Judgments of the Supreme Court

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2020 (Gyo-Hi) 68

Date of the judgment (decision)

2020.06.30

Case Number

2020 (Gyo-Hi) 68

Reporter

Minshu Vol. 74, No. 4

Title

Judgment concerning the conformity to law of the part of the provisions of Article 2, item (iii) of the Public Notice of the Ministry of Internal Affairs and Communications No. 179 of 2019 concerning the hometown tax donation system, which provides for the solicitation and receipt of donations prior to the enforcement of the provisions of Act No. 2 of 2019 amending Articles 37-2 and 314-7 of the Local Tax Act

Case name

Case seeking the revocation of non-designation

Result

Judgment of the Third Petty Bench, quashed and decided by the Supreme Court

Court of the Prior Instance

Osaka High Court, Judgment of January 30, 2020

Summary of the judgment (decision)

Of the provisions of Article 2, item (iii) of the Public Notice of the Ministry of Internal Affairs and Communications No. 179 of 2019, the part providing for the solicitation and receipt of donations prior to the enforcement of the provisions of Act No. 2 of 2019 amending Articles 37-2 and 314-7 of the Local Tax Act is invalid as illegal one that deviates from the scope of delegation referred to in Article 37-2, paragraph (2) and Article 314-7, paragraph (2) of the Local Tax Act amended by the aforementioned provisions.

(There are concurring opinions.)

References

Article 245-2 and Article 247, paragraph (3) of the Local Autonomy Act, Article 37-2, paragraph (2) and Article 314-7, paragraph (2) of the Local Tax Act, and Article 1 and Article 2, item (iii) of the Public Notice of the Ministry of Internal Affairs and Communications No. 179 of 2019



Local Autonomy Act

(Principle of Statutory Involvement)

Article 245-2

An ordinary local public entity is neither to be subject to nor to require the involvement of the State or a prefecture with regard to the processing of its affairs unless the involvement is under law or Cabinet Order based thereon.

(Form, etc. of Advice, etc.)

Article 247, paragraph (3)

(3) The personnel of the State or a prefecture must not unfavorably treat an ordinary local public entity on the grounds that the ordinary local public entity did not follow the advice, etc. given by the State administrative organ or a prefectural organ.



Local Tax Act

(Tax Credit for Donation)

Article 37-2, paragraph (2)

(2) A donation eligible for special tax credit referred to in the preceding paragraph is a donation set forth in item (i) of the same paragraph (hereinafter referred to as an "Item (i) Donation(s)" in this Article), which is made to a prefecture, etc. designated by the Minister for Internal Affairs and Communications as conforming to the standards established by the Minister for Internal Affairs and Communications as standards for the appropriate implementation of solicitation of Item (i) Donations by a prefecture, etc. (where a prefecture, etc. provides a return, etc. (meaning a product, service or any other thing specified by the Minister for Internal Affairs and Communications as being similar thereto, which a prefecture, etc. provides to a person who made an Item (i) Donation in association with the receipt of the Item (i) Donation; hereinafter the same applies in this paragraph), said standards and the following standards):

(i) the amount calculated as specified by the Minister for Internal Affairs and Communications as the amount of expenses required for the prefecture, etc. to procure a return, etc. that is provided in association with the receipt of an individual Item (i) Donation is never more than the amount equivalent to thirty-hundredths of the amount of the Item (i) Donation which the prefecture, etc. receives; and

(ii) a return, etc. provided by the prefecture, etc. is a product produced or service provided within the area of the prefecture, etc. or any other thing similar thereto, which conforms to the standards established by the Minister for Internal Affairs and Communications.

Article 314-7, paragraph (2)

(2) A donation eligible for special tax credit referred to in the preceding paragraph is a donation set forth in item (i) of the same paragraph (hereinafter referred to as an "Item (i) Donation(s)" in this Article), which is made to a prefecture, etc. designated by the Minister for Internal Affairs and Communications as conforming to the standards established by the Minister for Internal Affairs and Communications as standards for the appropriate implementation of solicitation of Item (i) Donations by a prefecture, etc. (where a prefecture, etc. provides a return, etc. (meaning a product, service or any other thing specified by the Minister for Internal Affairs and Communications as being similar thereto, which a prefecture, etc. provides to a person who made an Item (i) Donation in association with the receipt of the Item (i) Donation; hereinafter the same applies in this paragraph), said standards and the following standards):

(i) the amount calculated as specified by the Minister for Internal Affairs and Communications as the amount of expenses required for the prefecture, etc. to procure a return, etc. that is provided in association with the receipt of an individual Item (i) Donation is never more than the amount equivalent to thirty-hundredths of the amount of the Item (i) Donation which the prefecture, etc. receives; and

(ii) a return, etc. provided by the prefecture, etc. is a product produced or service provided within the area of the prefecture, etc. or any other thing similar thereto, which conforms to the standards established by the Minister for Internal Affairs and Communications.



