This is an English translation of our Japanese article. Rules and figures may change; the
Japanese version and official sources are authoritative.
Last updated: June 14, 2026 / This article was written after checking materials published by the National Tax Agency (as of June 2026) (sources are listed in the body and at the end). The examples are general patterns based on reporting and publicly available information.
The difference between tax saving, filing omissions, and tax evasion
Acts of "reducing your taxes" tend to be lumped together, but legally they are clearly divided into three. In particular, the line between a "filing omission" and "tax evasion" is whether or not it is intentional, and that is the branching point for whether a criminal penalty arises.
Legal
Tax saving (tax planning)
An act of legally reducing your tax burden within the bounds of the law. iDeCo, Furusato Nozei, recording expenses, the blue-return deduction, and the like apply. Legitimate tax saving done in consultation with a tax accountant.
No penalty
Civil / administrative measure
Filing omission / calculation error
When you file incorrectly without malice. Omitting income from your return, miscalculating deductions, and the like apply. If pointed out in a tax audit, you must file an amended return.
Additional taxation + delinquency tax + understatement additional tax (10–15%)
Criminal offense
Tax evasion (the crime of tax evasion)
The act of intentionally escaping tax. Hiding sales, fictitious expenses, double bookkeeping, and the like are typical. It targets deliberate concealment where "I didn't know" is no excuse.
Imprisonment of up to 10 years, or a fine of up to ¥10 million (+ heavy additional tax of 40%)
There is a clear wall between "tax evasion" and "tax saving": inside or outside the law
Tax saving is legal no matter how actively you do it. Tax evasion, on the other hand, has criminal penalties expressly stipulated in Article 238 of the Income Tax Act, Article 159 of the Corporation Tax Act, and elsewhere, with the possibility of arrest, prosecution, and imprisonment without suspension. "Everyone does it" is no exemption, and the larger the amount, the higher the chance of being reported.
The three major methods of tax evasion
According to the "Outline of Tax Investigations" published by the National Tax Agency, the methods of tax evasion that lead to criminal referral fall broadly into three types. In every case, the presence of intentional concealment is the requirement for it to be recognized as tax evasion[NTA tax investigation system (in Japanese)].
Method 01
Concealment of sales / income (hiding income)
- Pocketing cash sales without recording them in the books
- Spreading sales across multiple bank accounts and leaving some unreported
- Not reporting income that is "hard to spot," such as side jobs, speaking fees, and appearance fees
- Moving income to an overseas account to hide it
Why the discovery rate is high: because the paying side submits withholding slips and payment records to the tax office, cross-checking income is easy
Method 02
Recording fictitious expenses
- Recording receipts for business trips and dining that never actually took place
- Making fictitious salaries to nonexistent family or acquaintances an expense
- Gathering up unrelated receipts and mixing them into expenses
- Fictitiously recording outsourcing fees to a paper company
Why the discovery rate is high: it is easily revealed by confirming the existence of the payee and investigating the reality of employees
Method 03
Double bookkeeping / slush funds
- Using different books for submission to the tax office and for actual management
- Managing part of the sales of a cash business in a "hidden ledger"
- Issuing two copies of a receipt and turning one into a slush fund
- Padding purchases and receiving kickbacks
Why the discovery rate is high: PC data recovery, employee testimony, and cross-checks with business partners expose the contradictions between the two sets of books
Real-case patterns involving well-known and public figures
In entertainment, sports, business, and beyond, news of filing omissions and tax evasion is reported almost every year. Cases with large amounts and high public attention can lead to criminal referral. The following are real patterns based on reporting and information published by the National Tax Agency.
What was the problem
When the "agency-unauthorized side income (off-the-books gigs)" of talent belonging to entertainment agencies became an issue in 2019, it came to light that in many cases they
had not filed a tax return on their side income. Filing omissions on the scale of several million to tens of millions of yen were amended one after another.
Where it came to light / the lesson
It was revealed from the payment records of the organizers and clients. Unlike company employees, entertainers treated as freelancers or sole proprietors have
an obligation to file their own tax returns, and "I thought my agency was managing it" is no exemption.
What was the problem
There are many cases in which players in professional baseball, soccer, combat sports, and so on do not accurately report
signing bonuses, sponsorship fees, and compensation from overseas. In particular, at times of overseas transfers or loan transfers to multiple teams, the attribution of income becomes complicated and omissions easily arise.
Where it came to light / the lesson
The Regional Taxation Bureau grasps it from contracts with teams and agents and from transfer records. Even "I left it to my agent" does not change the fact that the person themselves is the one obligated to file. Because of the high income,
the additional tax per single filing omission can reach the scale of tens of millions of yen.
