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Notes: Several Problems with Advance Ruling (Japanese)

By KOHYAMA Hiroyuki


In Japan, most tax scholars and practitioners have believed that the introduction of "advance-ruling" would dispel the uncertainty about tax consequences and facilitate transactions. However, Givati (2009) shows that in the U.S. advance rulings (Private Letter Ruling and Advance Pricing Agreements) are not frequently used. Givati (2009) argues that some taxpayers avoid applying for advance ruling not because of the "direct cost" of the application, but because of strategic disadvantages. For example, if a taxpayer applies for the advance ruling, the tax authority would audit this taxpayer more carefully. This essay has three purposes. The first is to introduce the U.S. advance ruling systems (Private Letter Ruling and Advance Pricing Agreement) to Japanese readers. The second is to analyze the data and arguments provided by Givati (2009). The Third is to consider how we can improve the advance ruling system in Japan. As a tentative conclusion, I suggest following two points in order to encourage taxpayers to apply for advance ruling and facilitate transactions; (1) the applicant's anonymity needs to be preserved against tax authority in order to avoid increasing the probability of tax audit, and (2) the applicant's privacy and trade secrets need to be protected against their business competitors by introducing some procedures before making the rulings public.

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