You may hear the expression “Ryocho is coming.” It refers to the Regional Taxation Bureau’s Data Investigation Division (Shiryo Chosa-ka). It is often confused with Marusa, the criminal tax investigation arm, but it is an entirely separate department with different legal grounds and powers.

Let us examine its statutory position.

The Data Investigation Division belongs to the Taxation Department

The title of Article 474 of the Ordinance on the Organization of the Ministry of Finance is as follows:

(Functions of the Data Investigation Division 1 and Data Investigation Division 2 of the Taxation Department; the Data Investigation Division, Data Investigation Division 1, Data Investigation Division 2, and Data Investigation Division 3 of the First Taxation Department; and the Data Investigation Division, Data Investigation Division 1, Data Investigation Division 2, and Data Investigation Division 3 of the Second Taxation Department)

Although the title is lengthy, it establishes a clear point: the Data Investigation Division is located in the Taxation Department, First Taxation Department, or Second Taxation Department.

In other words, the Data Investigation Division belongs to the taxation function, not the Criminal Investigation Department (or the Large Enterprise Examination and Criminal Investigation Department). This is the clearest basis for distinguishing it from Marusa.

The organization varies by bureau. Some have one Data Investigation Division; others have First through Third Data Investigation Divisions.

What does the division do?

Article 474 lists items by number, stating that the following administrative duties shall be assigned as provided for by the Commissioner of the National Tax Agency. In relation to practical operations, items 1 and 2 are important.

Item 1 covers guidance and supervision of work concerning specific matters that the Regional Commissioner considers necessary, together with the investigations and inspections needed for that work. This falls within investigations of the tax bases for income tax, corporation tax, local corporation tax, inheritance tax and related taxes, consumption tax, and stamp tax, and inspections relating to those national taxes.

Item 2 provides the basis for what are commonly called Ryocho cases. It states:

…investigations and inspections concerning matters that the Regional Commissioner considers particularly necessary, in light of the amount of income, the scale and nature of the business, the value of acquired property, or other circumstances of the person subject to those investigations and inspections.

Large in scale, special in nature, and high in the value of the acquired property. Cases like these are handled directly by the Regional Taxation Bureau rather than the tax office. That is category two.

Item 3 covers administrative appeals relating to these duties. Items 4 and 5 concern investigations into the imposition of foreign taxes under tax treaties and similar arrangements.

The authority is just like a tax office investigation.

This is the most important point in actual practice.

Even when Ryocho conducts an audit, its authority rests on the powers of questioning and inspection under Article 74-2 and subsequent articles of the Act on General Rules for National Taxes. It does not have a judicial warrant of the kind used in a criminal tax investigation, or powers of compulsory entry, search, and seizure.

The same framework as a local tax-office audit also applies to advance notice (Article 74-9) and procedures at the conclusion of an audit (Article 74-11).

There are exceptions to advance notice. Under Article 74-10, notice is not required where the tax office director or other competent authority, in light of the information held, finds a risk of facilitating illegal or improper conduct or otherwise hindering the proper conduct of the audit. Ryocho may use this provision to visit without prior notice.

As a system, it is within the same framework as a tax office investigation. The difference is who comes and why they came.

Why it matters to consider why they came

The focus point listed in Article 474, Item 2 is, as written in the text, "the amount of income, the scale and manner of the business, the value of the acquired property, or other circumstances."

The provision requires that the Regional Commissioner consider the matter particularly necessary. Selection therefore involves a judgment distinct from that used for an ordinary local tax-office audit.

Sometimes they come regarding inheritance tax cases, and other times regarding corporate cases. What the focus was must be inferred from the contents of the questions.

Common practical questions

• It is common to receive consultations at the stage where you have been contacted by the Regional Taxation Bureau instead of the local tax office.
• There are situations where multiple staff members enter multiple locations at the same time, making initial decision-making difficult.
• Whether the discussion covers the requirements for heavy additional tax will change the subsequent outlook.

Ryocho cases often involve clear points of dispute, but how we structure the explanation can influence the outcome. Please consult us as soon as the bureau contacts you.

Legal basis

• Article 74-2 of the Act on General Rules for National Taxes (Authority to Question and Inspect Concerning Investigation of Income Tax, etc. by the Relevant Official)
• Article 74-9 of the Act on General Rules for National Taxes (Prior Notice, etc., of Tax Audits to Taxpayers)
• Article 74-10 of the Act on General Rules for National Taxes (Cases where prior notice is not required)
• Article 74-11 of the Act on General Rules for National Taxes (Procedures upon Completion of Investigation)
• Article 131 of the Act on General Rules for National Taxes (Inquiries, Inspections, or Retention, etc.)
• Article 474 of the Ordinance for Organization of the Ministry of Finance

Article headings are verified using the statutory data from the e-Gov Law Search.