Japan

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Overall Phase 2 Rating is Largely Compliant

Table of Determinations and Ratings of the Combined Review

Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities. (ToR A.1)
Determination Factors Recommendations
The element is in place, but certain aspects of the legal implementation of the element need improvement.   In Japan, although some beneficial ownership information is available under the tax laws, the availability of beneficial ownership information is mainly based on the AML/CFT legislation, which obliges financial institutions to carry out customer due diligence (CDD) procedures to ensure that the beneficial ownership information on their customers is accurate and up-to-date. However, while stock companies and LLPs must have a bank account with a local bank or local branch of a foreign bank at the time of incorporation, they do not have the legal obligation to maintain that local bank account during their lifetime. In addition, judicial scriveners, certified public accountants and certified tax accountants, although AML-obligated, are exempt from the obligation of identifying and maintaining the beneficial ownership information on their clients. Accordingly, it is not ascertained that beneficial ownership information on companies and partnerships is required to be maintained in Japan in all cases.  Japan should take further measures to ensure that beneficial owners of all companies and partnerships are identified in line with the standard. 
Phase 2 Rating Factors Recommendations
Partially Compliant.  Prior to 1 October 2016, the definition of beneficial owner(s) of legal entities and arrangements under the Customer Due Diligence (CDD) requirements allowed for a legal entity or arrangement to be a beneficial owner, which was not in line with the standard. With effect from 1 October 2016, Japan introduced amendments to the CDD obligations, which introduced amongst other a definition of beneficial owner(s) of legal entities and arrangements in line with the standard to a large extent. The Financial Services Agency amended the Supervisory Guidelines in July 2016 in accordance with the amendments of the Prevention of Transfer of Criminal Proceeds Act. In addition, due to the short period of time since the full application of the new rules, the adequacy of the oversight and enforcement in practice could not be fully assessed.   Japan should monitor the effective implementation of the new CDD rules by AML-obligated persons, notably by ensuring that adequate oversight and enforcement activities are carried out. 
Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements. (ToR A.2)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
Banking information should be available for all account-holders. (ToR A.3)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Largely Compliant.  Prior to 1 October 2016, the definition of beneficial owner(s) of legal entities and arrangements under the Customer Due Diligence (CDD) requirements allowed for a legal entity or arrangement to be a beneficial owner, which was not in line with the standard. With effect from 1 October 2016, Japan amended the definition of beneficial owner(s) of legal entities and arrangements in line with the standard to a large extent. The Financial Services Agency amended the Supervisory Guidelines in July 2016 in accordance with the amendments of the Prevention of Transfer of Criminal Proceeds Act. In addition, due to the short period of time since the full application of the new rules, the adequacy of the oversight and enforcement in practice could not be fully assessed.  Japan should monitor the effective implementation of the new CDD rules by banks, notably by ensuring that adequate oversight and enforcement activities are carried out. 
Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information). (ToR B.1)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information. (ToR B.2)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
Exchange of information mechanisms should provide for effective exchange of information. (ToR C.1)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
The jurisdictions' network of information exchange mechanisms should cover all relevant partners. (ToR C.2)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
The jurisdictions' mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received. (ToR C.3)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties. (ToR C.4)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
The jurisdiction should provide information under its network of agreements in a timely manner. (ToR C.5)
Determination Factors Recommendations
The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review.   This element involves issues of practice. Accordingly no determination on the legal and regulatory framework has been made.   
Phase 2 Rating Factors Recommendations
Compliant.     

Earlier self-assessment based annual reports entitled Tax Co-operation 2010: Towards a Level Playing Field are also available.