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Clarification of revenue recognition (2018 Tax Reform)

Japan Inbound Tax & Legal Newsletter September 2018, No. 30

On 30 March 2018, the Accounting Standards Board of Japan (ASBJ) published Accounting Standard for Revenue Recognition (ASBJ Statement No. 29) and Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Guidance No. 30), which clarify the rules for recognizing revenue from sales and transfers of assets and the provision of services under Japan’s generally accepted accounting principles.

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Overview

On 30 March 2018, the Accounting Standards Board of Japan (ASBJ) published Accounting Standard for Revenue Recognition (ASBJ Statement No. 29) and Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Guidance No. 30), which clarify the rules for recognizing revenue from sales and transfers of assets and the provision of services under Japan’s generally accepted accounting principles.

Japan historically has recognized revenue for corporate tax purposes in accordance with the accounting rules, unless otherwise specified in the Japanese corporate tax law (CTL). In line with the ASBJ’s clarification, therefore, the National Diet released revisions to the relevant tax rules in the 2018 tax reform on 31 March 2018 and, on 1 June 2018, the National Tax Authority (NTA) released revised circulars on revenue recognition for tax purposes. (Circulars are a form of guidance issued by the tax authorities indicating how they intend to treat certain situations.) The revised circulars provide guidance on the following:

  • The adoption of the new accounting standards;
  • The circumstances in which the recognition of revenue for tax purposes differs from the accounting treatment; and
  • Options for small and medium-sized enterprises to apply existing accounting standards

The revisions generally align the recognition of revenue for tax purposes with the accounting treatment, except for bad debts and sales returns.

The new ASBJ revenue recognition rules are mandatory for fiscal years beginning on or after 1 April 2021, but corporations may choose to apply them earlier. For example, a company with a calendar fiscal year may apply the new rules from calendar year 2018, and a company whose fiscal year runs from 1 April through 31 March first may apply them for the year ending 31 March 2019.

This article outlines some of the revisions to the CTL and the circulars to reflect the clarifications published by the ASBJ.

(70KB, PDF)

* This Article is based on the relevant Japanese or specific country’s tax law and other authorities in effect on the date of this Article. This Article would not be guaranteed updating if there are any changes in Japanese tax law, any other law, or interpretations by the courts or tax authorities thereof after the date of this Article.

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