Japan Fair Trade Commission’s warnings regarding the new invoice system

Effective from 1 October 2023, a new invoice system for Japanese Consumption Tax (JCT) will be implemented. Under this system, JCT taxpayers (buyers) will need to retain qualified invoices issued by qualified invoice issuers (sellers) to claim input JCT on taxable purchases.

For a buyer to receive and retain the qualified invoices, a seller must become a qualified invoice issuer. However, some small business operators, who have historically been exempted from JCT registration due to their minimal taxable sales, are hesitant to become qualified invoice issuers as their tax burdens and administrative costs are expected to increase.

The JFTC has warned about the risk of violating the AMA if a company, while implementing the new invoice system, exploits its dominant bargaining position to treat a counterparty unfavourably due to their refusal to register as a qualified invoice issuer.

In May 2023, the JFTC announced that they issued warnings to companies operating in specific business sectors for potential violations of the AMA related to the abuse of their dominant bargaining position. The sectors mentioned in the JFTC's announcement included an agricultural manufacturing company that interacts with farmers and a dispatch agency that engages with translators.

Key takeaway

Regardless of the alerts and the announcements from the JFTC, it is not prohibited to request one’s counterparty to become a qualified invoice issuer or to discuss an appropriate allocation of the additional tax costs due to their inability to issue qualified invoices. However, in taking these actions, careful consideration must be given to avoid being deemed to have abused one’s superior bargaining position.