Order for Enforcement of the Income Tax Act

The methods of valuation specified by Cabinet Order prescribed in Article 47, paragraph (1) (Calculation of Costs of Inventory Sold and Valuation Methods) of the Act that may be selected for calculating, pursuant to that paragraph, the assessed value of Inventory held on December 31 of that year (where the Resident referred to in that paragraph dies or becomes Absent From Japan during the year, the time of that death or the start of that Absence From Japan; the same applies hereinafter in this Subsection) are the following methods (where approval from the district director for filing a Blue Return for the income tax for that year has not been obtained, the method listed in item (i)).

the cost method (meaning a method of calculating the acquisition price of Inventory held on December 31 of that year (hereinafter in this paragraph referred to as "closing inventory") by any one of the following methods and taking the acquisition price so calculated as the assessed value of that closing inventory):

the specific identification method (meaning a method of taking the individual acquisition price of the whole of the closing inventory as its acquisition price);

the first-in first-out method (meaning a method of distinguishing closing inventory by differences in kind, quality, and model (hereinafter in this paragraph referred to as "types, etc."), and, for items of the same types, etc., regarding that closing inventory as consisting, in sequence, of Inventory of the same types, etc. starting from that acquired on the day nearest to December 31 of that year, and taking the acquisition price of the Inventory so regarded as its acquisition price);

the total average method (meaning a method of distinguishing Inventory by differences in types, etc., and, for items of the same types, etc., taking as the acquisition price per unit the price calculated by dividing the sum of the total amount of the acquisition price of Inventory of the same types, etc. held on January 1 of that year and the total amount of the acquisition price of Inventory of the same types, etc. acquired during that year by the total quantity of that Inventory);

the moving average method (meaning a method of distinguishing Inventory by differences in types, etc., and, for items of the same types, etc., regarding the initial acquisition price per unit as having been revised, where Inventory of the same types, etc. is acquired again, to the average unit price calculated on the basis of the quantities and acquisition prices of the Inventory held at the time of that acquisition and the Inventory so acquired, regarding the acquisition price per unit as having been revised by the same method each time Inventory of the same types, etc. is acquired thereafter, and taking as the acquisition price per unit the acquisition price per unit regarded as having been revised on the day nearest to December 31 of that year);

the last purchase cost method (meaning a method of distinguishing closing inventory by differences in types, etc., and, for items of the same types, etc., taking the acquisition price per unit of those acquired on the day nearest to December 31 of that year as the acquisition price per unit);

the retail method (meaning a method of distinguishing closing inventory by differences in types, etc. or the ordinary gross profit rate (meaning the ratio that the amount obtained by deducting the price normally required to acquire the Inventory from the ordinary sales price of the Inventory bears to that ordinary sales price; the same applies hereinafter in this paragraph), and, for items of the same types, etc. or ordinary gross profit rate, taking as the acquisition price the amount calculated by multiplying the total of the ordinary sales prices of Inventory of the same types, etc. or ordinary gross profit rate as of December 31 of that year by the cost ratio (meaning the ratio that the sum of the total amount of the acquisition price of that Inventory as of January 1 of that year and the total amount of the acquisition price of that Inventory acquired during that year bears to the sum of the total of those ordinary sales prices and the total amount of consideration for that Inventory sold during that year));

the lower of cost or market method (meaning a method of distinguishing closing inventory by differences in types, etc. (for those based on the price calculated by the cost method using the acquisition price calculated by the retail method listed in (f) of the preceding item, types, etc. or ordinary gross profit rate; the same applies hereinafter in this item), and, for items of the same types, etc., taking as the assessed value the lower of the price assessed by the cost method using the acquisition price calculated by any of the methods listed in the preceding item and the price as of December 31 of that year).

The cost method using the acquisition price calculated by the specific identification method listed in item (i), (a) of the preceding paragraph (including the lower of cost or market method listed in item (ii) of that paragraph that is based on the price assessed by that cost method) may not be selected, notwithstanding the provisions of that paragraph, for Inventory that is normally acquired in large quantities through a single transaction and whose price is determined according to specifications.

A Resident who has obtained the approval of the competent district director with jurisdiction over the place for tax payment to calculate the assessed value of Inventory that the Resident holds by a method of valuation other than the method of valuation prescribed in paragraph (1) of the preceding Article, in place of that method of valuation, may select the approved method of valuation for calculating the assessed value of those assets for the year that includes the day on which the approval was obtained and each subsequent year.

