Court Orders Repayment Of USD2.4bn Japanese Gift Tax

by Mary Swire, Tax-News.com, Hong Kong

23 February 2011

Japan’s Supreme Court has repealed the gift tax assessment imposed on Toshiki Takei, the son of the founder of Takefuji, the failed consumer loan company.

In 1999, Takei was given shares, valued at some JPY160bn (USD1.92bn), by his parents in a Dutch company, forming part of the Takefuji group, and was then ordered to pay some JPY133bn in gift tax by the National Tax Agency. Takei has always insisted that, as he was resident in Hong Kong at the time, the Japanese taxation of gifts of foreign assets made to non-residents was inapplicable.

The Agency has, in turn, insisted that Takei only became a Hong Kong resident to avoid taxation of the gift. However, having obtained a favourable judgment in the high court, overturning a previously unfavourable district court ruling, it has now received the Supreme Court’s judgment that Takei could not be looked at as anything but a Hong Kong resident at the time of the gift, and could, therefore, not be subject to the Agency’s assessment.

It is expected that Takei will receive a total refund of tax and legal interest from the Agency amounting to some JPY200bn. It has been pointed out that such a refund would represent twice the normal annual collections from gift tax by the Agency, and that it is unfortunate at a time when the government’s increasing fiscal deficit, and its attempts at tax reform, are being urgently considered.

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