Asia Pacific Trade & Commerce Client Conference 27 August 2015 Baker & McKenzie, Hutchison House, Hong Kong

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1 Asia Pacific Trade & Commerce Client Conference 27 August 2015 Baker & McKenzie, Hutchison House, Hong Kong Trade For further information please contact Ed Whatley Tel: edwin.whatley@bakermckenzie.com Kana Itabashi Tel: kana.itabashi@bakermckenzie.com Daisuke Tatsuno Tel: daisuke.tatsuno@bakermckenzie.com Junko Suetomi Tel junko.suetomi@bakermckenzie.com Japan 1. Customs Rules Governing Advance (Pre-Departure) Filing of Maritime Container Cargo Information On March 30, 2012, a bill to amend part of the Customs Tariff Law and other relevant laws passed the Diet. This amendment enacts Advance Filing Rules, which require a vessel operator and / or an NVOCC to electronically submit information to Japan Customs regarding maritime container cargo to be loaded on a vessel that will be entering a port in Japan. In principle, the information must be submitted no later than 24 hours before departure by the vessel from a port of loading. The Rules have been in effect since March Spurred by the September 11 terrorist attacks in the U.S. in 2001, the World Customs Organization (WCO) developed a regime to be implemented internationally to enhance security and facilitate international trade. The WCO SAFE Framework of Standards to Secure and Facilitate Global Trade ( SAFE Framework ) states that Customs agencies of WCO Members should obtain cargo information regarding maritime container cargo electronically before such cargo is loaded at the port of departure. Even compared to the requirements under the SAFE Framework, and specific rules in effect in foreign countries, Japan may be considered to have made strides in implementing effective rules regarding the timing, scope of data collected, and the method of filing data, in this area. Preparations for Enforcement of Newly Enacted Japan Australia EPA In order to prepare for enforcement of the Japan-Australia EPA, which was signed in July 2014, the Japanese government has implemented certain customs regulations, including the introduction of a special safe-

2 guard measure, whereby customs duty rates increase, when import volume exceeds a certain level. The rules also call for voluntary declaration of the country of origin of imported goods. Reinforced Restrictions on the Import of Scheduled Drugs The Japanese government has added certain scheduled drugs to the list of items whose import is prohibited, in light of the recent trend of easy access to scheduled drugs and increased addiction rates. The penalty for a violation of the relevant rules is imprisonment for up to 10 years or a fine up to JPY 30 million, or both. 1 Extension of Period During Which One May Apply for Provisional Customs Duty Rates The deadline for applying for reduced customs duty rates on 431 items, including beef, dairy products, and flowers, was extended for one year until the end of March Extension of Period During Which Additional Tax will not be Assessed for Failure to File, or Late Filing, of Customs Return The period during which penalty and interest taxes will not be assessed for failure to file or for late filing of customs returns was extended from two weeks from the original filing due date to one month from such due date. 2. Export controls METI Guidelines on Cloud Computing On 21 June 2013, Japan's Ministry of Economy, Trade and Industry ("METI") added a new provision to Notification 492, which covers the treatment of cloud computing in the context of export controls. The provision came into effect on September a, The addition to Notification 492 covers the provision of technology/services, i.e., the making available of any technology/service for others use, by way of (i) storage services or (ii) Software as a Service (SaaS). With regard to storage services, under previously effective guidelines, it had not been entirely clear whether storing of 1 See Article 109, para 1 of the Customs Act. 2 Baker & McKenzie Asia Pacific Trade & Commerce Client Conference 27 August 2015

3 controlled technology on a storage server located outside of Japan would be deemed an export of such data. METI clarified in the Guidelines that so long as the contract with the storage service provider is just for the purpose of storing data for one's own use, the storage would not be considered an export. With regard to SaaS, METI clarified that provision of SaaS services to non-japanese residents would be considered an export of such data. Revision of List of Items Highly Likely to be Used for the Development of Nuclear Weapons The government strengthened controls regarding the export of general purpose items to Syria. The laws require both end user checks and end use checks. Revision of End User list The end user list was expanded to 527 parties in 11 countries as of April Amendment in 2014 of Three Principles on Transfer of Defense Equipment and Technology Japanese laws generally prohibit the export of arms. Under new rules, the government clarified the circumstances under which the export of arms is totally prohibited, and where the export of arms may be permitted under certain exceptional situations. More specifically, it may be permissible to export arms where such export contributes to international peace or international cooperation, or to Japan s national security. 3. Sanctions Increased Sanctions on Russia Effective From September 2014 The increased sanctions include: (i) Ban on export of Arms, dual-use goods and technologies for military purposes (ii) Restrictions on capital transactions (the issuance and offer of securities) 3 Baker & McKenzie Asia Pacific Trade & Commerce Client Conference 27 August 2015

