Only the Importer of Record (IOR) is Eligible for Import JCT Refunds
SK ADVISORY INCIn Japan, basically only the Importer of Record (IOR) is eligible to reund import consumption tax
The taxpayer liable for the Japan Consumption Tax on imported goods withdrawn from a bonded area is considered the importer under Japanese customs law. Under customs law, the importer is defined as the taxpayer, known as the “Importer of Record - IOR” (Customs Law Articles 6 and 7(1), Customs Act Basic Notice 7-1).
Since the Importer of Record (IOR) is liable for the tax on taxable goods, such an entity, as a business, is eligible to deduct the related Japan Consumption Tax under the Consumption Tax Law (Consumption Tax Law Article 30, Paragraphs 1(3) and (4)).
As of October 1, 2023, amendments to the Customs Regulations have tightened the definition of who can be an "Importer of Record (IOR)". Only those involved in the transaction, such as buyers who import through sales transactions or those with ownership and disposal rights over the goods, are allowed. Third parties uninvolved in the transaction cannot be Importers of Record (IOR). Foreign corporations without a physical presence in Japan (non-residents) can use our Attorney for Customs Procedures (ACP) service, allowing non-residents to become the Importer of Record (IOR) themselves and deduct (or refund) import Consumption Tax.
We have extensive experience in facilitating such tax deductions (or refunds).
Case of Different Substantial Importer and Importer of Record
According to the Tokyo District Court decision on February 20, 2008, "In principle, a tax system where taxable entrepreneurs themselves deduct the taxes paid at the import stage should be assumed. Unless there are special circumstances, it should be understood that a plaintiff who is not the importer of record will not have their consumption tax deductible." It indicates that tax declarations made in the name of a third party are not intended by law. We can learn from this court case that only the Importer of Record (IOR) has the right to deduct input tax amounts.
In very limited cases, substantial importers who are not the formal Importer of Record are allowed to deduct input tax amounts.
Practically, it is appropriate to assume that entities who are not the Importer of Record (IOR) are not allowed to deduct import consumption tax. An exception that allows the deduction of input tax amounts for those not being the importer of record exists under Basic Consumption Tax Notification 11-1-6 "Handling in Cases Where the Substantial Importer and the Importer of Record Differ". This directive states that even if the importer of record differs from the substantial importer, the following conditions, if met, allow the substantial importer to deduct the consumption tax paid on their taxable goods:
- The substantial importer sells the taxable goods to the importer of record (manufacturer, etc.) for a consideration after importing.
- The substantial importer bears the consumption tax amount related to the retrieval of the taxable goods.
- The substantial importer preserves the original import permit and receipt of the consumption tax related to the retrieval issued in the name of the importer.
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Amendment of the Customs Act Basic Notice as of October 1, 2023
The revision to the Customs Act Basic Notice effective October 1, 2023, has tightened the definition of "importer = importer of record", specifically:
- For goods imported through an Import Transaction (where the Japanese buyer becomes the importer via a sales transaction between an overseas seller and a Japanese buyer), the definition is similar to "person importing the goods" as stipulated in Basic Customs Notification 6-1(1).
- In cases other than the above, at the time of import declaration, it refers to those who have the authority to dispose of the imported goods after domestic retrieval, and if there are others performing the importing acts for the same purpose, it includes them as well.
In summary, if a non-resident or foreign corporation without an office in Japan wishes to import into Japan, it is naturally permissible for the Japanese buyer to become the importer via a transaction with a Japanese company, or for the non-resident having disposal rights to become the importer (using ACP, Attorney for Customs Procedures) and deduct import consumption tax.
It is not permissible for a third party with no disposal rights or involvement in the transaction to act as the importer. Foreign corporations without an office in Japan (non-residents) can use our Attorney for Customs Procedures (ACP) service to act as importers, allowing them to deduct import consumption tax (or, in some cases, obtain a refund).
Our Japan Consumption Tax (JCT) Representative Services
At SK Advisory Inc., we provide a comprehensive one-stop service that covers both customs procedures through the Attorney for Customs Procedures (ACP) and Japan Consumption Tax (JCT) procedures with the National Tax Agency through a designated JCT Tax Representative.
By working closely with our trusted partner tax accountants, we act as your ACP while maintaining close coordination and information sharing with the tax representative. This collaboration ensures the proper deduction and refund of Japan Consumption Tax paid at the time of importation.
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Research Paper (Working Paper)
Sawada Keisuke, CEO of SK Advisory, is currently conducting in-depth research from a Japanese tax law perspective on a critical issue in import and tax practice: "Who is entitled to claim the deduction (or refund) of Import Japan Consumption Tax?"
As cross-border transactions become increasingly complex, our research aims to clarify the legal grounds for obtaining appropriate tax refunds by deepening our analysis of both practical operations and legal theories.
By sharing the insights gained through this research, we aim to contribute to the sound development of international trade and the promotion of appropriate import and tax practices.
The final paper is scheduled for completion in March 2027. As it is currently a work in progress, we will provide regular updates on our research progress in accordance with the latest practical trends and legislative changes.
A Study on the Scope of “Taxable Persons” Eligible for Input Consumption Tax Deduction on Taxable Imported Goods
With Special Reference to the Treatment of Nominal Persons Who Declare Imports in Domestic Sales of Tangible Assets by Non-Resident Businesses
Abstract
This paper examines, from the perspective of statutory interpretation, the scope of the “taxable person” entitled to claim an input tax credit (ITC) for consumption tax imposed on imported goods. In recent years, schemes have emerged in which foreign businesses selling goods in Japan through cross-border e-commerce arrange for a nominal importer of record to obtain a refund of import consumption tax. Under such schemes, the foreign business retains ownership of the goods while a third party acts as the formal importer of record; the nominal importer pays the import consumption tax and subsequently claims an input tax credit, resulting in a structure in which the foreign business does not effectively bear the burden of the import consumption tax. This creates disparities in tax burdens between businesses engaging in similar transactions but not using such schemes, raising serious concerns from the standpoint of competitive neutrality.
Article 30(1) of the Consumption Tax Act provides that, under certain conditions, a taxable person may claim an input tax credit for consumption tax imposed upon the withdrawal of foreign goods from a bonded area. However, the interpretation of the term “taxable person” in this context has not been clearly articulated in legal doctrine or jurisprudence.
According to Japanese case law (including the Tokyo District Court judgment of February 20, 2008), the importer of record is, in principle, regarded as the entity entitled to claim the credit. At the same time, in light of the purpose of the input tax credit system, the courts have suggested that there may be room to recognize entitlement for the person who has substantively borne the tax. Furthermore, based on the principle of taxation according to substance (Article 13 of the Consumption Tax Act), some scholars argue that the taxpayer should be identified as the person in whom the actual tax-bearing capacity resides, and that such person should be entitled to the credit. Other academic commentary has also pointed out that the “person who withdraws foreign goods” from a bonded area should be understood as the owner of the taxable goods at the time of withdrawal. Where another party acts as the importer of record merely for procedural convenience, that party may not qualify as the substantive “person who withdraws foreign goods,” thereby raising concerns that the input tax credit should be denied. In other words, the mere formal status as importer of record cannot automatically determine eligibility for the input tax credit.
By contrast, under the European Union VAT system, the deductibility of import VAT is generally assessed with particular emphasis on two conditions: (i) that the importer has the right to dispose of the imported goods as owner, and (ii) that the import costs are incorporated into the price of the goods or services supplied at a later stage. In particular, in the recent judgment of the Court of Justice of the European Union in Weindel Logistik Service (C-621/19), it was clearly held that a purely formal importer who satisfies neither of these requirements should not be granted the right to deduct input VAT.
