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1. Accounting(Comment about the exposure draft for accounting standards drafts for Revenue Recognition)

In July 2017, the Accounting Standards Board of Japan (ASBJ) released an exposure draft for accounting standards (Draft of statement No.61) for Revenue Recognition and an exposure draft for guidance on accounting standards for Revenue Recognition (Draft of guidance No.61).

In response to the drafts, many comment letters were submitted. With regard to the policy of separate financial statements, the accounting standards would affect current accounting practices and customs, which are based upon the business accounting principles and tax treatments supplementing this business accounting principles. In particular, the comment letters state that the tax treatment should be clarified immediately, and systems with no fundamental difference between accounting and tax rules should be developed.

Regarding small and medium-sized corporations (which have adopted tax accounting as their corporate accounting), the application of this accounting standard for separate financial statements should be optional as it has a big impact on such companies.

As we thought, tax treatments are exerting a tremendous impact on corporations. Thus we will pay attention to future trends.

2. Tax

The National Tax Agency released a draft to partially amend the ‘Commissioner’s Directive on the Operation of Transfer Pricing’ on November 11th 2017.

The draft refers to the simplified approach to determine the Arm’s Length Price related to intra-group services, and the requirements for the application of this approach are as follows.

1.Intra-group services are of supportive nature, and do not relate to the core business of the group that the enterprise and its foreign associated enterprise belong to.
2.Intangibles are not used for intra-group services.
3.Both the enterprise and its foreign associated enterprise do not assume significant risks when performing intra-group services.
4.Intra-group services are not activities such as research and development, production, and sales.
5.Services whose nature is similar to intra-group services are not provided to non-group enterprises.
6.The charge of intra-group services is a markup of 5 percent of the total costs.
7.The enterprise prepares documentation containing necessary information about the intra-group services and preserves it.

The draft will be in effect through a prescribed procedure after receiving public comments on it.

3. Labor Management (36 Agreement)

The Labor Standards Act stipulates that an employer must not have workers work more than 40 hours per week and 8 hours per day. In order for an employer to have workers work legal overtime exceeding those hours (overtime work), a written agreement (known as the 36 Agreement) must be signed between the labor and management and filed with the local Labor Standards Inspection Office in advance.

The 36 Agreement provides the standards for the limit of working hours, which is 45 hours per month and 360 hours per year for ordinary workers. Employers may have workers work longer than those hours by entering into the 36 Agreement with Special Provisions with the workers, only when special circumstances that temporarily require overtime work beyond those limited hours are expected. Since the 36 Agreement is valid for 1 year, employers need to renew the agreement and file it every year if there is a constant need for overtime work.

4. This Week’s Words of Wisdom

“Efforts lacking direction don’t work” (Mencious)

Continuing from the previous issue (about Matsui, a retired professional baseball player), Matsui achieved great success because he chose baseball and tried hard. If he had chosen gymnastics, he may not have succeeded as greatly. This is quoted from a book written by an accountant I know. Undoubtedly, making blind efforts don’t lead to success.

The referring page is Nagamine & Mishima JC Accounting K.K.

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