Public Notice of the Ministry of Internal Affairs and Communications No. 179 of 2019

(Purport)

Article 1

This public notice provides for standards, etc. for the designation of local bodies covered by the hometown tax donation system (meaning a system where if an individual makes a donation to a prefecture, municipality or special ward (hereinafter referred to as a "local body") designated under the provisions of Article 37-2, paragraph (2) and Article 314-7, paragraph (2) of the Act, a tax credit for donation under the provisions of Article 37-2, paragraph (1) and Article 314-7, paragraph (1) of the Act is applied to the donation; the same applies hereinafter) in order to contribute to the appropriate operation of the hometown tax donation system, taking into consideration that the hometown tax donation system is a system established for the purpose of making it possible for people to convey their appreciation or supportive feelings to their hometowns and local bodies that helped them or to voluntarily decide the way tax will be used.

(Standards for Appropriate Implementation of Solicitation)

Article 2, item (iii)

The standards for the appropriate implementation of solicitation of Item (i) Donations provided for in Article 37-2, paragraph (2) and Article 314-7, paragraph (2) of the Act are to fall under all of the following items:

(iii) not being a local body which conducted solicitation of Item (i) Donations that significantly affects other local bodies by a method that goes against the purport provided in the preceding Article and thus received an extremely large amount of Item (i) Donations compared to other local bodies that conduct solicitation of Item (i) Donations by a method that meets the purport, during the period from November 1, 2018 to the date of submission of a written offer provided in Article 37-2, paragraph (3) and Article 314-7, paragraph (3) of the Act.

Main text of the judgment (decision)

1. The judgment in prior instance is quashed.

2. A decision made by the appellee of final appeal to Izumisano City on May 14, 2019 that the appellee does not designate the city under the provisions of Article 37-2, paragraph (2) and Article 314-7, paragraph (2) of the Local Tax Act is revoked.

3. The total court costs shall be borne by the appellee.

Reasons

Concerning the reasons for a petition for acceptance of final appeal stated by the counsel for final appeal, ABE Yasutaka, et al. (except for the reasons excluded)

1. A system (hereinafter referred to as the "Designation System") in which donations eligible for special tax credit pertaining to the prefectural inhabitant's tax and municipal inhabitant's tax of an individual (hereinafter referred to as "individual inhabitant's tax") as hometown tax donations are limited to donations made to prefectures, municipalities or special wards (hereinafter collectively referred to as "local bodies") designated by the Minister for Internal Affairs and Communications as those that conform to the prescribed standards was introduced through the partial amendment of the Local Tax Act by Act No. 2 of 2019 (hereinafter referred to as the "Amendment Act"). In this case, regarding the fact that the appellee made a decision not to designate Izumisano City that had made an offer for the aforementioned designation (hereinafter referred to as the "Non-Designation"), the appellant argues that the Non-Designation falls under the illegal involvement of the State and seeks, against the appellee, the revocation of the Non-Designation under Article 251-5, paragraph (1) of the Local Autonomy Act.

2. The outline of facts lawfully determined by the court of prior instance (including publicly known facts) is as follows.

(1) Outline of the hometown tax donation system

The following system was established through partial amendment of the Local Tax Act by Act No. 21 of 2008: of donations made by a taxpayer of individual inhabitant's tax to a local body (hereinafter merely referred to as "donations"), for the amount exceeding certain amount, the amount of special tax credit is added (hereinafter referred to as "special tax credit") to the amount of tax credit for individual inhabitant's tax within the range of the prescribed maximum amount, in addition to deduction from income for income tax (Article 78, paragraph (1) of the Income Tax Act) and tax credit for individual inhabitant's tax in the amount equivalent to 10% of the excess amount (Article 37-2, paragraphs (1) and (2) and Article 314-7, paragraphs (1) and (2) of the Local Tax Act after the aforementioned amendment; incidentally, as the content provided in Article 314-7 of the Local Tax Act concerning municipal inhabitant's tax is the same as that provided in Article 37-2 of the same Act concerning prefectural inhabitant's tax, hereinafter statements concerning Article 314-7 of the same Act are omitted unless specially necessary). By the establishment of such system, the entire amount of the aforementioned part exceeding a certain amount has come to be deducted from income tax and individual inhabitant's tax if it is within the range of the aforementioned maximum amount.

(2) Circumstances of the provision of returns by local bodies, etc.

A. At the time of the establishment of the hometown tax donation system, there was no statutory regulation that specially provided for products, services, etc. (hereinafter collectively referred to as "returns") which a local body provided to a person who made a donation in association with the receipt of the donation.