Building upon an examination of these domestic and foreign legal frameworks and judicial precedents, this study analyzes, as a case study, schemes designed to avoid the burden of import consumption tax through the interposition of a nominal importer. It concludes that, in order to qualify as a “taxable person” entitled to an input tax credit for import consumption tax, an entity should satisfy at least one of the following conditions: (i) it holds ownership or the right of disposal over the taxable goods at the time of withdrawal from the bonded area; or (ii) the import costs are incorporated into the price of the goods or services supplied in its subsequent economic activities.
The introduction of these criteria would help curb tax-avoidance practices involving purely formal importers and ensure that input tax credits are granted only to those in whom genuine tax-bearing capacity resides. This, in turn, would preserve the integrity of the value-added tax chain and contribute to ensuring competitive neutrality among businesses.
Finally, this paper proposes an interpretative approach that complements the limitations of the recently introduced platform taxation rules for goods sales, as outlined in the FY2026 Tax Reform Outline, and contributes to securing tax fairness across a broader range of import transactions.
Introduction
In recent years, cross-border electronic commerce (cross-border e-commerce) has expanded rapidly, accompanied by the widespread use of fulfillment services provided by global platform operators. Against this backdrop, a business model has become increasingly prevalent in which foreign businesses sell goods to consumers in Japan while utilizing logistics, warehousing, and fulfillment services located within Japan.
In such transactions, a structure has emerged whereby a party other than the foreign seller—such as a domestic logistics provider, warehouse operator, or a so-called “importer-of-record service provider”—is designated as the importer of record solely in a formal sense. Under this structure, the nominal importer declares the importation of goods, pays Japanese consumption tax at the time of importation, and subsequently claims a refund through the input tax credit mechanism. Meanwhile, the foreign seller itself does not bear the economic burden of the import consumption tax at the time of importation.
This scheme (hereinafter referred to as the “Import Consumption Tax Refund Scheme via a Nominal Importer”) has been observed particularly among small-scale foreign sellers engaged in cross-border e-commerce.
Under the Japanese consumption tax system, importation of goods is subject to taxation based on the destination principle. Consumption tax is imposed at the time goods are withdrawn from a bonded area, on the premise that the final consumption of such goods occurs within Japan. This mechanism is intended to prevent tax leakage and to ensure competitive neutrality between imported goods and domestically produced goods.
However, under the above-mentioned refund scheme, although consumption tax is formally imposed on the nominal importer at the time of importation, the tax burden is effectively eliminated through the application of the input tax credit. At the same time, the foreign seller—who ultimately disposes of the goods and derives economic benefit from their sale in Japan—does not bear any import consumption tax as part of its costs.
As a result, where the foreign seller is a tax-exempt business operator, this structure may lead to a situation in which imported goods are supplied to the Japanese market without any consumption tax being embedded in their price, thereby undermining competitive neutrality with domestic businesses.
The legal issue underlying this structure centers on the interpretation of Article 30(1) of the Japanese Consumption Tax Act, which provides for the input tax credit mechanism. Specifically, the question arises as to who qualifies as the “taxable person” eligible to claim an input tax credit for consumption tax imposed on imported goods.
While, in principle, the importer of record who declares the importation and pays the tax would appear to be entitled to the input tax credit, it is not self-evident that this conclusion is consistent with the fundamental purpose of the input tax credit system—namely, to allow a taxable person to deduct consumption tax that it has actually borne in the course of its taxable business activities.
Accordingly, this study focuses on the scope of “taxable persons” eligible for the input tax credit on import consumption tax under Article 30(1) of the Japanese Consumption Tax Act. In particular, it examines whether a party that merely acts as a nominal importer—without possessing substantive disposal rights over the imported goods and without bearing the economic burden of the tax—should be regarded as the proper subject of the input tax credit.
To address this issue, this paper proceeds as follows.
First, it reviews the basic structure and purpose of the Japanese import consumption tax system and the input tax credit mechanism.
Second, it analyzes Japanese court decisions and academic commentary, with particular emphasis on the Tokyo District Court judgment of 20 February 2008, which directly addressed the availability of the input tax credit in the context of imported goods.
Third, it examines the European Union’s value-added tax (VAT) system and relevant Court of Justice of the European Union (CJEU) case law, in light of the historical influence of the EU VAT system on the design of Japan’s consumption tax.
Finally, based on a case study of the “Import Consumption Tax Refund Scheme via a Nominal Importer,” this paper considers how the boundary of eligible taxable persons should be drawn, and discusses potential implications for tax administration and practice.
Chapter 1
Fundamental Legal Structure of Import Consumption Tax and Input Tax Credit
1. Destination Principle and Taxation of Imported Goods
Japan’s consumption tax is structured as a value-added tax based on the destination principle. Under this principle, goods and services are taxed in the jurisdiction where final consumption takes place, irrespective of the place of production. Accordingly, imported goods are subject to consumption tax at the time they are withdrawn from a bonded area within Japan.
Pursuant to the Japanese Consumption Tax Act, consumption tax is imposed on the importation of goods when foreign goods are taken out of a bonded area. This mechanism is designed to ensure that imported goods bear a tax burden equivalent to that imposed on domestically produced goods, thereby maintaining competitive neutrality between domestic and foreign products.
The imposition of consumption tax at the importation stage also serves an administrative function. By taxing goods at the point of importation, the tax authority can effectively prevent tax leakage and secure tax revenue before the goods enter domestic distribution channels.
2. Taxable Event and Person Liable for Import Consumption Tax
Under the Japanese consumption tax system, the taxable event for imported goods occurs when foreign goods are withdrawn from a bonded area. The person liable for payment of consumption tax is, in principle, the person who withdraws the goods from the bonded area.
In practice, the person who files the import declaration and pays customs duties and import consumption tax—namely, the importer of record—is treated as the person liable for the tax. This linkage between the import declaration and tax liability reflects the close coordination between customs procedures and consumption tax administration.
However, it should be noted that the concept of the “importer” under customs law does not necessarily coincide with the person who ultimately owns, disposes of, or economically benefits from the imported goods. This distinction becomes particularly significant when assessing the availability of the input tax credit.
3. Input Tax Credit System under Article 30(1) of the Japanese Consumption Tax Act
Article 30(1) of the Japanese Consumption Tax Act provides for the input tax credit mechanism. Under this provision, a taxable person may deduct the amount of consumption tax paid on purchases (including import consumption tax) from the amount of consumption tax payable on taxable sales.
The fundamental purpose of the input tax credit system is to prevent the cascading of consumption tax through successive stages of transactions. By allowing a taxable person to credit tax paid at earlier stages against tax collected at later stages, the system ensures that consumption tax ultimately burdens only final consumption.
In the context of imported goods, Article 30(1) presupposes that the taxable person claiming the input tax credit has paid import consumption tax in the course of its taxable business activities. The system is thus premised on the idea that the taxable person deducts consumption tax that it has actually borne as part of its business costs.
4. Procedural Requirements for Input Tax Credit on Imported Goods
In order to claim an input tax credit for import consumption tax, the taxable person must satisfy certain procedural requirements. Most notably, the taxable person is required to preserve documents evidencing the payment of import consumption tax, such as import permits or customs clearance documents, on which the “name or title of the taxable person” is stated.
