Japanese Court Issues Key Pension Tax Ruling

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

09 July 2010

The Japanese Supreme Court has overturned a previous ruling by a lower court and ruled that double taxation on pension insurance payments is illegal.

The ruling applies to life insurance proceeds that are paid out in the form of pension payments and follows a case where a widow went to court to fight the imposition of double taxation on the pension she received following her husband’s death.

The woman brought her case to court as she claimed that the Japanese National Tax Agency could not legally impose income tax and inheritance tax on the assets she received from her late husband’s estate. The tax agency viewed the lump sum she received (JPY40m, USD450,000) as inherited wealth and the JPY2.3m per year pension she was entitled to as taxable income. The National Tax Agency had assessed that 60% of the annual pension was taxable.

Overturning the lower court’s ruling, the Supreme Court ruled that the regulations should provide for “excluding double taxation on things of the same economic value." The ruling means that the woman’s claim to have the tax refunded has been upheld and JPY25,600 paid in tax in the first year of the pension will be returned to her.

The ruling could spark a raft of other claims based on the same type of pension benefits contract.

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