B. After that, there arose a situation in which local bodies that provided returns with a high rate of return (meaning the ratio of the procurement price of a return to the amount of a donation; the same applies hereinafter) collect greater donations. Therefore, the Minister for Internal Affairs and Communications issued to local bodies a notice dated April 1, 2015 (Notice of the Local Tax Planning Division, Local Tax Bureau, Ministry of Internal Affairs and Communications No. 39) and a notice dated April 1, 2016 (Notice of the Local Tax Planning Division, Local Tax Bureau, Ministry of Internal Affairs and Communications No. 37) as technical advice referred to in Article 245-4, paragraph (1) of the Local Autonomy Act. The aforementioned notices were to request local bodies not to send returns that are easily converted into cash and are expensive or have a high rate of return.

C. However, in fiscal 2016, the number of local bodies that provided returns for which the rate of return exceeded 30% reached 1,156, accounting for 64.7% of all local bodies covered by the hometown tax donation system. In the hearing of opinions from national federations (National Governors' Association, Japan Association of City Mayors, and National Association of Towns and Villages) and experts, etc. conducted by the Ministry of Internal Affairs and Communications around March 2017, opinions such that the State should establish certain standards and rules for returns were expressed, in addition to concerns about the overheating of competition in the provision of returns among local bodies.

D. In response to such circumstances, the Minister for Internal Affairs and Communications issued to local bodies a notice dated April 1, 2017 (Notice of the Municipal Tax Policy Division, Local Tax Bureau, Ministry of Internal Affairs and Communications No. 28; hereinafter referred to as the "2017 Notice") and a notice dated April 1, 2018 (Notice of the Municipal Tax Policy Division, Local Tax Bureau, Ministry of Internal Affairs and Communications No. 37; hereinafter this notice is to be referred to as the "2018 Notice," and this notice, the notices mentioned in B. above, and the 2017 Notice are to be collectively referred to as the "Notices") as technical advice referred to in Article 245-4, paragraph (1) of the Local Autonomy Act. The 2017 Notice requested local bodies to ensure that the rate of return is not more than 30%. In addition to this, the 2018 Notice also requested local bodies to limit returns to local products (products produced within the area of the relevant local body or services provided within the same area).

In response to the 2017 Notice and the 2018 Notice, many local bodies reviewed the content of their returns. However, according to the Ministry of Internal Affairs and Communications' investigation, as of November 1, 2018, 25 local bodies (1.4% of all local bodies covered by the hometown tax donation system) were providing returns with the rate of return exceeding 30%, and 73 local bodies (4.1% of the same) were providing returns that were not their local products.

(3) Background to the amendment of law to introduce the Designation System

A. At a meeting of the Local Public Finance Council held on November 20, 2018, the members stated that it was necessary to take institutional action because there remains the situation where some local bodies obtain a large amount of donations by sending excessive returns. In light of the content of the Notices, the members then compiled an opinion that it is conceivable to exclude donations made to local bodies that seem to distort the purport of the system by sending returns for which the rate of return exceeds 30% or returns which are not local products from the coverage of special tax credit.

B. The Outline of Tax Reform for Fiscal 2019 compiled by the ruling parties (Liberal Democratic Party and Komeito) on December 14, 2018 (hereinafter referred to as the "Ruling Parties' Outline of Tax Reform") stipulates that the Minister for Internal Affairs and Communications designates local bodies that conform to the prescribed standards, such as "a prefecture, etc. that appropriately implements [the] solicitation of donations," as the subject eligible for special tax credit while indicating the basic idea that "the system is to be reviewed so that local bodies that seem to distort the purport of the system by sending excessive returns can be excluded from the coverage of the hometown tax donation system." The outline also indicated a policy that if a designated local body is found to have ceased to conform to the standards, its designation may be revoked. In addition, a similar policy was also indicated in the Outline of Tax Reform for Fiscal 2019 decided at a Cabinet meeting on December 21, 2018 (hereinafter referred to as the "Government's Outline of Tax Reform").

C. In light of the above, the Ministry of Internal Affairs and Communications prepared a bill to partially amend the Local Tax Act, etc. that includes the introduction of the Designation System (hereinafter referred to as the "Bill"), and the Bill was approved at a Cabinet meeting on February 8, 2019 and submitted by the Cabinet to the Diet thereafter.

The explanatory material which the Ministry of Internal Affairs and Communications submitted to the Cabinet Legislation Bureau in preparing the Bill states as follows: designating local bodies that are not eligible for special tax credit results in designing a system as a penalty to local bodies that are sending excessive returns, and it involves many problems in terms of the guarantee of procedures; therefore, the eligibility for special tax credit is to be limited by a method in which the Minister for Internal Affairs and Communications designates local bodies that appropriately implement solicitation of donations under certain rules. In addition, the outline of the Bill prepared by the Ministry of Internal Affairs and Communications states that donations made to local bodies that the Minister for Internal Affairs and Communications designates as those conforming to such standards as "appropriate implementation of solicitation of donations" are to be eligible for special tax credit.