What was the problem
Hiding sales in
industries with a lot of cash transactions, such as food service, adult entertainment, pachinko, and real estate, is the area on which the Regional Taxation Bureau's investigation department (commonly called "Marusa") places the greatest priority. The classic method is to not record part of a store's sales in the books. Once it reaches the scale of hundreds of millions of yen, it leads directly to criminal referral and arrest.
Where it came to light / the lesson
It comes to light through the "accumulation of circumstantial evidence," such as whistleblowing by employees, contradictions in the sales-to-purchase ratio with suppliers, and a mismatch between electricity usage and sales. Even if you hide sales, because they
fail to reconcile with expenses, purchases, utility costs, and the like, the larger the scale the easier it is to discover.
What was the problem
Cases in which someone misunderstands that "if I live abroad, Japanese taxes don't apply" and, despite actually having the substance of residence in Japan, avoids filing by using an overseas base as a formality. From 2024 onward,
the automatic exchange of international financial account information under the CRS (Common Reporting Standard) got into full swing, and the accuracy of grasping overseas accounts rose sharply.
Where it came to light / the lesson
Under the CRS, overseas financial institutions automatically report account information to Japan's National Tax Agency. The "substantive place of residence" is judged from living circumstances on social media, aircraft boarding records, smartphone GPS data, and the like.
A formal relocation does not amount to tax saving, and carries the risk of becoming tax evasion.
What was the problem
Al Capone, a major gangster of the Prohibition era, could not be arrested for murder or assault, but in 1931 he was prosecuted and convicted for
income tax evasion and received an 11-year prison sentence. It became a precedent on "criminal proceeds and tax obligations," a symbolic case establishing that the duty to report income earned in the underworld is not exempted.
The lesson
The point that "there is an obligation to report even income obtained through crime" is the same in Japan. Proof of tax evasion leaves more evidence than other crimes (books, accounts, receipts), and the assumption that "if there's no evidence it won't be found out" can be fatal.
Statistical data from the NTA's "Outline of Tax Investigations" (recent trends)
The National Tax Agency publishes the "Outline of Tax Investigations" every year. Recent trends are as follows: (1) the annual number of referrals to the public prosecutors is around 60–100, (2) the prosecution rate for referred cases is about 97% or more, and (3) the amount of evasion per case averages several hundred million yen. The image that "only large companies are targeted" is mistaken; individuals and small and medium-sized enterprises are also targeted.
How tax evasion comes to light
Assumptions like "if I take it in cash it won't be found out" or "an overseas account can't be traced" do not hold up against modern tax audits. The Regional Taxation Bureau's investigative capabilities become more sophisticated year by year, and the routes of discovery are diverse.
Cross-checking payment records and withholding slips
The National Tax Agency matches the "payment records" submitted by the paying side (companies, agencies, etc.) against the content of your return. Income that the recipient has not reported comes to light here. This is the route by which the side income of freelancers and entertainers gets caught most often.
Account information from financial institutions and the CRS
For domestic accounts, financial institutions' transaction data is linked with the National Tax Agency. For overseas accounts, information is automatically exchanged with about 100 countries under the CRS (Common Reporting Standard). The era in which "moving it to an overseas account means it won't be found out" is over.
Whistleblowing / tip-offs
Reports from employees, former employees, business partners, family, and others. The National Tax Agency also has a "tax administration monitor" system and constantly accepts information for reporting. The more a business owner shares wrongdoing with employees, the higher the risk of a leak.
Deviation from industry averages / circumstantial evidence
Comparing profit rates with businesses in the same industry and of the same size reveals an abnormally low profit margin. The gap between the "plausible sales" estimated from purchases, electricity, and labor costs and the reported sales can also serve as grounds.
What happens if "Marusa" (the investigation department) sets its sights on you
The Regional Taxation Bureau's investigation department (official name: the Material Investigation Division plus the Investigation Department) is a special investigative body with the power of compulsory investigation. With a court warrant, it can simultaneously raid and search your home, office, and business partners. PC data recovery, seizure of evidentiary documents, and interviews of relevant parties are carried out, and once an investigation begins, destroying evidence is virtually impossible. The criminal referral rate for investigated cases is extremely high, and once prosecuted a guilty verdict is nearly certain.
The penalties if you are charged with tax evasion
If tax evasion comes to light, it is not a matter of "just paying the tax you should have paid and being done with it." Additional taxation, heavy additional tax, and criminal penalties are imposed in layers.