These documentation requirements function as an administrative safeguard, enabling the tax authority to verify that the input tax credit is claimed by the appropriate person. As a result, the name of the importer appearing on the import permit plays a crucial role in practice.
However, strict adherence to formal documentation raises the question of whether the availability of the input tax credit should be determined solely on the basis of the nominal importer listed on the import permit, or whether substantive factors—such as who actually bears the economic burden of the tax—should also be taken into account.
5. Relationship with Customs Law and the Concept of “Importer”
The Japanese Customs Act defines the importer primarily for the purposes of customs procedures, including the declaration of importation and the payment of customs duties. While the importer under customs law is generally responsible for import consumption tax as well, the objectives of customs law and consumption tax law are not identical.
Customs law focuses on border control, tariff assessment, and trade regulation, whereas consumption tax law aims to tax domestic consumption in a neutral and equitable manner. Consequently, the concept of the importer under customs law does not necessarily determine who should be regarded as the appropriate taxable person for purposes of the input tax credit.
This divergence becomes particularly salient in cases where the importer of record is merely a nominal party acting on behalf of another person who substantively controls, disposes of, and economically benefits from the imported goods.
6. Issues Arising from the Use of Nominal Importers
In recent years, particularly in the context of cross-border e-commerce, it has become common for foreign businesses to rely on domestic logistics providers or intermediary entities to act as importers of record in Japan. These entities may handle customs clearance and pay import consumption tax in their own name, while the foreign business retains substantive control over the goods.
Where such nominal importers subsequently claim input tax credits for import consumption tax, questions arise as to whether this outcome is consistent with the purpose of Article 30(1) of the Japanese Consumption Tax Act. Specifically, it becomes necessary to examine whether a party that does not bear the economic burden of the tax and does not possess substantive disposal rights over the goods should be entitled to the input tax credit.
These issues form the foundation for the legal and doctrinal analysis undertaken in the subsequent chapters.
Chapter 2
Judicial Interpretation of Article 30(1) of the Japanese Consumption Tax Act
1. Overview of Relevant Japanese Case Law
Judicial precedents directly addressing the scope of taxable persons entitled to claim an input tax credit for import consumption tax are relatively limited in Japan. Among these, the Tokyo District Court judgment of February 20, 2008 (hereinafter, the “2008 Tokyo District Court Judgment”) occupies a central position, as it squarely addressed whether a person other than the importer of record may claim an input tax credit for import consumption tax.
This judgment has attracted significant academic attention and has been the subject of extensive commentary, making it an appropriate focal point for analyzing the prevailing interpretation of Article 30(1) of the Japanese Consumption Tax Act.
2. Outline of the Facts in the 2008 Tokyo District Court Judgment
In the case before the Tokyo District Court, the plaintiff (X) was a domestic taxable business operator who substantively controlled imported goods and bore the economic burden of the import consumption tax. However, the import declaration and payment of import consumption tax were made in the name of another entity (K), which was listed as the importer of record.
K paid the import consumption tax at the time the goods were withdrawn from the bonded area. Subsequently, X claimed an input tax credit for the import consumption tax on the grounds that X was the substantive importer and bore the economic burden of the tax.
The tax authority denied X’s claim for the input tax credit, asserting that only the importer of record—namely, K—was entitled to deduct the import consumption tax under Article 30(1).
3. Issues in Dispute
The principal issue before the court was whether a person who is not the importer of record, but who substantively controls the imported goods and bears the economic burden of import consumption tax, may claim an input tax credit under Article 30(1) of the Japanese Consumption Tax Act.
More specifically, the dispute concerned whether the scope of “taxable person” entitled to the input tax credit should be determined strictly on the basis of the importer listed on the import declaration, or whether substantive factors—such as economic burden and control over the goods—should be taken into account.
4. Holding and Reasoning of the Court
The Tokyo District Court held that, in principle, the importer of record is the taxable person entitled to claim an input tax credit for import consumption tax.
The court reasoned that the input tax credit system under Article 30(1) presupposes that the taxable person claiming the deduction is the person who has paid the consumption tax at the import stage. In the context of imported goods, this is ordinarily the person who files the import declaration and pays the tax in its own name.
The court further emphasized that the consumption tax system is based on a self-assessment regime. Under this regime, the filing of a tax return and payment of tax by a particular person produces a formative legal effect, establishing a tax obligation between that person and the state. Accordingly, the court concluded that the person whose name appears on the import declaration and who has paid the import consumption tax is, as a general rule, the person entitled to claim the corresponding input tax credit.
On this basis, the court denied X’s claim for the input tax credit.
5. Recognition of Exceptions and “Special Circumstances”
Importantly, however, the Tokyo District Court did not adopt an absolute or mechanical rule that only the importer of record may ever claim an input tax credit. The court expressly acknowledged that there may be “special circumstances” under which a person other than the importer of record could be entitled to the input tax credit.
Although the court did not define these special circumstances in detail, it suggested that rigid adherence to the importer-of-record rule might not be appropriate in all cases, particularly where such adherence would undermine the fundamental purpose of the input tax credit system.
This acknowledgment has been widely interpreted in academic commentary as leaving room for a more flexible, substance-oriented interpretation of Article 30(1).
6. Evaluation of the Judgment in Academic Commentary
Scholars supporting the court’s approach emphasize the importance of legal certainty and administrative efficiency. From this perspective, linking the input tax credit to the importer of record ensures clarity and reduces the burden on tax authorities, who can rely on formal documentation such as import permits.
Other scholars, however, criticize the judgment for placing excessive weight on formalities at the expense of substantive tax principles. They argue that the primary purpose of the input tax credit system is to relieve taxable persons of consumption tax that they have actually borne in the course of their business activities. From this viewpoint, denying the input tax credit to a person who bears the economic burden of the tax merely because that person is not the importer of record is inconsistent with the underlying rationale of the system.
7. Significance for the Interpretation of Article 30(1)
The 2008 Tokyo District Court Judgment establishes a default rule that identifies the importer of record as the taxable person entitled to the input tax credit for import consumption tax. At the same time, it leaves open the possibility of exceptions in cases involving special circumstances.
As such, the judgment serves as a critical reference point for subsequent debates regarding whether and how substantive factors—such as economic burden and control over goods—should influence the determination of the taxable person under Article 30(1).
These unresolved issues form the basis for further analysis in the following sections, particularly with respect to the application of the substance-over-form principle and its relationship to Article 13 of the Japanese Consumption Tax Act.
8. The Formative Effect of Tax Returns under the Self-Assessment System
Under the Japanese tax system, consumption tax is administered through a self-assessment regime. Article 16(1)(i) of the Act on General Rules for National Taxes provides that, in principle, the amount of tax payable is determined by the taxpayer’s own return, and only in limited circumstances—such as the absence of a return or an incorrect calculation—may the tax authority determine the tax amount by administrative disposition.
In academic discourse, it is widely accepted that a valid tax return under this system produces a “formative effect” (keiseiteki kōryoku). This effect establishes a tax claim and obligation relationship between the taxpayer who filed the return and the state, irrespective of whether the substantive tax base requirements were fully satisfied.
Accordingly, once a tax return is validly filed and accepted, the legal status of the declarant as a taxpayer cannot be denied merely because the underlying taxable event did not occur as initially assumed.
9. Academic Criticism of the 2008 Tokyo District Court Judgment
Building upon this understanding, Sato argues that the formative effect of a tax return should be distinguished from the substantive determination of tax liability under substantive tax law.