4 Sanctions on Iran Decided to be Lifted in July 2015 Japan has long imposed sanctions against Iran based on the resolutions of the UN Security Counsel, and additional sanctions based on Japan s own initiative. After the Joint Comprehensive Plan of Action ("JCPOA") was concluded, the Ministry of Foreign Affairs issued a brief announcement regarding the sanctions, and later announced its intention to lift all sanctions against Iran at the same time as the UN Security Counsel and EU/US lift their sanctions. 4. WTO/FTA There are 14 EPAs which Japan signed and went into effect up to date. Japan newly signed Japan Mongolia EPA in February Japan is currently negotiating a number of other EPAs, including a Japan ASEAN EPA, Japan Canada EPA, Japan Columbia EPA, Japan China ROK FTA, Japan EU EPA, RCEP, TPP, Japan Turkey EPA, Japan GCC FTA, Japan ROK EPA. Japan Australia EPA The Japan Australia EPA went into effect in January Under the Japan Australia EPA, customs duties on most industrialized products and all agricultural products imported into Australia were eliminated immediately. Further, customs duties on most industrial products imported into Japan will be eliminated in 10 years. The customs duty rates on agricultural products will be eliminated or decreased over a certain period of time. Japan Mongolia EPA The Japan Mongolia EPA was signed in February This EPA reinforced the strategic partnership between Japan and Mongolia through development of trade, and investment in the areas of energy, mineral resources and others. Commerce Japan 5. Supply chain regulations 4 Baker & McKenzie Asia Pacific Trade & Commerce Client Conference 27 August 2015 There are various regulations that regulate import, transportation, storage, labelling, sales of goods

5 (depending on the type of goods, including chemical substances, pharmaceuticals, electric equipment, foods, alcohol, etc.) and related parties in such transactions (the Anti Monopoly Act, etc. in case of B2B, the Consumer Contract Act, the Act for Specified Commercial Transactions, etc in case of B2C, the Act against Anti-Social Forces). Guidelines of the Anti-Monopoly Act With respect to a distributorship in a supply chain, the general regulations of the Anti Monopoly Act are interpreted by the "Guidelines Concerning Distribution Systems and Business Practices under the Antimonopoly Act" (the "Guidelines") issued by the Japanese Fair Trade Commission (JFTC). The latest amendments to the Guidelines entered into force on March 30, 2015, and clarified various aspects of the interpretation of the AMA. 6. E-commerce In general, there are various regulations in Japan that govern e-commerce transactions, including, the Specified Electronic Mail Act, and the Act on Electronic Consumer Contracts, the Act on Electronic Contract, the Act on Limitation of Provide Liability, the Act on Unauthorized Computer Access, the Act on Electronic Signatures and Certification Business, the Act on Electronic Books Maintenance, the E-Document Act, etc. Amendment of the Act for Specified Commercial Transactions Legislators are now discussing amendment of the Act for Specified Commercial Transactions, which regulates mailorder marketing (internet sales). The direction of the amendment would be to strengthen restrictions applicable to mail-order marketing, and could include amendment of the definition of "solicitation" in the context of mail order sales to include internet advertising (i.e., an action against unspecified users), introduction of "cooling off" period (allowing cancelation of a transaction), etc. Amendment of the Consumer Contract Act Discussions are also ongoing regarding amendment of the Consumer Contract Act. Possible changes would include amendment of the definition of "solicitation", expansion of 5 Baker & McKenzie Asia Pacific Trade & Commerce Client Conference 27 August 2015