Principal tax
(back tax)
The full amount of the tax you originally should have paid
An obligation arises to pay in full the original tax on the income or profit you did not report. Because several years of unreported income are taxed all at once, the amount becomes very large.
Heavy additional tax
Intentional concealment adds heavy additional tax of 35–40%
Unlike a simple filing omission (understatement additional tax of 10–15%),
if intentional concealment or disguise is recognized, heavy additional tax of 35% (40% for non-filing) is added on top of the principal tax
[NTA additional taxes (in Japanese)].
Delinquency tax
Delinquency tax at an annual rate of up to 14.6% (calculated daily)
Delinquency tax accrues on an annual-rate basis from the day after the filing deadline until the day of full payment. For the first two months it is about 2.6%, and thereafter about 8.9% (rough figures for FY2025). The longer the evasion, the more it snowballs.
Criminal penalty
(imprisonment)
Article 238 of the Income Tax Act: imprisonment of up to 10 years, or a fine of up to ¥10 million (may be imposed together)
The larger the amount of tax evaded, the higher the risk of imprisonment without suspension. If a corporation's representative commits tax evasion, under the dual-punishment provision a fine is also imposed on the corporation. Even with a suspended sentence, a criminal record remains, and social and business trust is difficult to recover.
Article 159 of the Corporation Tax Act: likewise imprisonment of up to 10 years, or a fine of up to ¥10 million
Social
sanction
Media reporting, loss of social trust, business suspension
Whether individual or corporation, criminal referral and arrest are almost certain to be reported. Social sanctions such as the loss of entertainment activities and sponsorship contracts, suspension of a company's transactions, and revocation of qualifications (tax accountant, lawyer, doctor, etc.) are imposed separately from the criminal penalty.
| Category | Intent | Additional taxation | Criminal penalty |
|---|
| Calculation error / simple omission |
None (negligence) |
Understatement additional tax 10–15% |
None |
| Non-filing (leaving it despite knowing) |
Ambiguous |
Non-filing additional tax 15–20% |
Possible in malicious cases |
| Tax evasion involving concealment or disguise |
Intentional |
Heavy additional tax 35–40% (+ delinquency tax) |
Imprisonment / fine (criminal referral) |
Summary: tax evasion is "not worth the risk"
Compared with the principal tax + 40% heavy additional tax + delinquency tax + criminal penalty + loss of social trust when it comes to light, the gain from tax evasion (the amount of tax escaped) is overwhelmingly outweighed by the risk.
Lower your tax burden without risk through legitimate tax saving
There are many legal means of tax saving, such as iDeCo, Furusato Nozei, the blue return, properly recording expenses, and the timing of incorporation. Rather than the mindset of "as long as I'm not caught," the mindset of "minimizing the tax I pay legally" is the only way to protect your business and assets over the long term. The cost of consulting a tax accountant is overwhelmingly smaller than the additional taxation, legal fees, and social ruin after tax evasion comes to light.
Even a "filing omission," if left unaddressed, can be recognized as tax evasion
A filing omission that started as a "careless mistake" can, if repeated year after year or not corrected even after being pointed out, be recognized as "intentional concealment." If this applies to you, filing a voluntary amended return before a tax audit begins may make it possible to avoid the application of heavy additional tax. Early detection and early response are the best policy[NTA amended returns (in Japanese)].
FAQ
How does tax saving differ from tax evasion?
Tax saving is a legal act of reducing your tax burden within the bounds of the law. Tax evasion is a criminal offense of intentionally escaping tax through means such as hiding sales or fictitious expenses, subject to imprisonment and heavy additional tax (40%). The line is "whether there is intentional concealment."
Is a careless filing omission also punished?
A filing omission without malice is not tax evasion (a criminal penalty); it is subject to additional taxation + delinquency tax + understatement additional tax (10–15% in principle). However, repeating it or leaving it after being pointed out can be recognized as heavy additional tax / intentional.
Why is non-filing found out?
It is grasped by cross-checking against the payment records and withholding slips submitted by the payer, by cross-checking with counterparties, and by confirming deposit and settlement data. You should assume that hiding income has a high discovery rate.
What should I do if I notice a mistake?
If you voluntarily file an amended return before a tax audit begins, it may lead to avoiding the application of heavy additional tax or to a reduction of the additional tax. An early response is advantageous.
Sources / official information
This article is based on the following official information. Systems may be revised. Please check each official site for the latest information.
* The content of this article is for informational purposes and is not tax or legal advice. The examples given are general patterns based on reporting and publicly available information and do not refer to any specific individual or organization. For individual judgments, please consult a tax office or a tax accountant.