According to Sato, the formative effect of a tax return merely creates a tax claim-obligation relationship between the declarant and the state. It does not, by itself, determine whether the declarant satisfies the substantive requirements for benefits provided under tax law, such as the right to claim an input tax credit.
In the context of import consumption tax, Sato contends that the fact that K filed the import declaration and paid the tax in its own name establishes a tax obligation relationship between K and the state. However, this fact alone does not necessarily mean that K satisfies the substantive requirements to be recognized as the taxable person entitled to an input tax credit under Article 30(1).
From this perspective, Sato criticizes the 2008 Tokyo District Court Judgment for conflating the formal effect of the tax return with the substantive requirements for entitlement to the input tax credit.
10. Application of Article 13 of the Japanese Consumption Tax Act
Sato further argues that Article 13 of the Japanese Consumption Tax Act should play a decisive role in determining the scope of taxable persons entitled to an input tax credit.
Article 13 provides that where a person who appears to have carried out a taxable supply is merely a nominal holder, and another person actually enjoys the consideration for that supply, the latter shall be deemed to have carried out the supply for purposes of the Act.
Although the text of Article 13 refers explicitly to the attribution of taxable supplies, Sato interprets the provision as embodying a broader substance-over-form principle applicable throughout the Consumption Tax Act, including Article 30(1).
On this view, the determination of whether a person qualifies as a “taxable person” entitled to an input tax credit should not be made solely on the basis of formal documentation, such as the name appearing on the import declaration. Rather, it should be based on a substantive assessment of who actually bore the economic burden of the tax and who exercised control over the imported goods.
11. Judicial Support for the Substance-Over-Form Principle
The substance-over-form principle articulated by Sato is consistent with established Japanese case law outside the immediate context of import consumption tax.
For example, in its judgment of October 10, 2001, the Yokohama District Court held that, where the legal form of ownership or attribution differs from economic reality, tax liability should be determined in accordance with the substantive attribution of economic benefits and burdens.
The court explained that taxation is imposed on objects or acts that indicate the existence of taxable capacity, and that such taxable capacity should be attributed to the person to whom the relevant rights or legal effects substantively belong, rather than to a mere nominal holder.
The court further clarified that, although the relevant statutory provision explicitly referred to income, the same reasoning applies equally to expenses. This interpretation supports the view that substance-over-form principles are not confined to income attribution, but extend to deductions and credits as well.
12. Implications for the Interpretation of Article 30(1)
Based on these considerations, Sato concludes that the substantive principles underlying Article 13 and the input tax credit system justify applying a substance-over-form approach to Article 30(1).
In other words, where a person is substantively recognized as the taxpayer who bore the economic burden of import consumption tax and controlled the imported goods, that person should, in principle, be regarded as the taxable person entitled to claim the corresponding input tax credit.
However, as discussed in the preceding section, procedural requirements—such as the requirement to retain import permits bearing the taxable person’s name—may limit the practical application of this principle. As a result, the recognition of input tax credits for persons other than the importer of record is generally restricted to cases involving “unavoidable circumstances,” as provided under the proviso to Article 30(7).
13. Interim Assessment
The analysis above demonstrates that Japanese academic commentary does not uniformly endorse a rigid, form-based interpretation of Article 30(1). While the importer-of-record rule serves as a default principle, there is substantial theoretical support for a more flexible interpretation that takes substantive economic reality into account.
This tension between formal certainty and substantive fairness constitutes a central theme in the interpretation of input tax credits for import consumption tax and provides the analytical foundation for further examination in subsequent chapters.
Chapter 3
Import VAT Deduction under EU Law: Legal Framework and Case Law
1. Overview of the EU VAT System and Import VAT
The value added tax (VAT) system of the European Union is based on the principle of taxation at each stage of the supply chain, combined with a deduction mechanism designed to ensure tax neutrality. Import VAT is imposed to place imported goods on an equal footing with domestically produced goods, thereby preserving competitive neutrality within the internal market.
Under Article 2(1)(d) of Council Directive 2006/112/EC (the “VAT Directive”), the importation of goods is subject to VAT. Article 30 of the VAT Directive defines the importation of goods as the entry of goods into the territory of the European Union.
The right to deduct import VAT is governed primarily by Article 168(e) of the VAT Directive, which provides that a taxable person is entitled to deduct VAT due or paid in respect of the importation of goods, insofar as the goods are used for the purposes of the taxable person’s taxed transactions.
2. The Principle of Tax Neutrality and Input VAT Deduction
A fundamental principle underlying the EU VAT system is fiscal neutrality. According to the established case law of the Court of Justice of the European Union (CJEU), the deduction system is intended to relieve the taxable person entirely of the burden of VAT payable or paid in the course of all its economic activities.
The right to deduct is an integral part of the VAT system and may not, in principle, be limited in a manner that undermines neutrality. However, the exercise of that right is subject to substantive and formal requirements laid down by EU law.
In the context of import VAT, this raises the question of which person qualifies as the taxable person entitled to deduction, particularly where the person liable for import VAT differs from the person economically benefiting from the importation.
3. Substantive Requirements for Import VAT Deduction
3.1 Direct and Immediate Link
The CJEU has consistently held that, for input VAT to be deductible, there must be a “direct and immediate link” between the input transaction and one or more taxable output transactions of the taxable person.
This requirement applies equally to import VAT. The importation must form part of the cost components of the taxable person’s output transactions, either directly or as part of general overheads.
If the costs incurred at the import stage are not incorporated into the price of the taxable supplies made by the taxable person, the right to deduct import VAT may be denied.
3.2 Ownership and the Right of Disposal as Owner
In addition to the direct and immediate link requirement, EU case law has increasingly emphasized the importance of the right of disposal over the imported goods.
The VAT Committee Guidelines of 2011 clarify that the taxable person entitled to deduct import VAT must have the right to dispose of the goods as owner. This requirement reflects the economic reality principle embedded in EU VAT law, whereby taxation follows economic substance rather than legal form.
This interpretation has been reinforced by subsequent CJEU judgments, which treat the right of disposal as a key substantive criterion for determining entitlement to deduction.
4. The DSV Road Judgment
In DSV Road A/S, the CJEU addressed the question of whether a taxable person could deduct import VAT where it acted as customs declarant but did not acquire ownership of the imported goods.
The Court held that the mere fact that a person is liable for import VAT under customs legislation does not, in itself, confer a right to deduct VAT. What matters is whether the importation is linked to the taxable person’s own taxable transactions.
The Court emphasized that, where the imported goods are used exclusively for the taxable transactions of another person, and the declarant neither uses the goods nor incorporates the import costs into its own pricing, the right to deduct must be denied.
5. The Weindel Logistik Judgment
The reasoning in DSV Road was further developed in Weindel Logistik Service.
In this case, the Court examined whether a logistics service provider that paid import VAT could deduct that VAT where the import costs were not reflected in the price of its taxable services.
The CJEU ruled that the absence of a direct and immediate link between the import VAT and the taxable person’s output transactions precluded deduction. The Court explicitly stated that where import costs are not included in the price of taxable supplies, the import VAT cannot be regarded as part of the taxable person’s economic activity.
This judgment clearly demonstrates that EU law prioritizes economic substance—specifically, the allocation of costs and the right of disposal—over formal liability for import VAT.
6. Summary of EU Law Requirements
From the above analysis, the substantive requirements for the deduction of import VAT under EU law may be summarized as follows:
- The taxable person must have a direct and immediate link between the import VAT and its taxable output transactions.
