Buying cars to save tax?

Today when I was checking cars at auction on the internet, a director of a Tokyo company suddenly turned up. The main reason for the visit was to talk about selling his Mercedes Benz S500L. It has standard features and specifications with an Obsidian Black body. He applied a new coating every 6 months, so it has a perfect shine. Unfortunately it is a right-hand drive. If it were a left-hand drive, you could expect a higher price because it attracts overseas buyers; but I guess I cannot do much about it now. While deciding the price, he told me that he buys & sells a few cars every year. He was doing it through a dealer but the person in charge had left and he did not get on with the new person. Then a friend of his who once had bought a car from us suggested to him to visit us. His main business is in the management of real estate and consultancy. The management business provides a stable income with a small number of employees and he has 5 cars under the company’s name for tax purposes.

In Japan, for business accounting, the years of depreciation are as follows: 6 years for new cars and 2 years for used cars (4 years or more after the first registration). So for tax purpose, the best option is a used car just on 4 years old. If you buy a brand new car for JPY 3,000,000, the annual depreciation amount over 6 years will only be JPY 500,000. But if you buy a used car for the same price, the annual depreciation over 2 years will be JPY 1,500,000 as expenditure. So if your company is making money, you can save by JPY 1,000,000 in tax. Then when you sell it after 2 years, the asset value of the car is “0” for your company but if you sell it at auction, you can definitely sell it for more than JPY 1,000,000. Although it then becomes your taxable income, it provides a big advantage for your company when you can control money this way.

So this customer, fully understanding the tax system, buys some 4 year old used cars and sells them 2 years later and now has 5 company cars. If he sells one, he gains profit; then buys a new one; just repeating the procedure. According to him, when he goes & checks the cars at the dealer, he cannot always find the right cars in the condition he is after but if he buys cars at auction, not only can he find good cars without limiting makers and types but he can buy them cheaper; so he was looking for an agent who he can trust & rely on.

This man also has another company for tax planning purposes where he works as a consultant and is looking after their finance (tax saving part); he wants me to look after their cars too. It was a generous offer but buying & selling cars for tax purpose is a standard practice in the country. As I told you in another issue of the mail magazine, most people who own expensive cars are company executives and their cars are under the company’s names. (Of course you can personally own a car to reduce tax, too.) I thought Japan’s economy hit the bottom with a number of businesses going bankrupt, but some people still have money, don’t they?

Unfortunately, this man with 5 cars to save tax does not really have time to drive them around. All the cars are sleeping in the garage… What a waste! (Being a normal father like myself who has to work hard to feed the family, I cannot think straight when I deal with rich customers sometimes. It is beyond my understanding …)



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(Editor)
JPC TRADE CO.,LTD.
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Japan Used Motor Vehicle Exporters Association (JUMVEA)
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