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Introduction of Deemed Supplier Liability for Foreign Digital Platforms in Japan

The Japanese main executive body has proposed significant changes in the submitted tax reform bill that would impact non-resident digital platforms’ financial operations. The proposal is based on the necessity of implementing a tax collection system that will neutralize the inequality in the conditions mandated for foreign and local digital service providers. 

Japanese authorities mandated that foreign digital service providers register and charge consumption tax when the threshold is reached. This legislative move has been active since October 2015. However, the national reports that follow the collection of indirect taxes for digital services undoubtedly show a significant consumption tax gap. 

Enforcing consumption tax mandates on foreign suppliers of digital services is very challenging, and the difficulties are transparent, as shown in lost tax revenue for B2C transactions. In most cases, these service providers’ lack of physical presence complicates enforcing the rules for national tax authorities. 

Considering this reality, the Japanese Cabinet proposed tax reform that would introduce a deemed supplier statute for foreign digital platforms that provide intermediary services for connecting non-resident service providers with Japanese customers. 


The draft bill should become effective on April 1, 2025. A one-year grace period to prepare and test the new compliance system would follow. 

Digital Platform Operators 

Tax reform introduces the liability of digital platform operators to the underlying supply of digital goods and services. The present tax liability of the underlying supplier will be shifted to the foreign platform operator. It should mean that the foreign service provider operating through the liable platform will be “free” from the tax registration and consumption tax liabilities. 

The digital platform operator will be obliged to accurately charge, collect, and remit JCT for all sales made by foreign suppliers to Japanese customers. 

The main idea behind this project is that it will be easier and more effective to make powerful digital platforms compliant than to make X number of SME digital suppliers. The platform will bear the sole responsibility for indirect taxes. 

This will undoubtedly pave the way for necessary reorganization in how the platform operates and communicates from one side with its users and from the other with the responsible tax authorities. 

The financial flow mechanism that the platform uses will most probably be redirected because the platform operator, to make things simpler, will likely deduct the owed tax from each underlying transaction and transfer to the account of the user a net amount(also the deduction for commission and other expenses needs to be taken into the calculation).

The proposed tax reform bill shows that the Japanese authorities are searching for the most efficient way to tackle the consumption tax gap in the digital economy. The bill mandates introducing the deemed supplier provision for foreign digital platforms with an essential revenue share in intermediating for the underlying supply of digital goods and services. 

The idea is to shift tax reporting liabilities to platform operators. This doesn’t automatically exclude all tax liabilities of the underlying suppliers. 

In the following months, it remains to be seen how the tax bill will be adopted and what tax liabilities will be for platform operators and users. 

Aleksandar Delic
1stopVAT Senior Indirect Tax Researcher (Global Content)