Cases where the 80% deduction is not applied when making payments to invoice tax-exempt businesses

When a consumption tax taxable business makes a payment to a tax-exempt business, in principle they cannot deduct the input tax when calculating consumption tax.

As a temporary measure (for three years) after the introduction of invoices, there is a transitional measure that allows 80% of the consumption tax to be deducted as input tax.

However, there are cases where it is not possible to deduct 80% of the input tax when paying a tax-exempt business.

When the payment to a single tax-exempt business exceeds 1 billion yen including tax

If a taxable business entity for consumption tax pays more than 1 billion yen (including tax) to a single tax-exempt business entity within a year or business year, the excess amount will not be eligible for the transitional measure of the 80% deduction.
(Applicable from tax periods beginning on or after October 1, 2024)

The background to the amendment is to prevent excessive tax benefits from the 80% deduction.
(I think there are few cases of tax-exempt businesses with sales exceeding 1 billion yen)

For example, if a tax-exempt business entity’s sales are 1.1 billion yen (including tax), the consumption tax is 100 million yen.

The party that applies the input tax deduction can deduct 80 million yen, which is 80% of the consumption tax of 100 million yen.

In other words, even though the consumption tax of 100 million yen that the tax-exempt business entity has received is not paid , the payer can deduct the input tax amount of 80 million yen.

In the first place, the 80% consumption tax deduction system itself generates tax benefits, but the tax benefits portion becomes larger when the transaction exceeds 1 billion yen.

In the current tax reform for fiscal 2024, a fixed line of 1 billion yen has been set to prevent excessive tax benefits.

Conclusion

This time I explained cases where the 80% deduction does not apply when making payments to invoice tax-exempt businesses.

The invoice system has only just begun, so it will likely be revised from time to time.

It is essential to continue catching up on future revisions.

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都築太郎税理士事務所/Tsuzuki Taro Tax Accountant Office

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