling is increased by10%an increment under Article 66(6), and heavy additional tax is also increased by10%an increment under Article 68(4). Both apply in cases such as where the same type of tax was imposed during the period running backward from the previous day tothe date five years earlier.Prior imposition of the same type of tax within that period is one such case.

With the increase for repeated violations, heavy additional tax can reach 50%.

Cases Where No Additional Tax Is Imposed

The provisions include relief forThere is a proviso:and rules for correcting matters within the specified period.

• Additional tax for nonfiling: the proviso to Article 66(1) states that it does not apply “where failure to submit a timely return is found to havethe just cause”. In addition, paragraph (9) disapplies paragraph (1) where a late return is filed without anticipating a determination, meets the Cabinet Order conditions indicating an intention to file, and is submittedwithin one month after the statutory filing deadline.In that case, paragraph (1) does not apply.
• Additional tax for nonpayment: in addition to a similar proviso in Article 67(1), paragraph (3) disapplies paragraph (1) where voluntary payment without anticipating a payment notice (covered by paragraph (2)) meets the Cabinet Order conditions indicating an intention to pay by the statutory deadline and is madewithin one month after the statutory payment deadline.The requirements concerning past payment history must also be checked (Article 27-2(2) of the Order for Enforcement of the General Act of National Taxes).

The Actual Delinquent Tax Rate Is Not Simply the Figure in the General Act

Act on Special Measures Concerning Taxation, Article 94(1) (Special Rules for Delinquent Tax Rates).

Notwithstanding the annual delinquent tax rates of 14.6% and 7.3% prescribed in Article 60(2) of the General Act of National Taxes, where the relevant rate for each yearspecial benchmark rate for delinquent tax（means the average lending rate plus one percentage point per yearand is below 7.3% per year, ...

The rate actually applied changes each year.Do not simply calculate using 14.6% and 7.3%. The National Tax Agency publishes the applicable rates annually.

Points that require care in practice

• What constitutes a “justifiable reason”?The statute does not enumerate the requirements.
• When is “audit notification” deemed to have occurred?The provision refers to notification of the matters in Article 74-9(1)(iv) and (v) of the General Act.
• What does “concealed or falsified” mean for heavy additional tax?This is a question of fact.
• Should you file an amended return or a request for correction?The treatment of additional tax differs.
• How much can the delinquent tax calculation period be shortened?The conditions for the special rules in Article 61 of the General Act must be examined.

The statutory rates differ before and after notice of a tax audit.Please consult us as soon as you identify an issue.

Legal basis

• General Act of National Taxes, Article 2(iv) (Definition of Incidental Taxes)
• General Act of National Taxes, Article 60 (Delinquent Tax), Article 61 (Special Rules for the Period Used to Calculate Delinquent Tax), Article 63 (Exemption from Delinquent Tax in Cases of Tax Deferral and Similar Relief), and Article 64 (Interest Tax)
• General Act of National Taxes, Article 65 (Additional Tax for Underreporting)
• General Act of National Taxes, Article 66 (Additional Tax for Nonfiling)
• General Act of National Taxes, Article 67 (Additional Tax for Nonpayment)
• General Act of National Taxes, Article 68 (Heavy Additional Tax)
• Act on Special Measures Concerning Taxation, Article 94 (Special Rules for Delinquent Tax Rates)

The actual delinquent tax rate and the treatment of individual cases require confirmation.