1. Introduction

Japanese tax laws and regulations require companies to maintain national tax-related books, contracts, and other related documents for a certain period of time. In fact, many companies are having a hard time securing the space and saving the cost for the storage. Electronic document storage is one of the ways companies can reduce the burdens.
In July 1998, the Japanese government enacted the so-called the “Electronic Books Maintenance Act”, aiming for the spread of the electronic storage of documents. Although the government continued its effort to relax the requirements under the act, it is hard to say that electronic document storage has been fully prevailed in Japanese companies.
In this News, we will mention the history of the government’s efforts to spread the electronic storage of documents, the recent revisions, and the future issues.

2. History before FY2015

1) Electronic Books Maintenance Act
In July 1998, the so-called “Electronic Books Maintenance Act” (Note1) permitted companies to preserve national tax-related books and documents by electromagnetic recording instead of papers.
However, due to some restrictions such as exclusion of paper bills, etc. received from clients, electronic storage did not prevail in companies.

2) E-Document Act
In April 2005, the so-called “e-Document Act” was enacted from the above background. The “e-Document Act” introduced the scanner system and permitted the electronic storage of paper works received from clients or copies of documents made by companies themselves.
However, the number of approved companies remained sluggish because the act made the following requirements.

・ Scanned documents were limited to contracts or receipts under JPY30,000.
・ Requirements were set to prevent falsification of data. (restriction of data input period, requirement of electronic signatures, etc.)

3. Tax Reforms for FY2015 and FY2016 ・Part1

In response to the demand for relaxing the requirements of electronic document storage, the FY2015 and 2016 Tax Reforms made the following amendments:

4. Tax Reforms for FY2015 and FY2016 ・Part2 – Appropriate administrative processing conditions
As mentioned above, the requirements for electronic storage were relaxed. However, the problem that electronic data is easily falsified compared with paper storage has still remained (Note2). In order to prevent the alternation of data and check the electronic storage of documents, companies are required to establish the internal control system. In detail, the appropriate administrative processing conditions are as follows:

5. Current issues

The Japanese government further relaxed the requirements of electronic storage with the introduction of the appropriate administrative processing conditions.
However, it would be difficult for small and medium sized enterprises to establish and manage the internal control system with the limited workforce. To broadly spread in the future, the Japanese government is requested to make many companies feel not only cost-effective but convenient about the use of electronic storage.

6. Conclusion

As for now, in spited of several reforms, electronic document storage is not yet familiar in many companies. On the other hand, the future progress of electronic technology will make it possible to store more complicated data and enhance the relaxation of the requirements.
The Japanese government will continue to promote the spread of electronic storage, but at the same time, it should think about the balance with administrative regulations required under the proper and fair taxation.

(Note1)
The so-called, “Electronic Books Maintenance Act” gives the summary in Chapter 1 as follows.
“This law is to stipulate the special treatments of storing national tax-related documents required under Income Tax, Corporation Tax, and other related national taxes, for the purpose of reducing taxpayers’ burdens of keeping the national tax-related documents and maintaining the proper national taxation at the same time.”

(Note2)
According to “audit evidence” under Audit Standards Board Report 500 of the JICPA, “audit evidence provided by original documents is more effective and trustworthy than evidence provided by copies, fax, films, or digitals, or any other electronic document.” This implies that electronic document storage is vulnerable to falsification.
Additionally, it stipulates that “the trustworthiness of documents other than the originals largely relies on the internal control system in making and managing such documents. This requires companies to establish the proper internal control system for securing the trustworthiness of electronic data.