

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *

A weekly roundup of news & information from Terrie Lloyd.

(http://www.terrie.com)

General Edition Sunday, Jan 26, 2014, Issue No. 741

+++ INDEX

- What's New -- Taxing Cross-border eCommerce

- News -- Stiglitz warns on Japan recovery

- Web Content/Tech Job Vacancies

- Upcoming Events

- Corrections/Feedback

- Travel Picks -- Blind museum in Shibuya, Retro in Miyagi

- News Credits

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+++ WHAT'S NEW

While the second increase in consumption tax in October 2015 will

collectively add an extra 5% on to physical things and digital goods

we buy in Japan today, related legislation which will kick in around

the same time (2015) will add an extra 10% (up from zero) on digital

contents/services that are purchased by consumers (versus businesses)

from suppliers abroad. This new tax will probably become known as the

"Rakuten Tax" because the loop hole came to public attention after

Rakuten started selling tax-free Japanese titles through the Kobo

ebooks/ereader company in Canada, so as to avoid local taxes.

Currently, consumption tax is only charged on goods bought in Japan,

and for imported physical goods. Actually, on imported physical goods,

the tax regime is surprisingly lenient and is usually waived on

personal orders of less than roughly JPY14,000 and which are shipped

via courier. Unfortunately, with the new rules, consumption tax will

be charged for ALL international sales made to consumers in Japan, and

so we presume the relaxed attitude on small orders will disappear as

well... Darn! We have gotten used to the idea of tax-free groceries

and bathroom consumables from iHerb.com and Amazon.com.

The framework on which the new taxes will work is not yet specified,

but regular references to the EU system by the authorities make us

think that Japan will try a similar approach. In that case, for B2C

transactions there is likely to be an online tax declaration form to

be completed by the foreign vendor when they sell to Japan-based

consumers. The foreign vendor will deduct the required taxes when the

transaction is done, and remit the cash to the Japanese Tax Office

shortly after.

It's not surprising that the government wants to hit international

eCommerce, the Daiwa Institute of Research calculated that in 2012,

while the tax rate was still 5%, that Japan lost approximately JPY25bn

in taxes on music downloads, advertising, reports, subscriptions, and

other digital transactions. The remarkable thing about the EU system

and therefore the incoming Japanese one, is that it is honesty based,

and will depend both consumers and vendors doing the right thing in

order for the government to get paid. Given that Japan is the second

largest consumer (per capita spending) of online porn in the world,

not a sector that lends itself to forthright actions, we see the

enforcement of this new system to be a major challenge.

[Continued below...]

----------- THAI'S NEWEST DESTINATION - SENDAI ------------

THAI now has flights to Sendai, direct and non-stop from Bangkok.

Sendai is the capital city of Miyagi Prefecture, situated in the heart

of the scenic Tohoku region. THAI's new flights operate non-stop from

Bangkok every Tuesday, Thursday and Saturday, with TG680 departing

Bangkok at 23:59 and arriving in Sendai at 07.55 on the following day.

The return flights operate on Wednesday, Friday and Sunday, with TG681

departing Sendai at 10:30 and arriving in Bangkok at 15.40.

For ticket reservations, please visit www.thaiairways.com or call

THAI's Japan desk at 0570-064-015, or the international Contact Center

at +66-02-356-1111.

---------------------------------------------------------------

[...Article continues]

VENDORS

Firstly the vendors. The EU rules require the vendor to establish that

the consumer is in the EU, and if so, then to charge the appropriate

rate of tax. Actually, at the moment they have a system whereby the

tax can be paid in any one of the member nations, and so apparently

most vendors try to pay their taxes in Luxembourg where the VAT is

15%, versus Denmark, where it is 25%. Not surprisingly, this rather

messy arrangement will change in the future and vendors will be

required to pay the exact country tax rate for the consumer's

location.

However, it doesn't take much to see that:

1. While there is only one tax form for the 28 members of the EU and

so the system currently isn't that onerous, if Japan and other

countries around the world start following suit and imposing their own

rates and systems, then being a multinational online vendor will

become an incredible headache. Companies will have to deduce/prove

each place of consumption, track rule changes, and be prepared to be

targetted by legal challenges from territories they have no presence

in. We imagine that this will be an ideal opportunity for Visa and

Mastercard to offer a value-added tax-tracking/reporting service based

on purchases by their card users (who are verified residents of each

destination), thus encouraging vendors to only take these major forms

of payment.