D. In deliberations at the Diet, the Minister for Internal Affairs and Communications, etc. answered as follows with regard to the purport of introduction of the Designation System: in order to rectify the situation where hometown tax donations are concentrated in some local bodies that excessively conduct provision of returns or advertisement and public-relations activities, the system is reviewed so that only local bodies that appropriately implement solicitation of donations are to be covered by the hometown tax donation system. Moreover, regarding whether each local body's past record of solicitation should be taken into account in designating local bodies, persons who approved such measure and persons who opposed it asked questions about it in the aforementioned deliberations. However, the minister, etc. said that it would be necessary to first determine whether a local body is found to conform to the standards for the appropriate implementation of solicitation based on as objective information as possible under the provisions of the Act after the amendment before making a designation, and then made an answer to the effect that the specific content of the designation standards was under consideration and that they would examine the content in reference to other existing mechanisms for tax credit for donation.

E. On March 27, 2019, the Bill was enacted as Act No. 2 of 2019 (the Amendment Act) after going through the aforementioned deliberations. Of the Amendment Act, the provisions amending Articles 37-2 and 314-7 of the Local Tax Act that provide for the introduction of the Designation System, etc. (hereinafter referred to as the "Amendment Provisions") came into effect on June 1, 2019.

(4) Outline of the Designation System

A. Article 37-2 of the Local Tax Act (amended by the Amendment Provisions; the same applies hereinafter) provides as outlined below.

(A) If a taxpayer of individual inhabitant's tax makes a donation eligible for special tax credit, special tax credit is to be provided (paragraph (1)).

(B) A donation eligible for special tax credit referred to in paragraph (1) is a donation to a local body set forth in item (i) of the same paragraph (hereinafter sometimes referred to as an "Item (i) Donation(s)"), which is made to a local body designated by the Minister for Internal Affairs and Communications as conforming to the standards mentioned in (i) below (where the local body provides a return, etc. (meaning a product, service or any other thing specified by the Minister for Internal Affairs and Communications as one similar thereto, which the local body provides to a person who made an Item (i) Donation in association with the receipt of the Item (i) Donation; the same applies hereinafter), standards mentioned in (i) to (iii) below) (main paragraph of paragraph (2)):

(i) the standards established by the Minister for Internal Affairs and Communications as the standards for the appropriate implementation of solicitation of Item (i) Donations by a local body (main paragraph of paragraph (2); hereinafter referred to as the "appropriate solicitation standards");

(ii) the amount calculated as specified by the Minister for Internal Affairs and Communications as the amount of expenses required for the local body to procure a return, etc. that is provided in association with the receipt of an individual Item (i) Donation is never more than the amount equivalent to thirty-hundredths of the amount of the Item (i) Donation which the local body receives (paragraph (2), item (i)); and

(iii) a return, etc. provided by the local body is a product produced or service provided within the area of the local body or any other thing similar thereto, which conforms to the standards established by the Minister for Internal Affairs and Communications (paragraph (2), item (ii); hereinafter this standard is, together with the standard referred to in (ii) above, referred to as the "statutory return standards").

(C) A local body which intends to obtain a designation under the provisions of paragraph (2) (hereinafter merely referred to as a "designation") must submit a written offer stating the prescribed matters to the Minister for Internal Affairs and Communications with a document proving conformity to the standards provided in the same paragraph pursuant to the provisions of the Order of the Ministry of Internal Affairs and Communications (paragraph (3); hereinafter a written offer provided in the same paragraph is to be sometimes referred to merely as a "written offer").

(D) The Minister for Internal Affairs and Communications may request a local body that he/she designated to make a report on the status of implementation of solicitation of Item (i) Donations and other necessary matters (paragraph (5)).

(E) When the Minister for Internal Affairs and Communications finds that a local body that he/she designated has ceased to conform to any of the standards provided in paragraph (2) or has failed to make the aforementioned report or has made a false report, he/she may revoke the designation (paragraph (6)). A local body whose designation was revoked pursuant to the provisions of the same paragraph and for which two years have yet to pass from the date of the rescission may not obtain a designation (paragraph (4)).

B. Article 1-16 of the Regulation for Enforcement of the Local Tax Act, which is the Order of the Ministry of Internal Affairs and Communications provided in Article 37-2, paragraph (3) of the Local Tax Act, provides that a local body which intends to obtain a designation should submit the written offer and document provided in the same paragraph to the Minister for Internal Affairs and Communications during the period from July 1 to 31 of the year which includes the first day of the period subject to designation (period from October 1 of a year to September 30 of the following year every year). However, for a designation pertaining to the period from June 1, 2019 to September 30, 2020 (hereinafter referred to as the "first fiscal year"), the period subject to designation was provided as being, in principle, from June 1, 2019 to September 30, 2020, and the period for the submission of the aforementioned written offer and document was provided as being from April 1 to 10, 2019 (Article 2, paragraph (2) of the Supplementary Provisions of the Order of the Ministry of Internal Affairs and Communications No. 38 of 2019). Incidentally, in this context, the following was provided: it is possible to submit a written offer and to designate a local body in relation to such written offer even prior to the date of enforcement of the Amendment Provisions (June 1, 2019); and in this case, a local body which has obtained such designation is deemed to have obtained the designation on the same date (Article 2, paragraphs (5) and (6) of the Supplementary Provisions of the Amendment Act).

