Since my father started this business in 1961, our firm has been conducting business to contribute to the development of local companies for nearly 60 years. In recent years, I feel that we have been receiving more queries about business succession and inheritance due to the aging of the management population. Because there is a fear that the technology and knowledge possessed by small and medium-sized enterprises may become lost at this current pace, various measures are being taken mainly by the state, such as by the Ministry of Economy, Trade and Industry and the Small and Medium Business Administration Agency. Among them, the most recent change was the revision of the business succession tax system. If a business owner dies and the successor inherits the shares of the unlisted company that he / she managed, a large amount of inheritance tax will be taxed, and it is expected that there will be many cases where management simply cannot function because of this. In order to solve this problem, a system called "business succession tax system" was established.
With this system, it is also possible to reduce tax payments on a large portion of inheritance tax and gift tax on a semi-permanent basis. The business succession tax system was introduced in 2008, but it was revised in 2018, and measures to be in place for the next 10 years in addition to existing measures have been taken, such as being able to increase the tax exemption from 80% to 100%, and special measures such as the relaxation of employment requirements for employees. A 100% of tax grace means that there will be absolutely no inheritance tax on inherited unlisted stocks. At first glance it seems like a very wonderful system, but do not take it as it is, as this is simply a "payment deferment" and not an "exemption”. For example, if an inheritance tax of 100 million yen is to be imposed on your company's stocks, the business succession tax system will simply delay the payment of these taxes, not waive it completely. If you close down your business after the inheritance, you would have to pay the 100 million tax plus the interest rate.
In addition, although M&A has been increasing the number of businesses that become sold to bigger firms, if M & A is conducted after applying the business succession tax system, the inheritance tax that had been temporarily delayed must now be paid back with the interest that would have piled up during that period, along with the income tax acquired due to the transfer of the shares. It is not always the case that a company is sold for a high price, so it is possible for some firms to fall on hard times after the M&A is completed. There is no solution for this if a tax grace has already been granted. Many business owners are not aware of these risks, as only the benefits of the business succession tax system are being publicized. I am worried that there will be a crisis for companies and the Japanese economy if this lack of awareness persists. If you really want to promote the survival small and medium enterprises, the country should lower the evaluation of the shares of small and medium enterprises, not the tax payment. For example, by lowering the appraisal value of the shares of small and medium enterprises by a third, all successors will reap benefits, which will also lead to the revitalization of the economy.
However, this will not happen. This business succeeding tax system is effective for companies that have the expectation that they can continue the business for decades without doing anything because the burden of inheritance tax will be reduced. However, such companies do not exist anywhere, and even for companies with good performance, there is no guarantee of how long the business can continue to exist in modern society, of which its market size will continue to reduce in size due the declining birthrate. If the successor is a person who can efficiently continue the business, then there is no issue. However, a successor is not guaranteed to be run the business well, just because his/her parent could. If a successor receives a tax grace even in these conditions, then he/she will not be able to close the business even if they want to, because then all of the inheritance tax will have to be paid along with all accruing interest.
If people think that they will be able to manage with just the current business succession tax system, more small to mid-sized businesses will continue to be sold to foreign firms, and Japan's great technology and knowledge will rapidly be lost. If so, the impact on the economy and industry in this country will be immeasurable. We are indeed in a crisis situation, and it is necessary to take drastic countermeasures as soon as possible. We should not take this system as a "wonderful system", but firmly view it from management's perspective and devise necessary measures.
I want more owners and managers to know about this reality, and we are running seminars and workshops to spread a proper understanding of the business succession taxation system. Our job is to help your company survive and develop, so that your company can become a “100-year enterprise”. For that purpose, we would like to continue to conduct various risk managements together with our customers.