A Resident who intends to obtain the approval referred to in the preceding paragraph must submit to the competent district director with jurisdiction over the place for tax payment a written application stating the particulars of the method of valuation that the Resident intends to adopt, the reason for intending to adopt that method, the type of business and category of assets prescribed in paragraph (1) of the following Article for which the Resident intends to calculate the assessed value by that method, and other matters specified by Ministry of Finance Order.

When the written application referred to in the preceding paragraph is submitted, the district director is, without delay, to examine it and either approve the method of valuation and the type of business and category of assets prescribed in paragraph (1) of the following Article pertaining to the application or, where the district director finds that calculation of the amount of business income of that Resident for each year would be difficult to carry out properly by the method of valuation pertaining to the application, reject the application.

After granting the approval referred to in paragraph (1), where the district director finds that special circumstances have arisen that make it inappropriate to calculate the assessed value of the Inventory pertaining to the approval by the method of valuation pertaining to the approval, the district director may rescind the approval.

When taking the disposition referred to in the preceding two paragraphs, the district director is to notify the Resident subject to the disposition to that effect in writing.

Where the disposition referred to in paragraph (4) has been made, the effect of that disposition arises with respect to the calculation of the assessed value of the Inventory pertaining to that disposition when calculating the amount of business income for the year that includes the day on which the disposition was made and each subsequent year.

A Resident who has received the disposition referred to in paragraph (4) must, by the Filing Deadline for the income tax for the year that includes the day on which the Resident received the disposition, notify the competent district director with jurisdiction over the place for tax payment in writing, for the Inventory pertaining to that disposition, for each type of business and category of assets prescribed in paragraph (1) of the following Article, of the method of valuation to be used among the methods of valuation prescribed in paragraph (1) of the preceding Article.

The method of valuing Inventory prescribed in Article 99, paragraph (1) (Methods of Valuing Inventory) must be selected for each type of business carried on by a Resident and for each category of Inventory, namely goods or products (excluding by-products and work scrap), semi-finished products, work in process (including partially completed construction work), principal raw materials and auxiliary raw materials, and other Inventory.

A Resident must, by the Filing Deadline for the income tax for the year that includes the day listed in each of the following items according to the category of persons listed in that item, notify the competent district director with jurisdiction over the place for tax payment in writing, for Inventory, for each type of business and category of assets prescribed in the preceding paragraph, of the method of valuation to be used among the methods of valuation prescribed in Article 99, paragraph (1).

a Resident who has newly commenced a business that gives rise to business income: the day on which that business was commenced;

a Resident who, after commencing the business referred to in the preceding item, has newly commenced another type of business or changed the type of business: the day on which the Resident commenced that other type of business or changed the type of business.

A Resident who intends to change the method of valuation selected for Inventory (including the method of valuation prescribed in paragraph (1) of the following Article that a person who has not notified a method of valuation is required to use) must obtain the approval of the competent district director with jurisdiction over the place for tax payment.

A Resident who intends to obtain the approval referred to in the preceding paragraph must submit to the competent district director with jurisdiction over the place for tax payment, by March 15 of the year in which the Resident intends to adopt the new method of valuation, a written application stating that fact, the reason for the intended change, and other matters specified by Ministry of Finance Order.

Where the written application referred to in the preceding paragraph is submitted, the district director may reject the application if a considerable period has not elapsed since the Resident who submitted the written application adopted the method of valuation currently in use, or if the district director finds that calculation of the amount of business income of that Resident for each year would be difficult to carry out properly by the method of valuation to which the Resident intends to change.

Where the written application referred to in paragraph (2) is submitted, and the district director makes a disposition of approval or rejection of the application, the district director is to notify the Resident who made the application to that effect in writing.

Where the written application referred to in paragraph (2) has been submitted, if no disposition of approval or rejection has been made on the application by December 31 of that year, the approval is deemed to have been granted on that day.

The method specified by Cabinet Order in the case where a method of valuation prescribed in Article 47, paragraph (1) (Calculation of Costs of Inventory Sold and Valuation Methods) of the Act has not been selected or Inventory has not been valued by the method selected is the cost method using the acquisition price calculated by the last purchase cost method listed in Article 99, paragraph (1), item (i), (e) (Methods of Valuing Inventory).

Where a Resident has not valued Inventory by the method of valuation selected for it (including the method of valuation prescribed in the preceding paragraph that a Resident who has not notified a method of valuation is required to use), if the district director finds that the method of valuation the Resident used falls under one of the methods of valuation prescribed in Article 99, paragraph (1) and that the amount of business income of the Resident for each year can be properly calculated even by the method of valuation used, the district director may make a Reassessment or determination on the basis of the amount of business income for each year calculated by the method of valuation used.