- The import costs must be incorporated into the price of those taxable transactions.
- The taxable person must have the right to dispose of the imported goods as owner.
These requirements operate cumulatively and reflect the EU VAT system’s commitment to tax neutrality grounded in economic reality.
7. Relevance for Comparative Analysis with Japanese Law
The EU approach to import VAT deduction provides a useful comparative framework for examining the Japanese consumption tax system.
Both systems seek to prevent cascading taxation and to preserve competitive neutrality. However, EU case law demonstrates a stronger emphasis on substantive economic criteria—such as cost attribution and disposal rights—when determining entitlement to deduction.
This comparative perspective will inform the analysis in the next chapter, which examines how similar considerations might be applied to the interpretation of Article 30(1) of the Japanese Consumption Tax Act, particularly in cases involving formal importers and non-resident sellers.
Chapter 4
Who Should Be Entitled to an Input Tax Credit for Import Consumption Tax?
This chapter examines, in light of the relevant statutory provisions, Japanese case law, EU case law, and related academic commentary discussed above, which categories of taxable persons should be entitled to claim an input tax credit (ITC) for consumption tax imposed at importation under Article 30(1) of the Japanese Consumption Tax Act (the “CTA”).
Section 1: Analysis Through a Case Study — A Refund Scheme Using a Nominal Importer of Record
As indicated by the subtitle of this research paper—“On the Treatment of a Formal Import Declarant in the Domestic Sale of Tangible Assets by a Foreign Business”—the author began this study after encountering a tax-avoidance-like scheme in which a foreign seller uses a nominal importer of record to obtain a refund of import consumption tax. This section uses that scheme as a case study to consider who should properly qualify as the taxable person entitled to an ITC.
1. The Characteristics of the Nominal Importer of Record
Below is a reprint of the transaction flow diagram for the “import consumption tax refund scheme via a nominal importer of record”.
The role and nature of the nominal importer of record in this scheme can be summarized as follows:
- Scope of services
The nominal importer of record, acting on instructions from the foreign business that sells goods in Japan, performs: import-related procedures in its own name; handling of consumption tax (payment and refund procedures); receipt of the imported goods; temporary storage; and domestic delivery to an Amazon warehouse. The consideration the nominal importer receives from the foreign business is limited to service fees for these tasks. The nominal importer is not involved in sales activities for the goods. - Formal status as the import declarant
For customs purposes, the nominal importer becomes the importer of record in place of the foreign business, files the import declaration and the import consumption tax return under its own name, and pays the import consumption tax. - Claiming the ITC and satisfying record-keeping obligations
The nominal importer is a taxable enterprise and claims an ITC for the import consumption tax in its own consumption tax return. It retains the import permit showing itself as the importer, and it properly complies with bookkeeping and invoice retention obligations. - No ownership or right of disposal
The nominal importer does not hold ownership or the right to dispose of the goods. Ownership and the right of disposal remain with the foreign business throughout, until the goods are sold to consumers in Japan. - No economic burden of import-related costs
The nominal importer does not purchase the goods from the foreign business and does not bear procurement costs, freight, customs brokerage fees, or other import-related expenses. All such costs are borne by the foreign business.
2. Whether the Nominal Importer’s Services to the Foreign Business Qualify for Zero-Rating
In principle, supplies of services to non-residents are zero-rated and exempt from consumption tax under the export exemption rules (CTA Article 7). However, even services supplied to non-residents are not exempt where they fall within certain categories (Cabinet Order, Article 17(2)(vii)), including:
- transport or storage of assets located in Japan;
- food and beverage or accommodation services in Japan; and
- services similar to (1) or (2) that confer direct benefit in Japan.
For category (3), two elements must be assessed: (i) whether the service is similar to (1) or (2), and (ii) whether it confers a direct benefit within Japan. In particular, the key is whether the benefit arising from the service is directly enjoyed in Japan.
Applying this to the nominal importer’s service package, temporary storage after importation and domestic delivery to an Amazon warehouse are services whose benefit is enjoyed solely in Japan and fall within category (1). Therefore, these services are not eligible for zero-rating.
It is true that even domestic transportation can be treated as exempt if it constitutes part of an “international transport movement” (CTA Basic Circular 7-2-5). In the nominal importer scenario, however, the nominal importer receives the cargo as the consignee under the international transport arrangement. At that point, the international transport process is completed. The subsequent delivery to the Amazon warehouse is a domestic shipment carried out after receipt and should not be characterized as part of international transport.
By contrast, import declaration services performed as the importer of record, and administrative handling related to consumption tax, cannot readily be characterized as (i) services relating to assets located in Japan or (ii) services whose benefit is directly enjoyed in Japan. These services may therefore be viewed as eligible for the export exemption.
3. Evaluation Based on the Purpose of the ITC and Competitive Neutrality
The Tokyo District Court judgment of February 20, 2008 held, regarding ITCs for consumption tax imposed upon withdrawal of goods from a bonded area, that the mechanism should be understood as one that, in principle, enables a taxable enterprise to credit the tax amount it itself paid at the import stage.
On its face, the nominal importer appears to qualify: it is a taxable enterprise, it files the import declaration and import tax return under its own name, and it pays the import consumption tax. Superficially, it may thus seem to be an “eligible taxable person.”
However, as confirmed through the judgment and academic commentary discussed earlier, the system should not be applied mechanically to mean “only the import declarant can claim the credit in all cases.”
The judgment characterizes the ITC regime as a system designed, in essence, to allow credit for tax borne by the taxpayer at the time of procurement. While the nominal importer formally credits the tax amount “it paid” at withdrawal, the payment is merely a temporary cash outlay made with the expectation of a refund.
Temporary payments premised on refunds also occur in genuine export transactions: exporters may receive refunds for input tax incurred domestically, which is consistent with the destination principle. Under that principle, goods are exported free of VAT, and the importing country imposes VAT upon importation. This ensures international competitive neutrality, allowing exported goods to compete on equal terms with domestic products in the importing country.
In the nominal importer scheme, however, the imported goods are not re-exported. They are intended for sale in Japan, the final destination country. Yet the import consumption tax is treated as a refundable, temporary payment. The nominal importer neither purchases nor sells the goods; the foreign business conducts the economic activity of selling in Japan.
As a result, the goods sold by the foreign business may not reflect the import consumption tax in their pricing, while competing domestic products embed upstream consumption tax in their transaction prices. This can undermine competitive neutrality.
Concretely, as described in the Introduction, tax burden disparities may arise between (i) foreign businesses that are exempt enterprises and use a nominal importer scheme, and (ii) domestic exempt enterprises that do not. Even where both are taxable enterprises, the scheme may create a cash-flow advantage: the foreign business can outsource the import tax payment and refund process, thereby avoiding the need to fund the import consumption tax upfront and settling only through later tax payments to the tax office. Such cash-flow advantages can constitute a distortion relevant to VAT neutrality.
Under the neutrality principle, consumption tax should operate neutrally with respect to business activity. In cross-border contexts, preferential or disadvantageous treatment of foreign businesses can distort domestic market competition. Neutrality is not limited to the ultimate amount of tax; it should also consider substantive economic impacts such as compliance burdens and cash-flow effects.
Accordingly, allowing an ITC merely because a party paid import consumption tax in name—without assessing whether that tax is genuinely “tax borne at procurement”—requires careful scrutiny to ensure consistency with the purpose of the system.
