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The taxpayer liable for the Japan Consumption Tax on imported goods withdrawn from a bonded area is considered the importer under Japanese customs law.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 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
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
Case Study Analysis and Normative Conclusions
1. Purpose and Structure of the Case Study
This chapter applies the legal framework and interpretative perspectives examined in the preceding chapters to a concrete case study:
the use by foreign sellers of a formal importer of record to obtain refunds of Japanese import consumption tax, despite the absence of substantive economic involvement by that importer.
The purpose of this case study is twofold.
First, it seeks to clarify whether, under Article 30(1) of the Japanese Consumption Tax Act, such a formal importer should be regarded as the “taxable person” entitled to input tax deduction.
Second, it examines whether, and under what conditions, a non-resident foreign seller may instead qualify as the taxable person entitled to deduction, notwithstanding the absence of importer-of-record status.
2. Outline of the Import Structure Examined
The case study concerns the following factual structure, which has become increasingly common in cross-border e-commerce transactions:
- A non-resident foreign business sells tangible goods to customers in Japan through an online platform.
- For reasons of administrative convenience and cost control, the foreign business does not appoint an Attorney for Customs Procedures (ACP) and does not act as the importer of record.
- Instead, a domestic logistics provider or nominal importing entity is designated as the importer of record solely for customs clearance purposes.
- The formal importer pays import consumption tax at the time of importation, subsequently claims an input tax deduction or refund, and charges service fees to the foreign seller.
- The foreign seller retains ownership of the goods throughout importation and sale and bears the economic risks and rewards of the transaction.
This structure is hereinafter referred to as the formal importer–based import tax refund scheme.
3. Evaluation of the Formal Importer under Japanese Law
3.1 Absence of Substantive Control and Economic Burden
Under the scheme described above, the formal importer does not:
- acquire ownership of the imported goods,
- possess the right to dispose of the goods as owner,
- bear inventory risk,
- incorporate import costs into its own taxable supplies.
From the perspective of economic substance, the formal importer merely performs a procedural function in customs clearance.
When evaluated against the purpose of Article 30(1) of the Japanese Consumption Tax Act—namely, the deduction of consumption tax actually borne in the course of a taxable person’s business activities—the formal importer lacks the characteristics of a genuine taxable person.
3.2 Consistency with Japanese Case Law
As confirmed by the Tokyo District Court judgment of February 20, 2008, the general rule is that the importer of record is the entity entitled to deduct import consumption tax.
However, that judgment does not mandate a purely mechanical application of importer-of-record status.
Rather, the judgment leaves room for exceptions where special circumstances exist, particularly where adherence to formal designation would undermine the purpose of the input tax deduction system.
In the present case study, granting a deduction to a purely nominal importer would conflict with the principle that input tax deduction should correspond to the entity that actually bears the tax burden in its economic activity.
4. Evaluation of the Foreign Seller as a Potential Deduction Holder
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.
5. Normative Assessment of the Case Study
In the present case study, the foreign seller could appoint an Attorney for Customs Procedures and act as importer of record under existing Japanese law.
The choice to rely on a formal importer is therefore not compelled by legal impossibility but motivated by administrative convenience or cost considerations.
Accordingly, it is difficult to characterize this situation as involving “unavoidable circumstances” within the meaning of Article 30(7), proviso.
As a result:
- the formal importer should not be entitled to input tax deduction, due to the absence of substantive economic involvement; and
- the foreign seller should likewise be denied deduction so long as it voluntarily refrains from assuming importer-of-record status, despite having the legal capacity to do so.
6. Implications for Tax Neutrality and Policy Design
Denying deduction in such cases has the effect of reallocating the economic burden of import consumption tax to the foreign seller, thereby ensuring that tax costs are reflected in the final sale price.
This outcome enhances competitive neutrality between domestic businesses and foreign sellers, particularly in cases involving tax-exempt enterprises.
From a policy perspective, this interpretation incentivizes foreign sellers to adopt transparent import structures aligned with economic reality, rather than relying on nominal intermediaries.
7. Interim Conclusion
The case study demonstrates that:
- Importer-of-record status alone is insufficient to justify entitlement to input tax deduction.