2. Setting up an online shop front and running ads to get customers

has never been easier. Now, with the incentive of charging customers

for their taxes, shipping products so as to stay in business for a

while, then skipping town before making the tax payments -- this seems

a perfect opportunity for shady operators. Who is to know whether

online Shopfront B was Company A last week? How will foreign tax

offices enforce foreign court action against a defaulted and vanished

supplier?

3. Then, if you factor in virtual market places, like www.oDesk.com,

for example, the ability for someone to register and start delivering

software development projects as an individual, then to deregister and

disappear into anonymity, makes it highly likely that not paying taxes

will become a kind of underground "sport". Indeed, tax avoiders are

likely to take the moral stance that since the taxes are going to

another country, why should the supplier be forced to collect them?

They receive no benefit in return so the tax must be immoral.

4. According to OECD figures, the avoidance rate for taxes for online

transactions is already 10% to 30%, and with these changes is likely

to grow significantly. The only way to reduce avoidance will be for

tax offices around the world to share data and for related law

enforcement agencies to agree to support foreign tax office claims

against local corporations. Given that the Japanese tax office is only

just now signing cooperation agreements to get foreign information on

its own citizens and companies in Japan, it seems that it will be

decades before they can take action against foreign corporations in a

foreign country.

5. Thus, the cross-border digital consumption tax will probably come

down to being compulsory for those companies big enough to not want to

get caught not paying it, and optional for anyone else with a smallish

operation. Perhaps in a twisted sort of way, the tax will encourage

people to buy from small operators, since they will be at least 10%

cheaper.

CUSTOMERS

Then there is fraud by the customers. The most obvious example is

where the customer uses an IP proxy service and Bitcoin payments, to

disguise their real location. An automated vendor, which is just about

every eCommerce site on the web, is not going to challenge a customer

who digitally appears to be in the next state over, or in a

low-tax/no-tax foreign jurisdiction. They certainly won't try to prove

that the customer is in a hard-to-deal-with location like Japan or

Denmark or wherever.

Then you have to consider the nature of the digital contents business.

You have porn sites, marketplaces for moonlighting programmers,

underage teen artists, underemployed writers, indie rock groups, etc.,

and in practically every instance the customers are secretive about

their actions and thus even more likely to try to bend the rules than

to pay the extra. It will be difficult for the tax authorities to go

after people at this level. Maybe they will try to make an example of

a few, as we have seen similar examples of in the music downloads

business. But, as we've also seen, none of these legal actions has

slowed down music downloads particularly.

Lastly, if the tax charging and collection system is too difficult,

then merchants may just decide that shipping to Japan is too hard to

do -- basically killing the golden eCommerce goose that the Tax

authorities want to milk. We have already seen this all-or-none

reaction from foreign vendors in the securities sector. Ten years ago,

you could as a non-US citizen hold a stock trading account in the USA

without any major headaches, other than to fill out a tax form

annually. However, with the introduction of FATCA, securities firms in

the USA have largely decided to eliminate their non-resident,

foreigner customers rather than be bothered with meeting the onerous

reporting requirements. So now there is nothing left to tax and the

customers have gone elsewhere.

...The information janitors/

***------------------------****-------------------------***

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www.japantravel.com

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***------------------------****-------------------------***

+++ NEWS

- Sake exports booming

- Metro real estate showing signs of recovery

- IPOs to hit JPY1trn in 2014?

- Stiglitz warns on Japan recovery

- Travel surge pushes up hotel room prices

=> Sake exports booming

Things are looking up for Japan's 1,700+ sake brewers. Data from the

Ministry of Agriculture shows that exports of sake hit JPY8.5bn in the

10 months through to October 31st, which according to industry experts

means that shipments will exceed the 14.1m liters shipped in 2012.

Sake exports have almost doubled from the 7.5m liters back in 2002,

and are a reflection in the boom in Japanese restaurants operating

overseas. The Japanese Culinary Academy in Kyoto reckons that there

are now about 55,000 Japanese cuisine restaurants outside of Japan.

(Source: TT commentary from businessweek.com, Jan 23, 2014)

http://www.businessweek.com/articles/2014-01-23/japans-sake-export-push

=> Metro real estate showing signs of recovery

Although overall land prices in Japan continue to fall, albeit less

rapidly than in the past, data from the Nomura Research Institute

(NRI) shows that prices are recovering in major urban centers, and

that this may be the start of an overall recovery. From June 2012

through 2013, land prices in Tokyo grew 5.2%, while in Osaka prices

were up 2.3%. Within Tokyo sales of new condos were up 31% between May

and December last year, compared to the same period in 2012. Osaka

condo prices also rose 8.8% in June 2013, compared with June 2012.

