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Tax controversy update vol. 5 - Recent trends in tax litigation
Continuing from the previous newsletter on Recent trends in requests for administrative reviews, in this issue we will share our views on tax disputes focusing on litigation using the latest available data provided by the National Tax Agency (“NTA”).
In August, the NTA released the 5. Other administrative review and litigation cases in the 2020 Annual Report of Statistics. An overview of the contents is as follows in chart 1 below. According to the information released, the percentage of decisions in favor of the taxpayer with respect to tax litigation ranges from approximately 5 to 10%. However, please keep in mind that this chart includes not only cases related to taxation, but also cases related to collection and all tax items are included. As such, we have prepared chart 2 which is filtered for just the corporate tax sections from chart 1.
Chart 1 indicates that the number of new cases related to tax litigation in 2020 has largely decreased since 2019. This decrease came about as a result of the number of cased processed for request of reconsideration in 2020 being approximately 500 cases less than the cases processed in 2019, and is not indicative of a trend for tax litigation filings being avoided.
Chart 1 (Total of all types, all tax items and all instances)
|
Fiscal year |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
|---|---|---|---|---|---|---|---|
|
Total number of cases |
237 |
231 |
230 |
199 |
181 |
223 |
165 |
|
Cases processed |
280 |
262 |
245 |
210 |
177 |
216 |
180 |
|
Number of claims accepted (decisions in favor of taxpayer) |
19 |
22 |
11 |
21 |
6 |
21 |
14 |
|
Percentage of claims accepted |
6.8% |
8.4% |
4.5% |
10.0% |
3.4% |
9.7% |
7.8% |
Data sourced from Annual Report of Statistics from 2014 to 2020
(https://www.nta.go.jp/publication/statistics/kokuzeicho/tokei.htm）
Chart 2 (Total of all instances, limited to cases related to corporate taxes)
|
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
|
|---|---|---|---|---|---|---|---|
|
Total number of cases |
49 |
38 |
38 |
30 |
53 |
36 |
37 |
|
Cases processed |
74 |
46 |
43 |
35 |
32 |
58 |
39 |
|
Number of claims accepted (decisions in favor of taxpayer) |
12 |
3 |
7 |
6 |
1 |
8 |
6 |
|
Percentage of claims accepted |
16.2% |
6.5% |
16.3% |
17.1% |
3.1% |
13.8% |
15.4% |
When comparing charts 1 and 2, chart 2 shows a higher percentage of decisions in overall favor of the plaintiff when focusing only on corporation tax. The percentage of decisions in favor of the plaintiff during the most recent fiscal year of 2020 was 15.4%. The available statistics do not reveal the scale of the companies in question, however, we can presume that when the plaintiff is a large company there is a higher percentage of decisions in favor of the plaintiff. This is a major change when considering the situation of approximately 20 years ago when most taxpayers rarely received tax litigation decisions in their favor.
In addition, one of the characteristics of tax litigation is that when the decision is in favor of the plaintiff, the percentage of rulings accepting the entire claim is higher than that of requests filed for administrative reviews. So, the decision of filing requests for administrative reviews requires concurrently considering whether the case will ultimately proceed to tax litigation. Of course, as litigation requires considerable time and expense, it is important to keep in mind advice from specialists and make a prudent decision regarding whether the case is right for litigation or not.
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EY Tax controversy team
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