(5) Outline of the Public Notice

On April 1, 2019, the Minister for Internal Affairs and Communications issued a public notice that provides for the appropriate solicitation standards, etc. (Public Notice of the Ministry of Internal Affairs and Communications No. 179 of 2019; hereinafter referred to as the "Public Notice") under Article 37-2, paragraph (2) of the Local Tax Act and made the Public Notice applicable on and after June 1, 2019.

Of the Public Notice, the outline of the part pertaining to the appropriate solicitation standards is as follows.

A. The Public Notice provides for the designation standards, etc. in order to contribute to the appropriate operation of the hometown tax donation system, taking into consideration the fact that the system was a system established for the purpose of making it possible for people to convey their appreciation or supportive feelings to their hometowns and local bodies that helped them or to voluntarily decide the way tax will be used (Article 1 of the Public Notice).

B. The standards for the appropriate implementation of solicitation of Item (i) Donations provided for in Article 37-2, paragraph (2) of the Local Tax Act are to fall under all of the following items (main paragraph of Article 2 of the Public Notice):

(A) in soliciting Item (i) Donations, conducting neither solicitation by a method of having a specific person introduce a donor on the promise of giving economic benefits thereto or by any other unjust method, nor promotion and advertisement emphasizing a return, etc. to induce donors, nor provision of information by using an expression that inhibits the choice of an appropriate recipient of a donation, nor provision of a return, etc. to a person who has an address within the area of the local body (item (i));

(B) the total sum of the expenses required for the solicitation of Item (i) Donations in each fiscal year is, in principle, not more than 50% of the total sum of Item (i) Donations received in the relevant fiscal year (item (ii)); and

(C) not being a local body which conducted solicitation of Item (i) Donations that significantly affects other local bodies by a method that goes against the purport provided in Article 1 of the Public Notice and thus received an extremely large amount of Item (i) Donations compared to other local bodies that conduct solicitation of Item (i) Donations by a method that meets the purport, during the period from November 1, 2018 to the date of submission of a written offer (item (iii)).

(6) Form of solicitation of donations by Izumisano City and background of the Non-Designation

A. The amount of donations received by Izumisano City remained around 10,000,000 yen a year until fiscal 2011. However, as a result of carrying forward efforts for the acceptance of donations, the amount significantly increased, specifically, about 1,200,000,000 yen in fiscal 2015, about 3,500,000,000 yen in fiscal 2016, about 13,500,000,000 yen in fiscal 2017, and about 49,800,000,000 yen in fiscal 2018. Within the above figures, the amount of donations received in fiscal 2017 and 2018 was the largest among all local bodies.

B. According to the offer made by Izumisano City (mentioned later in C.), for the period from November 1, 2018 to March 31, 2019, the amount of donations that the same city received was about 33,200,000,000 yen. The rate of return for all the 1,026 returns that the same city provided exceeded 30% (43.5% on average), and 745 of the returns were not local products.

During the aforementioned period, in December 2018 and for the period from February to March 2019, Izumisano City conducted solicitation of donations in the name of "10,000,000,000 yen return campaign," etc. while saying that it will issue Amazon gift vouchers (which can be used for purchasing goods, etc. sold on an e-commerce site, Amazon) in the amount equivalent to 3 to 20% of the donated amount, in addition to conventional returns. In addition, for the period from April 2 to May 31, 2019, the same city also conducted solicitation of donations in the name of "30,000,000,000 yen limited campaign," "largest and last campaign in the history of Izumisano," etc. while saying that it will issue Amazon gift vouchers in the amount equivalent to 10 to 40% of the donated amount, in addition to conventional returns.

C. On April 5, 2019, Izumisano City made an offer for designation pertaining to the first fiscal year (hereinafter referred to as the "Offer for Designation") to the appellee. In the written offer, a check was placed in the "Not providing a return, etc." box with regard to whether the city provides a return, etc., and no document concerning the content of a return, etc. to be provided during the period subject to designation was attached to the written offer.

D. On April 11, 2019, Izumisano City held a news conference and explained as follows: the city made an offer once to the effect that it would not send returns because it did not have enough time to make adjustments with relevant enterprises for the improvement of returns, but the city did not intend not to send returns; and the city did not submit a list of returns due to lack of time, but heard that it would be permitted to submit such list later.

E. Regarding the Offer for Designation, the appellee made the Non-Designation on May 14, 2019. The following three points were stated in the written notice of the Non-Designation as reasons for the Non-Designation.

(i) The content of the written offer and attached document provided in Article 37-2, paragraph (3) of the Local Tax Act that were submitted by Izumisano City is not found to prove that the city conforms to the standards referred to in paragraph (2) of the same Article (hereinafter referred to as "Reason for Non-Designation (i)").

