International taxation_EPA and FTA (tariffs)

Our advisory services have achieved tariff reductions through utilization of EPA and FTA, and by paying early attention to changes in international commerce rules that can become management issues for global corporations.

Going into the 2010s, developed countries have faced issues such as low growth, low interest rates, and falling populations. At Tokyo Kyodo Accounting Office, we expected to see a trend of countries shifting toward indirect taxes, which generate income for governments that is less likely to be affected by economic trends than direct taxes. We believed that among both developed countries and emerging markets, the trend to secure tax income from consumption taxes and other indirect taxes would accelerate as they looked to compensate for the gap created by decrease of income from corporate and income taxes, and we expected this to significantly impact the corporate economy.

On the other hand, countries began to individually enter into EPAs and FTAs* (free trade agreements), and there was a sudden increase in the number of countries reducing and abolishing tariffs, as the world rapidly shifted toward the age of EPAs and FTAs.*

The Japanese government’s policies have also resulted in the conclusion of large-scale EPAs, known as mega EPAs, in which Japan have in recent years concluded EPAs with major countries and regions around the world at a rapid pace such as TPP 11 and the Japan-EU Economic Partnership Agreement.

These agreements included the RCEP agreement with 10 ASEAN countries, China, South Korea, Australia, and New Zealand, which took effect on January 1, 2022, and was the first agreement of its kind between China, South Korea, and Japan. It is expected to result in significant economic benefits for Japanese companies. It has been estimated that when the RCEP agreement took effect, trade with countries with which Japan had entered into EPAs and FTAs made up approximately 80% of the total amount of trade for Japan.

Under these agreements, systems are in place that mean member countries can enjoy the benefits of the abolition and reduction of tariffs on exported products in countries where they are imported, but many Japanese companies have yet to take full advantage of these benefits.

At Tokyo Kyodo Accounting Office, we have been developing consulting services aimed at utilizing EPAs and FTAs in concrete ways since 2015. We will support companies engaged in EPA and FTA-related operations, which will be an increasingly important management issue going forward.

* EPA (Economic Partnership Agreement)

A comprehensive agreement between two or more countries and regions that covers areas including the liberalization of trade in goods and services, as well as areas outside of trade, such as the movement of people and investment, government procurement, and bilateral cooperation. (The Trans Pacific Partnership (TPP) agreement and Regional Comprehensive Economic Partnership (RCEP) agreement are examples of EPAs and FTAs)

* FTA (Free Trade Agreement)

An agreement between two or more countries and regions to reduce or abolish tariffs on goods, barriers to trade in services, etc. In general, EPAs cover a broader scope, while FTAs focus mainly on provisions related to the liberalization of trade in goods and services.