- Economic substance—ownership, cost attribution, and disposal rights—must play a central role in determining the taxable person under Article 30(1).
- The “unavoidable circumstances” exception should be applied restrictively and should not extend to situations where alternative lawful structures are readily available.
The following concluding chapter will synthesize these findings and propose directions for future legal interpretation and administrative practice.
Conclusion
1. Summary of the Research Findings
This study has examined the scope of “taxable persons” entitled to deduct import consumption tax under Article 30(1) of the Japanese Consumption Tax Act, with particular focus on import structures involving a formal importer of record used by non-resident foreign businesses.
Through an analysis of statutory provisions, Japanese case law, academic commentary, and comparative European Union VAT jurisprudence, the following findings have been established.
First, Japanese law adopts, as a general rule, the importer of record as the entity entitled to deduct import consumption tax. This approach reflects administrative efficiency and legal certainty at the customs clearance stage.
Second, however, both judicial decisions and scholarly interpretations recognize that this rule is not absolute. Where strict adherence to formal designation undermines the purpose of the input tax deduction system—namely, the avoidance of tax cascading by allowing deduction of tax actually borne in business activity—exceptions may be warranted.
Third, Article 13 of the Japanese Consumption Tax Act embodies the principle of substantive taxation based on economic reality. While its primary function is to identify the person to whom taxable supplies and consideration are attributable, its underlying logic also informs the interpretation of Article 30(1), insofar as the latter presupposes the existence of a genuine taxable person who bears the economic burden of tax.
2. Role and Limits of Substantive Judgment
This study has clarified that substantive judgment based on economic reality does not operate as an independent mechanism for directly designating a deduction holder under Article 30(1).
Rather, the appropriate logical structure is as follows:
- Substantive judgment under Article 13 determines the person to whom income, consideration, and economic benefits are attributable.
- Once that person is identified as the taxable person, entitlement to input tax deduction under Article 30(1) follows as a corollary, provided procedural requirements are satisfied.
In this sense, Article 13 functions as a gateway to identifying the taxable person, not as a direct override of procedural rules governing deduction.
3. Interpretation of “Unavoidable Circumstances”
A central issue addressed in this study is the interpretation of “unavoidable circumstances” under Article 30(7), proviso, of the Japanese Consumption Tax Act.
Based on National Tax Tribunal decisions and academic analysis, this concept must be interpreted narrowly. It applies only where:
- the taxpayer is objectively unable to comply with procedural requirements under the existing legal framework, or
- denial of deduction would result in manifest inequity or undermine the core principles of the consumption tax system.
Situations motivated solely by cost reduction, administrative convenience, or risk avoidance do not constitute unavoidable circumstances.
4. Evaluation of the Case Study
Applying these principles to the case study examined, this research concludes that:
- A formal importer lacking ownership, disposal rights, and economic exposure should not be regarded as the taxable person entitled to deduct import consumption tax.
- A foreign seller who substantively bears the tax burden may, in principle, align with the concept of a taxable person, but cannot claim deduction where it voluntarily refrains from acting as importer of record despite having the legal capacity to do so.
- The use of a formal importer in such circumstances does not satisfy the requirements for “unavoidable circumstances.”
This interpretation ensures consistency with the purpose of the input tax deduction system and prevents distortion of competitive neutrality between domestic and foreign businesses.
5. Implications for Practice and Policy
From a practical perspective, the findings of this study suggest that foreign businesses engaging in the Japanese market should adopt import structures that reflect economic reality, including the appointment of an Attorney for Customs Procedures where necessary.
From a policy perspective, the analysis underscores the importance of aligning procedural rules with substantive taxation principles, while maintaining clear boundaries to prevent abuse of deduction mechanisms.
6. Concluding Remarks
The issue of who qualifies as a taxable person entitled to deduct import consumption tax lies at the intersection of legal form, economic substance, and administrative feasibility.
By examining this issue through a case-study-based and comparative lens, this research contributes to a more coherent understanding of Article 30(1) of the Japanese Consumption Tax Act and offers a framework for resolving similar disputes in future practice and scholarship.