4. Re-examining EU Case Law
EU case law is not binding in Japan, but it is useful for understanding the nature of VAT, particularly because Japan’s consumption tax regime was designed with reference to the EU VAT system.
In Weindel Logistik Service (C-621/19), the Court of Justice of the European Union (CJEU) clarified that an entity is not entitled to deduct import VAT under Article 168 of the VAT Directive where the following requirements are not met:
- the importer does not have the right to dispose of the imported goods as owner; and
- there are no import costs (acquisition costs), or those costs are not incorporated into the price of specific downstream transactions or into the price of the goods or services supplied by the taxable person in its economic activity.
Applying these criteria to the nominal importer scheme: the nominal importer lacks the right to dispose of the goods as owner (requirement 1) and does not bear import acquisition costs (requirement 2). Under EU logic, it would therefore not be entitled to deduct import VAT.
Article 168 of the VAT Directive provides that a taxable person has the right to deduct input VAT insofar as goods and services are used for the purposes of taxable transactions. Deductibility thus depends on the connection—i.e., the “link”—between upstream costs and downstream taxable supplies.
In the EU, there has long been debate regarding whether import VAT is deductible where the importer’s acquisition costs lack a “direct and immediate link” to its economic activity. The CJEU has emphasized that even import VAT must be connected to downstream taxable transactions.
In the nominal importer scheme, the importer neither sells nor uses the goods; its output is limited to a narrow set of services to a non-resident. The acquisition costs of the imported goods are not incorporated into the remuneration for those services. The link between the upstream import transaction and downstream taxable supplies is therefore extremely weak.
Granting an ITC in such circumstances would effectively allow input tax deduction by an entity unrelated to the value-creation chain, distorting the VAT chain mechanism and potentially producing an imbalanced tax-burden structure inconsistent with the intended operation of a value-added tax.
At the same time, EU law indicates that even if a person does not have the right to dispose of the goods as owner, input tax deduction may still be allowed where import costs are incorporated into the price of downstream outputs—suggesting a path to deductibility through requirement (2). Examples include imports under lease arrangements or certain consignment sales structures.
(1) Importation under a lease arrangement
EU case law (e.g., Kretztechnik, ECJ judgment of May 26, 2005) recognizes that where expenditures constitute general overheads of a taxable person’s overall economic activity, a direct and immediate link to downstream taxable supplies can exist. Therefore, even if import costs are not part of cost of goods sold, they may be considered incorporated into prices via overheads (e.g., SG&A). In a lease scenario, although the lessee may not have disposal rights, lease-related import costs may form part of overheads embedded in the prices of the lessee’s downstream supplies.
(2) Importation under consignment sales
In consignment sales, the foreign consignor often retains ownership while goods are imported. Sales may occur either in the consignor’s name or in the domestic consignee’s name. Under Japanese customs administrative guidance, where the consignee sells in its own name, it may be treated as the importer of record. Even if the consignee does not directly bear production or procurement costs, the domestic selling price set under the consignor’s instructions typically incorporates those costs. If the consignee treats sales proceeds as its taxable sales, the relationship required by EU criterion (2)—that import costs are embedded in the price of the outputs supplied in the consignee’s economic activity—can be recognized, supporting deductibility.
Japanese consumption tax treatment of consignment transactions generally views the consignor as the seller (CTA Basic Circular 10-1-12(1)). However, in certain cases, it is permissible to treat the consignee as the seller for consumption tax purposes (CTA Basic Circular 10-1-12(2)). Where the consignee is treated as the seller and accounts for sales as its taxable sales, allowing an ITC for import consumption tax paid by the consignee is not inconsistent with the system.
5. Synthesizing EU Case Law and Japanese Case Law
One key EU requirement is that the person withdrawing taxable goods must have the right to dispose of them as owner. Similar ownership- or disposal-right-focused analyses also exist in Japan.
(1) Prior research by Moriguchi and Watanabe — timing of title transfer and “the person who withdraws”
Moriguchi and Watanabe analyze ITC treatment where a foreign seller and a domestic buyer trade under the Incoterms DDP rule (Delivered Duty Paid). Under DDP, the seller bears costs and risks up to the destination and is responsible for both export and import formalities, including import taxes.
However, Incoterms allocate obligations for costs, risks, and procedures; they do not themselves determine when legal title transfers, which depends on the contract. Moriguchi and Watanabe point out that, for purposes of Article 30(1) CTA, identifying “the person who withdraws the goods from the bonded area” may depend on when title transfers.
If title transfers before withdrawal, the buyer is the person who withdraws and may claim the ITC—even if the seller actually paid the import consumption tax under DDP. If title transfers after withdrawal (e.g., upon delivery to the buyer’s warehouse), the foreign seller is considered the person who withdraws. In that case, the foreign seller would normally appoint an Attorney for Customs Procedures (ACP) to file in its name, and the import tax would be creditable to the seller.
If, for convenience, the buyer is made the import declarant despite the seller being the true withdrawer, the withdrawer and the declarant diverge. Because the seller could appoint an ACP and file properly in its own name, such a case would typically not satisfy the “special circumstances” contemplated by CTA Basic Circular 11-1-6. Moriguchi and Watanabe further caution that the buyer, although the import declarant, may be viewed as not being the substantive withdrawer, raising the risk that the ITC could be denied.
This suggests that, in Japan as well, whether the party holds title at the time of withdrawal is a key factor in assessing ITC eligibility. In the nominal importer scheme, because the foreign business retains ownership throughout, the foreign business—not the nominal importer—should be viewed as the withdrawer.
(2) Assessment based on taxation according to substance
As discussed in Chapter 2, Sato argues that the substantive determination under Article 13 CTA (“a person other than that person”) can extend to identifying the “taxable person” entitled to an ITC under Article 30(1). The author considers that this substance-over-form approach shares important common ground with the EU criteria.
(i) Common emphasis on ownership in Japan and the EU
A Yokohama District Court passage cited by Sato states, in essence, that where a tax is imposed on goods as taxable objects, tax-bearing capacity is presumed to lie with the person holding legal ownership; mere formal attribution is insufficient, and tax-bearing capacity is presumed only where rights or legal effects substantively belong, such that taxation should be imposed on that person as taxpayer.
Because import consumption tax is a tax imposed on goods withdrawn from a bonded area (CTA Article 4(2)), it is a “tax on goods as taxable objects.” Thus, ownership supports a presumption of tax-bearing capacity. From this perspective, the person who withdraws taxable goods should, in principle, be the owner.
While EU case law focuses directly on who should be allowed to deduct import VAT (rather than identifying the withdrawer itself), both systems converge on the idea that ownership or the right of disposal as owner is central to deductibility.
(ii) Common emphasis on the link to downstream economic activity
As argued in Chapter 2, considering the multi-stage credit mechanism and the structure of Article 13 CTA, the substantive withdrawer (taxpayer) should be understood as the entity that conducts the downstream economic activity (e.g., sales) and enjoys the consideration. That entity should be able to credit input tax incurred in upstream transactions. This aligns with EU criterion (2), which emphasizes the connection between upstream costs and downstream taxable supplies.
(iii) A coherent interpretation exists under which an import declarant may be denied ITC
EU analysis is conceptually separated from the identity of the importer on the customs declaration; even if a party is the import declarant, deductibility can be denied if substantive requirements are not met.
Similarly, under Japanese substance-over-form theory, if a tax return merely establishes a tax claim-debt relationship and does not automatically fix the identity of the taxpayer, the identity of the import declarant and the identity of the substantive withdrawer can be treated as conceptually distinct.