6 rules whereby provisions deemed to be unilaterally disadvantageous to consumers would be held void, etc. Other In addition to the above various regulations, METI issued a guideline regarding e-commerce ("Interpretative Guidelines on Electronic Commerce and Information Property Trading") (last amended in 2015) that provides rules for interpreting existing legal regime (e.g., the Civil Code) in the context of e-commerce transactions as most of the existing laws were established before the emergence of such new technologies, the interpretation of the application of the existing laws are not necessarily clear. guideline provides including but not limited to, timing of the conclusion of an "agreement" between parties in a distant locations, as is relevant in the case of internet sales, Incorporation of website terms of use into contract and its effect, interpretation of the relevant regulation regarding web advertising, the effects of identity-theft, erroneous indication of intention by a party due to erroneous operation of a computer, etc. The Guideline also sets out rules for information property trading, including return of products after concluding a license agreement, liability of vendors on program, service level agreements for SaaS/ASP, etc. 6 Baker & McKenzie Asia Pacific Trade & Commerce Client Conference 27 August 2015 Tax Amendment JCT (an abbreviation of Japanese consumption tax) which is Japan's tax similar to VAT in the European context, is imposed at a flat 8% on the payment for the transfer or lease of assets in Japan, or the provision of services in Japan. The tax rate is slated to increase from 8% to 10% on April 1, Currently, digital services provided by a service provider located outside of Japan are outside the scope of JCT. Such services would include, for example, the sale of e-books, the provision of music streaming services, or the provision of internet advertising services by a foreign service provider. Under the 2015 Tax Legislation, the above described services will be subject to JCT, beginning on October 1, 2015, if the recipient of the service is located in Japan. Under the new rule, (1) in the case of B2B transactions (between business enterprises), JCT is to be collected by way of a reverse charge system. The proceeds of a sale by a foreign service provider would thus be exclusive of JCT. In the case of a B2B transaction, the law requires the foreign service provider to provide notice to the Japanese business customer that the transaction is subject to a

7 reverse charge, and the Japanese business customer is responsible for filing and paying the applicable JCT to the tax authorities. On the other hand, (2) in the case of B2C transactions (between a business enterprise to consumers), the foreign service provider will be required to file a JCT return and pay JCT through a tax administrator located in Japan. The sales proceeds collected by the offshore service provider would thus include the underlying price of the service in addition to applicable JCT. 7. Testing and labeling The Act against Amendment of Unjustifiable Premiums and Misleading Representation Responding to a number of recent incidents regarding false labelling of foods, the government amended the Act against Amendment of Unjustifiable premiums and Misleading Representation in The changes strengthen the enforcement power of the government, put into place a stronger management/ compliance system for labelling by business operators, and introduces a surcharge on business operators who misrepresent the quality of products. 8. Cyber Security There are no particular regulations regarding cyber security specifically relating to supply chains yet in Japan. In January 2015, however, a new Cyber Security Act came into force. The Cyber Security Act obliges government, critical infrastructure operators, and cyber business operators to make efforts to actively implement necessary measures to secure cyber security. 9. Data privacy Amendment of the Personal Information Protection Act A bill to amend the Personal Information Protection Act was passed by the lower house in May 2015 and is now being discussed at the upper house. If enacted as expected, the revisions to the Act should be significant. The amendments should clarify how the Act will apply extraterritorially, and will set out certain obligations on overseas business operators who use personal information obtained in Japan. 7 Baker & McKenzie Asia Pacific Trade & Commerce Client Conference 27 August 2015

8 8 Baker & McKenzie Asia Pacific Trade & Commerce Client Conference 27 August 2015 Currently, the transfer of personal information among different legal entities within the same corporate group is generally possible without consent by the data subject, by applying the "joint-use" exemption. After enactment of amendments to the Act, however, the entity possessing the data will need to obtain consent of the data subject to the transfer, unless two requirements imposed by the Act are met. The requirements are that (i) the transferee has a data protection system at the required level, and (ii) that the country of the transferee party is on a list maintained by the government designated Committee, which has a data protection regime which is at least at the same level as that of the transferor. The Act also introduces the concept of "anonymous information", which is information regarding an individual that has been modified in order not to identify the individual. The Act allows business operators to use such anonymous information to promote big data businesses by protecting the rights of the data subject, so as to prevent reversion of the data to its nonanonymized state and identification of data subject.

Client Alert April 2015

Tax and Transfer Pricing Tokyo Client Alert April 2015 Japan to Impose Consumption Tax on Digital Services Provided by Foreign Service Providers to Japanese Purchasers Japan's 2015 tax legislation was