Credit Suisse Securities Japan Limited “Mass Understatement of Income Tax” Case

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Incident[edit]

It started in November 2008, 300 of employees and former employees of Credit Suisse Securities [1] were summoned from the competent tax office simultaneously. They were all front-office employees whose salary was renewed every year, and received shares of CSG including company restricted stock (called “phantom shares” which they cannot liquidate for certain period) and employee stock options as compensation in the accounts that each of them opened at the affiliated company of CSG in US. This compensation plan was extremely complicated to understand, and the income taxes due in Japan had not been withheld.[2]

Most of 300 employees and former employees understated tax reporting of the stock-based compensation and roughly 100 of them completely failed to declare their income of stock-based compensation.

At the same time employees of not only CS Securities but also other foreign investment banks such as JP Morgan Chase were investigated and hundreds of cases were exposed as understating income tax.

Among hundreds of cases only one person, Mr. Takashi “Terry” Hatta from CS Securities, was accused by Taxation Bureau and prosecuted by the Public Prosecutors.[3]

Tokyo Regional Taxation Bureau initiated the investigation into Mr. Hatta in December 2008, but it took a whole year until they finally made an accusation in 2009; this accusation was taken up by the Tokyo District Public Prosecutors, however it was after a year and nine months that the Special Investigation Team started voluntary questioning the defendant; the questioning took three months. The total lengths of these processes took three years which was exceptionally a long stretch for an investigation of evading taxes. Mr. Hatta has kept denial claiming that he didn't file taxes because he believed that income tax from the stock-based compensation had already been withheld by the firm which is usually the case for all cash compensation: he never intended to evade his taxes. The Special Investigation Team indicted him without arrest which was exceptional as well. There were a full of irregular handlings in this case from the outset.

Trials[edit]

1st trial of Tokyo District Court was held on Feb 22, 2012. At district court level, 11 times of trials were held until Mar 1, 2013.

On Mar 1, 2013, Tokyo District Court sentenced not guilty of these, fully admitting the defendant’s claim that he has never intended to evade tax. The instance of not guilty for Taxation Bureau and the Public Prosecutors was very first case in Japanese history.

The Public Prosecutors appealed to Tokyo High Court immediately.[4]

1st trial of Tokyo High Court was held on Nov 15, 2013. The trial was concluded with only one trial which was exceptional for the case of the Public Prosecutors appealing.

On Jan 31, 2014, Tokyo High Court dismissed the Public Prosecutors appealing.

On Feb 14, 2014, the Public Prosecutors gave up appealing and innocence of Mr. Hatta was determined.

Mr. Hatta has sued the country claiming 500MM yen.[5] 1st trial of the State Redress was held on Jul 28, 2014.

Articles[edit]

Japanese Wikipedia has detailed information of Credit Suisse Securities Japan Limited “Mass Understatement of Income Tax” Case.[6]

Several of eminent journalists wrote articles defending Mr. Hatta in magazines and internet media, such as Ms. Shoko Egawa,[7][8] Mr. Chikaki Tanaka [9] and Mr. Osamu Aoki.[10]

Books[edit]

Mr. Chikaki Tanaka “Tax Reporter – Real Life of the Inspection Team of Taxation Bureau (Japanese)” (introducing Credit Suisse Securities Japan Limited “Mass Understatement of Income Tax” Case)[11]

Mr. Takashi “Terry” Hatta “Challenge for Zero Probability – How Was the Historic Decision of Not-Guilty Brought (Japanese)” (published on May 16, 2014)[12]

References[edit]

  1. ^ Credit Suisse https://www.credit-suisse.com/global/en.html
  2. ^ In Japan income tax of company salary is always withheld by companies so that all employees are free from tax reporting in scope of company salary. And some foreign investment banks considered that they did not have to withhold income tax of some of compensation as long as it was paid abroad. CS Securities was one of foreign investment banks who applied such an interpretation. Today all foreign investment banks even including CS Securities withhold income tax of all compensation paid to employees after this case.
  3. ^ Mr. Hatta's name was revealed in news articles and reported all over the world translated not only in English but also other languages such as French and German.
  4. ^ In Japan the Public Prosecutors also have the right to appeal as well as defendants.
  5. ^ Nobuo Gohara "Significance of Mr.Hatta's State Redress Trial" http://nobuogohara.wordpress.com/2014/07/28/%E5%85%AB%E7%94%B0%E6%B0%8F%E3%81%AE%E5%AF%BE%E6%A4%9C%E5%AF%9F%E5%9B%BD%E8%B3%A0%E8%A8%B4%E8%A8%9F%E3%81%AE%E6%84%8F%E7%BE%A9/
  6. ^ Japanese Wikipedia クレディ・スイス証券集団申告漏れ事件
  7. ^ Japanese Wikipedia 江川紹子
  8. ^ Ms. Shoko Egawa's article "What this judgement of not guilty means~Let's not forget what got you there in the first place." Ms. Shoko Egawa's article "Very first judgement of not guilty in Japanese history for tax evasion case prosecuted by Public Prosecutor was maintained." Ms. Shoko Egawa's article "Judgement of not guilty was determined but....."
  9. ^ Mr. Chikaki Tanaka's article "Revelation by a man who beat the National Taxation Bureau."
  10. ^ Japanese Wikipedia 青木理
  11. ^ Japanese article. Amazon.co.jp
  12. ^ Japanese article. Amazon.co.jp