Accordingly, a legal interpretation can be constructed in Japan under which a party who is merely the import declarant, but not the substantive withdrawer, should not be entitled to an ITC.
Conversely, where a party is the substantive withdrawer but not the import declarant, procedural constraints apply. In practice, ITC entitlement would be recognized only where “unavoidable circumstances” under the proviso to Article 30(7) CTA are present.
6. Conclusions from the Case Study
(1) The nominal importer should not be entitled to an ITC
Based on the above, a nominal importer who lacks ownership or the right of disposal and has virtually no tax-bearing capacity should not be treated as the substantive withdrawer, and should not be entitled to an ITC for import consumption tax.
If the nominal importer is denied the ITC, it will seek reimbursement of the import tax cost from the foreign business to whom economic benefits and risks accrue. The import tax burden would then be incorporated into the foreign business’s selling price, mitigating competitive neutrality concerns.
This would also reduce the unfairness described in the Introduction between domestic exempt enterprises and foreign exempt enterprises using nominal-importer schemes.
Domestic importer (exempt enterprise; no VAT filing)
- Import stage: pays import consumption tax (embedded cost)
- Sale stage: receives consumption tax amount
- If sold: “windfall” may arise
- If not sold: domestic enterprise bears import tax cost
Foreign seller using a nominal importer (exempt enterprise; no VAT filing)
- Import stage: nominal importer pays but cannot credit; charges the foreign seller
- Sale stage: foreign seller receives consumption tax amount
- If sold: “windfall” may arise
- If not sold: foreign seller bears import tax cost
(2) Granting the ITC to the foreign business while keeping the scheme is difficult
If the foreign business is a taxable enterprise, denying the ITC to both the nominal importer and the foreign business could disadvantage the foreign business relative to domestic taxable enterprises.
The Tokyo District Court (Feb. 20, 2008) suggests interpretive flexibility consistent with the ITC purpose (credit for tax borne at procurement). Substance-over-form theory also suggests that the foreign business—bearing tax capacity and being the substantive withdrawer—could be eligible in principle.
However, Article 30(7) CTA requires retention of the import permit that states the taxable person’s name. Where the import permit names the nominal importer, the foreign business would need to satisfy “unavoidable circumstances” under the proviso to Article 30(7).
Based on the June 14, 2006 decision of the National Tax Tribunal, “unavoidable circumstances” generally fall into three categories:
(i) cases involving improper means making assessment/collection impossible or extremely difficult;
(ii) cases under CTA Basic Circular 11-1-6; or
(iii) similar circumstances.
In this case, (i) and (ii) do not apply. It is also difficult to conclude that (iii) applies, because the foreign business can appoint an ACP and file import declarations in its own name, ensuring its name appears on the import permit. That is the standard solution within the existing framework. Where such a solution exists, it is hard to accept “unavoidable circumstances” merely because using a nominal importer is convenient.
(3) Re-export scenarios can be addressed as export zero-rating
If goods initially intended for domestic sale are later re-exported due to changed circumstances, then regardless of whether the party is a nominal importer or a foreign business, the party that becomes the exporter and retains export documentation may treat the transaction as an export zero-rated transaction and obtain the corresponding credit/refund for import consumption tax.
Section 2: Drawing the Line — Which Taxable Persons Should Be Entitled to an ITC for Import Consumption Tax?
1. Proposed criteria for ITC eligibility
Based on the above analysis, the boundary for ITC eligibility for import consumption tax can be summarized as follows:
- Primary criterion: ownership or right of disposal at withdrawal
As a basic requirement, an ITC should be allowed where the taxable person holds ownership or the right to dispose of the goods at the time of withdrawal from the bonded area. Including the “right of disposal” (in addition to ownership) is appropriate because (i) EU case law emphasizes the “right to dispose as owner,” and (ii) it aligns with the customs-law importer concept focusing on authority to dispose of imported goods. - Alternative criterion: import costs embedded in downstream prices
Even where the taxable person does not have ownership or disposal rights, an ITC should be allowed where:
- import costs (acquisition costs) exist, and
- such costs are incorporated into the price of downstream transactions involving the imported goods, or into the price of goods/services supplied by the taxable person in its economic activity.
EU jurisprudence (including Kretztechnik) supports the view that even if costs are not included as cost of goods sold, they may be embedded in downstream pricing as general overhead (SG&A), thus satisfying this “embedded in price” requirement.
Satisfaction of either (1) or (2) should constitute the author’s proposed basic eligibility criteria (the “Proposed ITC Criteria”).
Even if a party is the import declarant, it should not be entitled to an ITC where it does not satisfy the Proposed ITC Criteria, as it is not the substantive withdrawer.
Conversely, where a party satisfies the Proposed ITC Criteria but is not the import declarant, ITC eligibility should be recognized only in exceptional cases meeting the “unavoidable circumstances” categories identified by the National Tax Tribunal (June 14, 2006).
2. Consistency with the customs-law concept of “importer”
Applying the Proposed ITC Criteria to the nominal importer scheme corrects tax burden disparities, supporting its reasonableness.
However, due to recent amendments to Customs administrative guidance, it is contemplated that in ordinary sales imports, persons other than the Japanese buyer may act as the importer of record, such as:
- a person who, at the time of import declaration, has authority to dispose of the imported goods after domestic withdrawal; and
- where another person performs the act constituting the purpose of importation, that person—e.g.:
(a) a lessee using leased goods;
(b) a consignee selling consigned goods in its own name;
(c) a processor/repairer processing or repairing goods.
Although the customs-law “importer” and the CTA “person who withdraws” should be distinguished, given that the importer’s name on the import permit is procedurally significant under Article 30, it is necessary to examine whether a uniform application of the Proposed ITC Criteria creates unfair practical outcomes.
(1) Persons with authority to dispose of the goods
Where the importer of record has authority to dispose of the goods, the Proposed ITC Criteria are generally satisfied, and allowing the ITC presents no particular issue.
(a) Lessee importing leased goods
A lessee generally lacks disposal rights. However, where import-related lease costs are embedded as overhead in downstream pricing, the alternative criterion can be satisfied, allowing an ITC in a manner consistent with the upstream/downstream structure.
(b) Consignee importing goods for consignment sales
Where a domestic consignee imports goods while the foreign consignor retains disposal rights, and the consignee sells in its own name: even if the consignee does not bear procurement/manufacturing costs, the domestic sales price set under the consignor’s direction incorporates such import costs. If the consignee treats the sales proceeds as its taxable sales, it can satisfy the alternative criterion, supporting ITC entitlement.
(c) Processor/repairer importing goods for processing/repair
If a processor receives goods from a customer only for repair, the processor has no ownership/disposal rights, and import costs are not embedded in the processor’s service fee. Under the Proposed ITC Criteria, the processor would not be entitled to an ITC, and would need to treat import tax as a cost, potentially making its pricing less competitive than repair of domestic goods.
To equalize burdens, either (i) the consignor/customer who holds ownership/disposal rights should be the importer of record, or (ii) the processor should acquire ownership/disposal rights (e.g., by purchasing the goods) to secure ITC eligibility.
3. Practical implementation considerations
A workable approach must allow taxpayers, tax practitioners, and tax authorities to confirm whether the Proposed ITC Criteria are satisfied without excessive administrative burden.
(1) Where the import declarant seeks to claim an ITC
Because retention of the import permit is a statutory requirement for ITCs, it would be effective to reflect on the import permit the declarant’s statements relevant to the Proposed ITC Criteria.
