A widow in the Kansai region was infuriated by a letter sent from the National Tax Agency in December 2022.

It ordered her to pay inheritance tax on benefits of 170 million yen ($1.31 million).

“I haven’t even collected the money yet,” the exasperated woman said.

The money in question will come from Switzerland, where her husband had worked and paid into the pension program. He died in 2017 when she was 71 years old.

Since then, she has collected survivor pension payments from the Swiss pension program, but nowhere near the 170 million yen cited by the tax agency.

The woman would have to live until 89 years old to collect that amount.

The agency came up with the figure based on average life expectancy in Japan. It assumed she would live for 18 years after her husband’s death, and collect a total of about 170 million yen in survivor pension.

The letter said the money is “an object of taxation,” and the agency billed her for 17 million yen in taxes.

“It is unacceptable and unfair,” the woman said, noting that the Japanese survivor pension is exempt from inheritance tax.

She has consulted with a lawyer and a tax accountant. But the agency has rejected her argument.

Furthermore, the agency imposed a tax of about 30 million yen, including additional tax, against the woman and her three children—all heirs to her husband—for deficient tax returns.

The woman plans to file a request for an administrative review at the national tax tribunal.

‘DEEMED INHERITANCE’

Since around 2000, Japan has signed social security agreements with 22 foreign countries. If Japanese nationals enroll in public pension plans in these countries, they add these periods of payments to their total pension enrollment period in Japan.

A representative of the National Tax Agency’s department in charge of imposing tax on assets said overseas survivor pensions are considered taxable “deemed inheritance” under the Inheritance Tax Law.

Different from ordinary inheritance, “deemed inheritance” is something that was not owned by a relative before death. Other examples of deemed inheritance include life insurance payments and retirement bonuses that the relatives did not receive because of death.

The agency said Japanese survivor pension is also a deemed inheritance, but it is untaxable under the Employees’ Pension Insurance Law and the National Pension Law.

The agency said it has imposed inheritance tax on the woman’s survivor pension “because there is no stipulation about foreign survivor pension.”

It added that the rule applies to everybody, not just the widow in Kansai.

The woman’s lawyer, Yoshikazu Miki, a former panel member of the Government Tax Commission, disagreed with the agency’s argument.

“The Swiss pension her husband enrolled in was a mandatory public pension, just like the Japanese program, and it is different from buying a private financial product,” Miki said. “Not treating (the Swiss pension) in the same way as the Japanese public pension goes against equality under the law.”

If the agency views foreign survivor pensions as taxable, it would also have to impose taxes on Japanese survivor pensions, he argued.

‘ABSURD’ ORDER

A 68-year-old woman living in the Kanto region faced a similar situation and felt she had no choice but to pay 7 million yen in inheritance tax on a survivor pension from abroad.

She was just about to make a payment when she read about the Kansai woman’s ordeal.

In summer 2022, the Kanto woman received a surprise tax inspection from a local tax office.

Her husband, who worked in the United States for a Japanese company, had died about two years earlier when she was 65.

He was obliged to join the U.S. public pension program and paid premiums for 12 years.

After he died, his widow started receiving about 170,000 yen in survivor pension a month, or about 2 million yen a year, from the United States.

The local tax office told her the survivor pension is “taxable inheritance” and that she owed about 7 million yen in tax payments, the equivalent of three and a half years of pension payments.

According to tax officials, the widow is expected to live for 24 more years, over which time her survivor pension benefits would total about 48 million yen.

She had received only a few years’ worth of payments, so she thought that paying 7 million yen in tax on 24 years of pension payments was absurd.

“But I may die tomorrow,” the woman blurted out to a tax official.

If she were to pay the full amount and die within 24 years, she would lose money, and her four adult children would receive none of the pension payments.

She tried to negotiate with the tax office.

But in December 2022, officials demanded she make the payment by the end of the year. So she withdrew money from her bank account.

The following day, she saw the story about the Kansai woman in The Asahi Shimbun.

Her tax accountant contacted the Kansai woman’s representative, and they decided to work together against the tax payment orders.

“I changed my mind (on paying) to fight for people in the future who will receive overseas survivor pensions,” the Kanto woman said.

AGREEMENTS WITH 22 COUNTRIES

In countries with public pension programs, such as Japan, workers are generally required to join the plan. In many cases, they must pay into the system for a certain period to qualify for pension payments.

For Japanese nationals working overseas for only a few years, they could end up paying premiums for nothing in return.

Japan signed social security agreements with the 22 countries to improve the situation and establish a portable pension plan for Japanese workers.

Under the agreements, workers can add the times in which they paid pension premiums abroad to a “total premium payment” period.

If the total figure meets the period required by both Japan and the other nation, they can collect pensions from each country.

For example, Germany requires a minimum five-year period of premium payments to receive a pension.

Under the agreement, a Japanese national who paid pension premiums for two years in Germany, as well as for three years in Japan, would have a total of five years, and could collect two years’ worth of pension from Germany.

Japan has a minimum requirement of 10 years. So that person would have to pay premiums for at least eight years in Japan to collect the Japanese pension.

Among the 22 countries that Japan has concluded agreements with, the Czech Republic has the longest requirement, at 35 years, while Canada and Switzerland only require one year of premium payments. Five other countries require even shorter periods. 

The number of Japanese nationals staying abroad for three months or more has exceeded 1.3 million and continues to rise.

This means more people will be eligible to collect overseas pensions. And that could lead to more problems with the Japan’s tax agency over inheritance tax on survivor pensions from abroad.