Japan: Revised Enforcement Rule of the Electronic Books Preservation Act Seeks to Ease Requirements for Paperless Tax Documents

(Oct. 5, 2020) The amended Enforcement Rule of the Electronic Books Preservation Act (Enforcement Rule) will come into force on October 1, 2020. (Ministry of Finance (MOF) Ordinance No. 43 of 1998, amended by MOF Ordinance No. 24 of 2020.) The Enforcement Rule was amended to enable the following electronic records to be stored instead of paper tax-related documents:

A. an electromagnetic record with the issuer’s time stamp

B. an electromagnetic record that is stored in a computer processing system that meets either of the following and through which the transaction information is also exchanged:

i.  The occurrence of corrections or deletions to the recorded items and contents of these can be confirmed; or

ii.  It is not possible to correct or delete the recorded items of the electromagnetic record. (New art. 8, para. 1, items 1 & 3.)

Under the amended Enforcement Rule, if a timestamp is attached to an electronic invoice, a company to which the Act applies can store the electronic invoice as a tax document. In addition, companies do not have to receive paper receipts when a payment is made electronically. In these cases, the electronic record is treated the same as the paper record under the tax laws.

Aim of the Electronic Books Preservation Act and Recent Revision

The Diet (Japan’s parliament) enacted the Electronic Books Preservation Act (official name: Act on Provisions concerning Preservation Methods for Books and Documents Related to National Tax Prepared by Means of Computers) in 1998, in order to reduce the burden of storing national tax-related books and documents for taxpayers. (Act No. 25 of 1998, amended by Act No. 8 of 2020.) The MOF issued the Enforcement Rule of the Act at the same time. In order for a company to adopt the system of storing relevant accounting books and tax documents electronically, the local tax office’s approval is required. (Electronic Books Preservation Act art. 4.)

The Act and the Enforcement Rule have been amended several times to make storing national tax-related books and documents easier. For example, a 2016 revision of the Enforcement Rule allowed the images of receipts, invoices, and estimates taken with a smartphone to be considered formal tax documents if a timestamp is attached to them within three days from its creation or receipt. Before the 2016 revision, only images taken by scanners with certain specifications were allowed.

Background and skepticism  

Before the 2020 revision, the digitization methods for accounting books and tax documents under the Electronic Books Preservation Act have mainly been (1) saving receipts received on paper as images, and (2) saving receipts received as electronic data, such as PDF files, in the same format. In Japan, receipts are usually given on paper, and many companies consider the work of “digitization” as requiring extra effort. Regarding (2), it is not common to receive receipts in PDF files. Although the revisions of the Electronic Books Preservation Act and its Enforcement Rule have made the system for storing paperless tax documents easier, the majority of small- and medium-size companies still settle expenses on paper and store receipts for the duration set by the law.

Some experts are skeptical on the effect of the 2020 revision. An accountant wrote in an online article that the whole system under the Act is still cumbersome. He states that, even if only a part of the processing becomes paperless, many companies will not try to adopt the system unless the entire accounting process is completed without paper.

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