Tax auditors running out of cheaters, ponder purpose in life

October 12th, 2012 by Philip Brasor & Masako Tsubuku

Pandora’s box

You know that the recession is getting serious when even the National Tax Agency is reduced to twiddling its thumbs. The amount of unclaimed income that tax investigators discovered last year was ¥19.2 billion, comprising a measly 189 cases, the lowest since 1978. Moreover, of all the cases they investigated, only 61.9 percent were prosecuted, the lowest rate since 1973.

It should be noted that these numbers actually apply to tax returns or lack of reporting that occurred in 2008, since it takes about three years for the agency to complete an investigation before deciding on whether to pursue prosecution. So these numbers could simply be a temporary dip owing to the fact that 2008 was the year of the Lehman Brothers failure that jump started the whole economic crisis. However, there are other factors at play.

A tax agency official recently told Tokyo Shimbun that “prosecutors’ attitudes” changed after several recent scandals in which the legality of their methods were questioned, in particular that case in Osaka where a prosecutor cooked up evidence to nail a health ministry bureaucrat. Consequently, prosecutors are a bit gunshy about borderline cases that they would have pursued more aggressively in the past. In addition, over the years tax evaders have become more skillful at hiding income thanks to advances in information technology and the globalization of finances.

But a former tax official told Tokyo Shimbun that he thinks the quality of the auditing has also gone down. When he was an investigator, new recruits were trained under the strictest, most punishing circumstances. Veteran auditors put the screws to their underlings to make sure they were tough and relentless in getting as much evidence against tax scofflaws as they could.

This sort of dedication was made famous in the popular 1987 movie “Marusa no Onna” (“A Taxing Woman“), in which a female auditor pursues cases in a methodical but obsessive manner. Marusa is the nickname of the the tax bureau’s investigation division, which, practically speaking, possesses powers equivalent to those of the police.

Usually, when the agency requests more tax records from a suspect, the suspect can refuse and the bureau can’t do anything about it. But the investigation division can get warrants to search premises and seize records, though they usually only do so for the most serious cases. If you don’t make that much money in the first place there’s very little likelihood that the marusa team will come after you, even if you have failed to declare a sizable chunk of your income.

A tax accountant told the newspaper that he doesn’t think the tax agency will start looking at lower income suspects just to have something to do. “The task of the bureau is to levy taxes appropriately and fairly,” he said, which is nice to know.

As a footnote, in the middle of September, a 69-year-old woman was convicted in Osaka High Court of evading ¥2.8 billion in inheritance taxes. According to Sankei Shimbun, the woman’s father, who made his money in real estate, apparently had stashed ¥6 billion in his garage. When he died in October 2004, she inherited the money but failed to declare ¥5.7 billion. Somehow she was caught. Prosecutors demanded a jail sentence of four years and six months and a fine of ¥1 billion. The judge sentenced her to two years and six months and a fine of ¥500 million, in addition to the unpaid taxes, interest and penalties, and this was on appeal. It is the highest amount of undeclared inheritance income ever prosecuted.

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