(ii) The city conducted solicitation of donations by providing returns for which the rate of return exceeds 30% or which are not local products and received an extremely large amount of donations during the period from November 1, 2018 to the date of submission of the written offer, and therefore, the city does not fall under Article 2, item (iii) of the Public Notice (hereinafter referred to as "Reason for Non-Designation (ii)").

(iii) Izumisano City is not found to be a body that conforms to the standards set forth in the items of Article 37-2, paragraph (2) of the Local Tax Act in consideration of the status of efforts for the solicitation of donations that the city is actually making (hereinafter referred to as "Reason for Non-Designation (iii)").

(7) Background of the filing of the action in question

A. On June 10, 2019, dissatisfied with the Non-Designation, the appellant filed an offer for examination against the appellee with the Central and Local Government Dispute Management Council under Article 250-13, paragraph (1) of the Local Autonomy Act.

B. On September 3, 2019, the aforementioned council made the following recommendation to the appellee under Article 250-14, paragraph (1) of the Local Autonomy Act on the grounds that Reasons for Non-Designation (i) and (ii) do not serve as a ground for the non-designation and that Reason for Non-Designation (iii) requires further consideration: the appellee should first consider the Offer for Designation again and then notify the appellant of the result of the consideration with reasons thereof.

C. On October 3, 2019, the appellee gave a notice to the following extent to the appellant: as a result of considering the Offer for Designation again in response to the aforementioned recommendation, Reason for Non-Designation (i) is not to be handled as an independent reason but the determination is to be maintained with regard to Reasons for Non-Designation (ii) and (iii); therefore, the determination of the Non-Designation is to be upheld.

D. Dissatisfied with the aforementioned decision made by the appellee, the appellant filed the action in question under Article 251-5, paragraph (1), item (ii) of the Local Autonomy Act on November 1, 2019.

3. Based on the aforementioned facts, the court of prior instance first determined that the provisions of Article 2, item (iii) of the Public Notice are lawful ones that were established within the scope of delegation referred to in Article 37-2, paragraph (2) of the Local Tax Act. The court of prior instance then determined as follows: Izumisano City does not meet the standard provided in Article 2, item (iii) of the Public Notice and fails to fulfill the requirements for designation; therefore, Reason for Non-Designation (ii) is well-grounded, and consequently, the Non-Designation is lawful. Based on this, the court of prior instance dismissed the appellant's claim.

4. However, the aforementioned determination of the court prior instance cannot be upheld for the following reasons.

(1) A. Article 37-2, paragraph (2) of the Local Tax Act delegates the establishment of the "standards for the appropriate implementation of solicitation of Item (i) Donations by a prefecture, etc.," which are part of the designation standards, to the Minister for Internal Affairs and Communications. The minister established Article 2, item (iii) of the Public Notice as one of the appropriate solicitation standards based on this delegation. In addition, Article 245-2 of the Local Autonomy Act provides for the principle of statutory involvement that an ordinary local public entity is neither to be subject to nor to require the involvement of the State or a prefecture (Article 245 of the same Act) with regard to the processing of its affairs unless the involvement is under law or Cabinet Order based thereon. Article 2, item (iii) of the Public Notice establishes the standards for designation that falls under the State's involvement in an ordinary local public entity. Therefore, the establishment of the standards should be considered to require a legal ground even in consideration of the principle of statutory involvement.

Based on these, if the provisions of Article 2, item (iii) of the Public Notice deviate from the scope of delegation referred to in Article 37-2, paragraph (2) of the Local Tax Act, the part of the provisions that deviate from the scope of delegation is illegal and should be considered ineffective.

B. (A) With regard to the cases where a written offer for the first fiscal year is submitted prior to the date of enforcement of the Amendment Provisions (June 1, 2019) like the Offer for Designation, Article 2, item (iii) of the Public Notice provides that local bodies that solicited and received donations provided in the same item during a certain period prior to the enforcement of the Amendment Provisions are uniformly deemed not to meet the designation standards. In addition, the same item questions the method of solicitation of donations and the amount of donations received during the period from the perspective of influence on other local bodies or comparison with other local bodies.

In light of such content, Article 2, item (iii) of the Public Notice (referring to the part that provides for the solicitation and receipt of donations prior to the enforcement of the Amendment Provisions; the same applies hereinafter unless otherwise noted) is considered to be intended to ensure: in introducing the Designation System, that local bodies that had solicited donations by a method that goes against the purport of the hometown tax donation system and received an extremely large amount of donations prior to the introduction of the Designation System are considered to be those that lack qualification for the recipients of donations eligible for special tax credit and thus cannot obtain a designation, from the perspective of securing fairness with other local bodies and obtaining their confidence, as argued by the appellee. In other words, the same item is considered to make it impossible for such local bodies to obtain a designation for the reason of their record of solicitation before the enforcement of the Amendment Provisions, irrespective of whether they are expected to appropriately implement solicitation of donations during the period subject to designation.

