Taxation of the Sharing Economy in Japan

Income Taxation and Administration

Abstract

This paper focuses primarily on the emerging income tax and administrative issues in the sharing economy, such as private lodgings, internet auctions, and flea markets.

On 13 June 2018, the Japanese National Tax Agency posted its opinion that when salaried workers obtain supplementary income from sharing economy transactions, this should be classified as miscellaneous income (Art. 35 Income Tax Act) and losses incurred on those transactions cannot be deducted from other types of income (Art. 69 (1) Income Tax Act). However, if such salaried workers do not have any other income from second jobs apart from sharing economy work, they do not have to report income from a side job if it does not exceed JPY 200,000 per year (Art. 121 (1)(i) Income Tax Act).

For platform companies there are other issues, especially concerning the taxation of data. The problem is determining at what stage the value of such data is generated. Individual bits of information are not valuable by themselves, but they do start to gain value after they are collected, aggregated, analyzed, and processed. Further, from the international tax viewpoint, the issue is whether tax is appropriately levied in the jurisdiction where the value is generated.

There are also administrative issues. Even if the provider (host) of sharing economy services clearly generates income, they might not file a tax return. One legislative proposal would be to have the platform company somehow be involved in the provider’s tax returns, which could yield large efficiency gains for the tax administration. For example, there could be a requirement to withhold the provider’s income tax or there could be an idea that involves the platform company supporting the taxpayer in filing returns.