***Ed: Of course this pick up could be a natural buying wave prior to

the consumption tax increase, so no one is forecasting an outright

recovery yet.** (Source: ibtimes.com, Jan 23, 2014)

http://bit.ly/1izeRN2

=> IPOs to hit JPY1trn in 2014?

While the case for Abenonmics is still being made, its impact on the

Japanese stock market is undeniable, and more action is expected for

at least the first 4-6 months of this year. Japan's largest securities

firm, Nomura Holdings, thinks that 2014 will be a strong year for

companies to go public, and says that IPO share sales will double to

around JPY1trn this year. If they are right, it will be the first time

since 2010 that the market has hit that number, sputtering as it did

to just JPY571bn on the back of 58 IPOs in 2013. Nomura is bullish

because two big listings are expected: restaurant company Skylark and

property/transport company Seibu Holdings. Both companies have foreign

funds as shareholders and thus are likely to want to cash-out as early

as they can (i.e., while Abenomics is still doing OK). (Source: TT

commentary from bloomberg.com, Jan 23, 2014)

http://bloom.bg/1azrG7y

=> Stiglitz warns on Japan recovery

PM Abe is doing a great job touting at Davos, Switzerland, the biggest

financial experiment in recent history, however, he is also getting

some warnings from financial heavyweights while he is there.

Apparently Nobel economist Joseph Stiglitz has stated that Abe's

government is implementing the rise in consumption tax too early and

that there is a significant risk that the nation's nascent growth will

"sputter". Stiglitz reckons that most of the core inflation that Abe

has been trumpeting is actually just a reflection of rising import

prices due to the 25% devaluation of the yen over the last year.

***Ed: We pointed this out in an earlier Take. Numbers indicate that

almost all the inflation to date can be accounted for by the more

expensive energy imports Japan is dealing with.** (Source: TT

commentary from telegraph.co.uk, Jan 23, 2014)

http://bit.ly/1chfXt2

=> Travel surge pushes up hotel room prices

Rising prices for hotel rooms due to increased inbound foreign

tourists is providing a nice boost for web reservations companies that

don't actually service the foreign market. Competition with foreigners

means that Japanese tourists are paying more, and this has reflected

in the earnings of Ikyu, one of Japan's largest domestic travel

booking firms. Ikyu says its profits are running 20% over last year,

at around JPY1.6bn in the 9 months through to December 2013. Sales

were up by 10%. The average price per room is now JPY25,000, up 5%

over last year. (Source: TT commentary from asia.nikkei.com, Jan 23,

2014)

http://bit.ly/1gf06yA

NOTE: Broken links

Some online news sources remove their articles after just a few days

of posting them, thus breaking our links -- we apologize for the

inconvenience.

***------------------------****-------------------------***

+++ WEB CONTENT/TECH VACANCIES

=> Are you in web content, sales, or engineering? If so, this section

is for you.

** HIGHLIGHTED POSITION

- Japantravel.com Regional Sales Partners

If you live outside Tokyo, have an interest in selling media and

online tourism services and are bilingual (i.e., strong Japanese

required) then we have part-time and full-time positions for suitable

candidates. Our target clients are local governments, major regional

companies, and tourism operators. Each Sales Partner receives the sole

right to represent their region, and receives support from the Tokyo

office to convert promising leads. The position is open to anyone with

sales experience or the ability to sell. Initial contracts with

non-experienced candidates are a no-retainer, commission-only

arrangement, however, promising candidates will have the opportunity

to move to retainers. Visa sponsorship may also be a possibility for

the right person. Friendly team, interesting technology, incentivizing

commissions are all part of the opportunity. Please send your resume

to info@japaninc.com.

** OTHER MEDIA POSITIONS VACANT

- Bilingual account manager for major tourism portal

(www.japantourist.jp), JPY3M - JPY5M

- Bilingual sales trainee for web media properties, JPY2.5M-JPY3M +

10% commission

- English-only experienced PHP Zend software developer, 5 years

experience, JPY3.5M - JPY5M

Interested individuals may e-mail resumes to: jobs@metroworks.co.jp.

-----------------------------------------------------------

***------------------------****-------------------------***

+++ UPCOMING EVENTS/ANNOUNCEMENTS

---------------- Start a Company in Japan -----------------

Entrepreneur's Handbook Seminar 15th of February, 2014

If you have been considering setting up your own company, find out

what it takes to make it successful. Terrie Lloyd, founder of over 17

start-up companies in Japan, will be giving an English-language

seminar and Q&A on starting up a company in Japan.