The method that goes against the purport provided in Article 1 of the Public Notice as referred to in Article 2, item (iii) of the Public Notice is considered to refer mainly to the form of the provision of returns in light of the background of the introduction of the Designation System, etc. Therefore, the same item is considered to provide that a local body may be excluded from the subject of designation for the reason of the form of the provision of returns prior to the enforcement of the Amendment Provisions.

(B) Incidentally, prior to the enforcement of the Amendment Provisions, there was no statutory regulation that specially provides for the provision of returns, and the Minister for Internal Affairs and Communications had only issued the Notices that fall under the technical advice referred to in Article 245-4, paragraph (1) of the Local Autonomy Act. Article 247, paragraph (3) of the same Act provides that the State's personnel must not unfavorably treat an ordinary local public entity on the grounds that the ordinary local public entity did not follow the advice, etc. given by the State's administrative organ. The purport of the provisions is considered to exist in prohibiting unfavorable treatment of ordinary local public entities because ordinary local public entities do not have the legal obligation to process their affairs in accordance with advice, etc. and there is no legal ground for them to suffer unfavorable treatment even if they do not follow advice, etc. Incidentally, Article 2, item (iii) of the Public Notice provides that a local body may be excluded from the subject of designation for the reason of the form of the provision of returns prior to the enforcement of the Amendment Provisions, as mentioned above. Therefore, it is undeniable that the same item substantially provides, in part, for unfavorable treatment on the grounds of failure to follow technical advice given by the minister. Even such treatment cannot be immediately considered to violate Article 247, paragraph (3) of the Local Autonomy Act if it is based on a legal ground, that is, if the same item was established within the scope of delegation of the Local Tax Act. However, in consideration of the purport of the same paragraph, the following should be considered necessary for saying that Article 2, item (iii) of the Public Notice does not deviate from the scope of delegation referred to in Article 37-2, paragraph (2) of the Local Tax Act: the purport of delegation of powers to delegate the establishment of standards for the purport as mentioned in (A) above can be clearly understood from the provisions, etc. of the same Act.

(2) From such perspective, the effect of Article 2, item (iii) of the Public Notice is considered.

A. First of all, looking at the context of the text of law, Article 37-2, paragraph (1) of the Local Tax Act and the main paragraph of paragraph (2) of the same Article provide as follows as the "standards for the appropriate implementation of solicitation of Item (i) Donations by a prefecture, etc.": donations made to local bodies that are designated by the Minister for Internal Affairs and Communications as those conforming to the standards established by the minister are to be eligible for special tax credit as donations eligible for special tax credit. The aforementioned "solicitation of Item (i) Donations by a prefecture, etc." means solicitation of donations that become eligible for special tax credit through obtainment of designation (that is, solicitation of donations during the period subject to designation). In addition, it is natural to consider that the "standards for the appropriate implementation of solicitation" mean the standards for determining whether the form of the implementation of solicitation of donations is appropriate. Based on this, the appropriate solicitation standards are literally standards pertaining to the form of the solicitation of donations during the period subject to designation, and it is natural to consider that the standards are for determining whether a local body is one that will appropriately implement solicitation of donations during the period subject to designation. Such interpretation conforms to the following points: (i) the statutory return standards that are provided in paragraph (2), items (i) and (ii) of the same Article as the designation standards ranking with the appropriate solicitation standards are all literally considered as standards for the provision of a return, etc. during the period subject to designation; (ii) paragraph (6) of the same Article provides that when the minister finds that a local body that he/she designated has ceased to conform to any of the standards provided in paragraph (2) of the same Article, he/she may revoke the designation, and the standards provided in the same paragraph are considered to be assumed to be those to which a local body may cease to conform during the period subject to designation even if it has been found to conform thereto at the time of the designation.

On the other hand, it is difficult to consider from the context of Article 37-2, paragraph (2) of the Local Tax Act that the appropriate solicitation standards referred to in the main paragraph of the same paragraph plan to determine that a local body lacks qualification for designation based on the record of solicitation prior to the enforcement of the Amendment Provisions from the perspective of securing fairness with other local bodies and obtaining their confidence. There is also no ground for such interpretation in other provisions of the same Act. Determining that a local body lacks qualification for designation based on the aforementioned record of solicitation must rather be considered to lack balance with the fact that even if designation of a local body is revoked on the grounds of an act it committed after the enforcement of the Amendment Provisions, the local body becomes able to obtain designation if two years pass from the date of the revocation (paragraphs (4) and (6) of the same Article).