Relying solely on the importer name on the import permit is insufficient, as certain cases (e.g., processors/repairers) may qualify as importers under customs practice but not satisfy the Proposed ITC Criteria.
Accordingly, it would be appropriate to require the import declarant to declare, as part of import declaration items, whether:
- at the time of withdrawal, it has ownership or disposal rights in the goods; and
- import acquisition costs exist and are embedded in downstream transaction prices or in the prices of goods/services supplied in its economic activity.
Under the Proposed ITC Criteria, if (1) is “Yes,” that alone suffices. If (1) is “No,” the declarant should answer (2). If both are “No,” the import consumption tax should not be treated as creditable and should be excluded from ITC claims in the consumption tax return.
To implement this stably, interpretive guidance (e.g., an administrative circular) clarifying the scope of “taxable person” under Article 30(1) would be necessary.
(2) Where a non-declarant seeks to claim an ITC
The approach above assumes the import declarant claims the ITC. Where a substantive withdrawer satisfying the Proposed ITC Criteria is not the import declarant and seeks an ITC for tax it effectively bore, eligibility should be limited to cases where “unavoidable circumstances” under the proviso to Article 30(7) are recognized.
As noted, the National Tax Tribunal decision identifies three categories. Because it is unrealistic for taxpayers to self-declare category (i), in practice the focus will be on category (ii) or category (iii). These are exceptional and require case-by-case assessment rather than standardized import-permit notations.
Regarding category (iii), where a standard solution exists within the current system—such as appointing an ACP so that the substantive withdrawer’s name appears on the import permit—mere procedural convenience should not constitute “unavoidable circumstances.”
On the other hand, where no realistic option exists within the system—such as legal constraints allowing only licensed parties to be import declarants—then, if the taxpayer can explain why a third party had to be the import declarant despite the taxpayer bearing the tax burden, category (iii) may be recognized and an exceptional ITC may be appropriate.
Currently, CTA Basic Circular 11-1-6 expressly covers only category (ii). For clearer guidance, it would be desirable for administrative guidance to clarify the types of cases where a non-declarant may be granted ITC eligibility, extending beyond category (ii) to include categories (i) and (iii).
Section 3: Interim Summary
If the Proposed ITC Criteria are introduced, the nominal-importer scheme examined in the case study would no longer permit the nominal importer to claim an ITC, because it would fail to satisfy the criteria. While current practice often allows ITCs simply because the party is the import declarant, the Proposed ITC Criteria would narrow the range of import declarants eligible for ITCs.
At the same time, for substantive withdrawers who satisfy the Proposed ITC Criteria but are not import declarants, it would be possible to expand the exceptional treatment beyond CTA Basic Circular 11-1-6 by recognizing the broader categories of “unavoidable circumstances” under the proviso to Article 30(7).
Under this framework, the taxpayer would be identified as the person in whom tax-bearing capacity is presumed, and the import consumption tax borne by that person would be reflected in the consideration derived from downstream economic activity. This enables ITCs to be granted to entities substantively connected to the value-creation process, thereby preserving the intended VAT chain mechanism.
By maintaining the integrity of the VAT chain, fair and neutral competitive conditions between imported and domestically produced goods can be supported, contributing to the fundamental VAT principle of international competitive neutrality.
4.1 Substantive Taxable Person under Economic Reality
The foreign seller:
- retains ownership of the goods,
- bears import costs in substance,
- incorporates those costs into the sale price to Japanese consumers,
- conducts taxable supplies in Japan through economic activity.
From the standpoint of economic reality and tax neutrality, the foreign seller is the entity that corresponds most closely to the concept of a “taxable person” under Article 30(1) of the Japanese Consumption Tax Act.
4.2 Procedural Constraints and “Unavoidable Circumstances”
Despite this substantive alignment, Japanese law imposes procedural requirements, including the preservation of import permits bearing the name of the taxable person.
Article 30(7), proviso, of the Japanese Consumption Tax Act allows for exceptions where “unavoidable circumstances” exist.
Based on the analysis of academic commentary and National Tax Tribunal decisions, such circumstances are narrowly construed and generally limited to cases where:
- the taxpayer objectively lacks the ability to act as importer of record under the legal system, or
- strict application of procedural requirements would result in significant inequity or undermine tax neutrality.
Chapter 5: Concluding Remarks
This paper has examined, through an analysis of Japanese and EU case law, the interpretive question of who should be entitled to claim an input tax credit (ITC) for import consumption tax. Article 30(1) of the Japanese Consumption Tax Act (“CTA”), which governs ITCs, allows taxable persons—subject to certain requirements—to claim an ITC for consumption tax imposed when foreign goods are withdrawn from a bonded area. However, the scope of the “taxable person” contemplated by Article 30(1) has not always been clearly organized or articulated.
In Japan, issues arising from import transactions must be analyzed not only under tax law but also in light of customs law and customs practice. For this reason, research in the field of tax law on import consumption tax and the corresponding ITC has not necessarily been particularly active. Against this backdrop, the author—drawing on practical experience in customs-related work—has focused on the interface with relevant tax fields, especially the CTA, and has undertaken this study on ITCs for import consumption tax. The author hopes to continue developing research on various consumption-tax issues related to imports and exports in future work.
As a result of the analysis in this paper, it has become clear that, although the status of being the import declarant is an important factor—especially given the statutory requirement to retain documentation such as the import permit—it is not a decisive criterion for determining ITC eligibility. Rather, it is appropriate to identify as the taxpayer (i.e., the “person who withdraws taxable goods”) the person in whom rights or legal effects substantively vest and in whom tax-bearing capacity is presumed, taking into account factors such as the allocation of ownership or the right of disposal over the taxable goods, and the relationship to downstream economic activity. This paper has argued that the ITC should be allowed to that person for import consumption tax borne for the purpose of post-importation economic activity.
Regarding the scheme that motivated this research—namely, a structure that avoids the burden of import consumption tax by interposing a nominal importer of record—the FY2026 Tax Reform Outline published after the drafting of this paper proposes the introduction of a new “platform taxation” regime for goods sales. If introduced, that regime is expected, within its scope of application, to mitigate to a certain extent the problem of non-filing by foreign businesses. It is also anticipated that where a foreign business is not the import declarant, an ITC would not be granted, thereby significantly correcting the situation in which foreign businesses are placed at an advantage from the standpoint of international competitive neutrality. That said, the regime is expected to focus primarily on large platforms such as Amazon, whereas in practice sales via businesses’ own websites are also common, and the effectiveness of the regime has inherent limitations. Moreover, given the growing diversity of cross-border transactions beyond cross-border e-commerce, it remains important to clarify the scope of persons eligible for an ITC and to establish, in advance, institutional safeguards against analogous cases in which tax-avoidance-like behavior could arise through the use of nominal importers.
In the EU, there is an accumulation of case law denying input VAT deductions for import VAT to purely formal importers. In Japan as well, moving in the direction of a reasonably strict boundary—such as the author’s proposed criteria that deny ITCs to nominal holders—can be viewed as a natural development in light of international trends.
The author hopes that this paper may contribute, even modestly, to prompting further discussion in Japan regarding who should be entitled to claim an ITC for import consumption tax. While the analysis in this paper undoubtedly remains incomplete in various respects, it is the author’s sincere wish that the considerations presented here will assist future debate toward the sound administration of the ITC system for import consumption tax and toward a more predictable taxation practice.