This is an ideal opportunity to find out what is involved, and to ask

specific questions that are not normally answered in business books.

All materials are in English and are Japan-focused.

For more details: http://www.japaninc.com/entrepreneur_handbook_seminar

-----------------------------------------------------------

-------------- Tokyo International Gift Show --------------

The largest international trade show in Japan is the "77th Tokyo

International Gift Show Spring 2014", and features personal gifts,

consumer goods, and decorative accessories, and it opens soon! With

the motto "Let's meet at the Gift Show," the industry professional

event takes place over 3 days, from February 5-7, and will take over

the entire Tokyo Big Sight venue.

Bi-annual, The Gift Show traditionally selects a theme reflecting

Japanese lifestyles, and this year focuses on global gifts. The show

brings together new and cutting edge foods, fashion, and design. Drop

by to find out what the next big thing will be in lifestyle and gifts.

http://www.giftshow.co.jp/english/

-----------------------------------------------------------

------------------ ICA Event - February 20th-------------------

Speaker: Tish Robinson, Professor of Organizational Behavior at

Hitotsubashi University ICS

Title: "Workshop - Speak Out!!! Don't Freak out!!!"

Details: Complete event details at http://www.icajapan.jp/

Date: Thursday, February 20th, 2014

Time: 6:30 Doors open, Buffet Dinner included and cash bar

Cost: 4,000 yen (members), 6,000 yen (non-members) Open to all. No

sign ups at the door!!!!!!!

RSVP: RSVP by 10am on Monday 17th February, 2014. Venue is The Foreign

Correspondents' Club of Japan.

http://www.fccj.or.jp/about/access.html

-------------------------------------------------------------

***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

=> No feedback this week.

***------------------------****-------------------------***

+++ TRAVEL DESTINATIONS PICKS

=> Gallery TOM (Touch Our Museum), Tokyo

A gallery for the blind in Shibuya

Those interested in architecture may have stumbled upon the gallery

while browsing through books on modern architecture in Japan. Gallery

TOM (Touch our Museum) is small but impressive, designed by Hiroshi

Naito and Associates. It is a concrete 3-storey house on a corner of a

street in the middle of a quiet residential neighborhood in Shibuya.

The building structure shouldn't be the only reason to take an

interest in TOM though. It also houses a private museum where blind

and visually impaired people can experience an art exhibition through

touching the sculptures and statuaries. The museum was commissioned in

1984 by the director of the gallery Mr. Harue Murayama for his blind

son.

The building is amazing, consisting of concrete and glass, through

which rays of sunlight come in highlighting different angles of the

interior. The museum also houses a small book collection on the newest

developments on architecture and art. The books are mainly from France

and Italy and are written in braille. The current exhibition

(Boku-tachi no Tsukuta Mono "The things we made") shows a collection

of amazing sculptures made by high school students from various blind

schools over the course of 30 years. Where my first reaction is not to

touch nor photograph the art pieces, TOM gallery stimulates you to do

both. The building space is not very big, with the second and third

floors used as gallery spaces.

http://en.japantravel.com/view/tom-gallery

=> Matsushima Retro Museum, Miyagi-ken

A pop culture timeline for vintage Japan

Matsushima Retro Museum, located in Matsushima (40 minutes from Sendai

station), is a short 8 minute walk from Matsushimakaigan station. This

little museum is located on the second floor of the Original Omiyage

shop on the main street (National Route 45). Open year round, it

houses a large collection of mementos from Japan as well as a few from

other countries that became popular in Japan. This museum is an

assembly of vintage children's games, music and movie posters, sports

memorabilia, and antique artifacts from decades past.

At this modest attraction in the heart of Matsushima, visitors can

immerse themselves in an atmosphere of a bygone age. All exhibits are

hands on, allowing visitors to interact and touch. The museum

comprises of several exhibit areas that are themed around children

toys, movie and music collectibles, sports and associated memorabilia,

old mechanical games including some ancient pachinko games, a matchbox

car collection, and an exhibit of early video game consoles and

cartridge games. Each area provides an interesting look into times now

past and would interest visitors of all ages.

http://en.japantravel.com/view/matsushima-retro-museum

***------------------------****-------------------------***

***********************************************************

END

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+++ ABOUT US

STAFF

Written by: Terrie Lloyd (terrie.lloyd@japaninc.com)

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