Tax offices to keep better tab on income from foreign exchange trading

The government will require companies providing foreign exchange margin trading services to submit all transaction records of their clients to tax authorities under a bill intended to clamp down on tax cheats.

The Diet on Wednesday passed the tax revision bill, under which the obligation will take effect next year.

Investors can conduct margin trading through over-the-counter (OTC) transactions with market makers or on the Click365 open market operated by Tokyo Financial Exchange Inc.

Contracts with market makers account for 90 percent of the total value of all contracts concluded, but the companies are not legally required to submit trading logs of their clients to tax offices.

Retail margin trading on the foreign exchange market is risky but potentially lucrative because investors can conduct deals with high leverage by depositing a relatively small amount of money.

The value of OTC trading topped 480 trillion yen (4.6 trillion dollars) during the April-December period of 2007, more than double the figure a year earlier, according to the Financial Futures Association of Japan.

But taxpayers failed to report about 22.4 billion yen in taxable income from margin trading in the year through June 2007, according to the National Tax Agency.

Serious tax-evasion cases have increased in number.

In August 2007, the Tokyo District Court gave a Tokyo homemaker an 18-month suspended sentence and fined her 34 million yen for evading about 139 million yen in taxes by concealing about 400 million yen in income from margin trading during the three years through 2005.

The tax revision bill will also require financial institutions to report to tax offices cash transfers of 1 million yen or more to overseas countries, effective in April next year.

Financial institutions will have to submit records, including the names and addresses of their clients, the amounts of money sent and the remittance addresses.(IHT/Asahi: May 1,2008)