B. Next, looking at the purport of delegation, Article 37-2, paragraph (2) of the Local Tax Act delegated the Minister for Internal Affairs and Communications as the person to specify the content of the appropriate solicitation standards, etc. out of the designation standards, and the reasons therefor are considered as follows: it is appropriate to delegate the establishment of specific standards that discipline the form of the solicitation of donations and the content of returns, etc. provided to the professional and technical discretion of the minister, who is familiar with local administration, local finance, local tax systems, and the actual circumstances of local bodies, etc.; in addition, it is necessary to ensure that such specific standards have flexibility to respond to changes in the situation and it is not appropriate to provide for all the standards in detail by law.

On the other hand, whether to establish a standard that excludes local bodies that have received an extremely large amount of donations by a method that goes against the purport of the hometown tax donation system prior to the introduction of the Designation System from the subjects eligible for special tax credit in introducing the Designation System from the perspective of securing fairness with other local bodies and obtaining their confidence is a matter that should be determined by legislators mainly from the political and policy perspectives. In addition, such standard uniformly makes it impossible for the aforementioned local bodies to obtain designation under the Designation System, irrespective of whether they will implement solicitation of donations in accordance with the newly established standard, and this will continuously cause serious disadvantage to the positions of those local bodies that intend to obtain designation. Such standard is hardly said to be a matter that is considered appropriate to be left to the professional and technical discretion of the Minister for Internal Affairs and Communications and is not a matter for which ensuring flexibility in response to changes in the situation becomes an issue. Therefore, it cannot be said that the purport of the aforementioned delegation also applies to the establishment of such standard, and it should also be said that the Local Tax Act cannot be naturally interpreted as having delegated the Minister for Internal Affairs and Communications to establish such standard by him/herself.

C. Furthermore, looking at the background of the preparation of the Bill (2.(3)A. to C. above), the Designation System was designed based on the basic idea of making it possible to exclude local bodies that seem to distort the purport of the hometown tax donation system by sending excessive returns from the subjects eligible for special tax credit. However, the Ruling Parties' Outline of Tax Reform and the Government's Outline of Tax Reform stipulate that the Minister for Internal Affairs and Communications is to designate local bodies that conform to the standard of "being a prefecture, etc. that appropriately implements solicitation of donations" as the subjects eligible for special tax credit. A similar explanation was also given to the Cabinet Legislation Bureau, and the outline of the Bill also states that "appropriate implementation of solicitation of donations" is to be used as a designation standard. Based on these, it can be said that the Bill was prepared as one that specifically adopts the following policy and was submitted to the Diet: under the new system, local bodies conducting provision of returns that seems to distort the purport of the system are excluded from the subjects eligible for special tax credit by making only local bodies that appropriately implement solicitation of donations subject to designation and making it possible to revoke designation of a local body if the local body ceases to conform to the standards during the period subject to designation. On the other hand, there is no sign indicating that the Bill was prepared and submitted to the Diet as one that adopts the policy of excluding local bodies that have conducted provision of returns that seems to distort the purport of the system in the past from the subjects eligible for special tax credit under the new system.

Even looking at the process of deliberations of the Bill at the Diet (2.(3)D. above), it was explained in the Minister for Internal Affairs and Communications' answer, etc. that the system is to be reviewed so as to ensure that local bodies that appropriately implement solicitation of donations are covered by the hometown tax donation system. On the other hand, it can hardly be said that whether the past record of solicitation of local bodies is taken into account in designating subject local bodies has been made clear. At least, it cannot be said to have been explicitly explained as the content of the appropriate solicitation standards that a local body would be considered to lack qualification for designation based on the record of solicitation prior to the enforcement of the Amendment Provisions from the perspective of securing fairness with other local bodies and obtaining their confidence.

Based on these, it cannot be said that before deliberating the Bill at the Diet it was made clear that the appropriate solicitation standards include the intention to consider a local body to lack qualification for designation based on the record of solicitation prior to the enforcement of the Amendment Provisions from the aforementioned perspective, and the Cabinet approval was made on that premise.

D. For the reasons described above, it cannot be said that the purport of delegation of powers to delegate the establishment of standards to the effect as mentioned in (1)B.(A) above can be clearly understood from Article 37-2, paragraph (2) of the Local Tax Act even in consideration of discussions in the legislation process as well as the context of related provisions and the purport of delegation to the Minister for Internal Affairs and Communications, etc. Based on this, of the provisions of Article 2, item (iii) of the Public Notice, the part providing for the solicitation and receipt of donations prior to the enforcement of the Amendment Provisions should be considered invalid as an illegal part that deviates from the scope of delegation referred to in Article 37-2, paragraph (2) and Article 314-7, paragraph (2) of the Local Tax Act.

(3) Therefore, it is impossible not to make a designation with regard to the Offer for Designation for the first fiscal year for Reason for Non-Designation (ii), that is, the fact that Izumisano City does not fall under Article 2, item (iii) of the Public Notice.

5. Therefore, Reason for Non-Designation (iii) is further examined.

(1) The effect of designation of a local body remains the same, irrespective of whether the local body stated that it would provide a return, etc. at the time of making an offer for designation, and even if a local body that was designated while stating that it would not provide any return, etc. receives a donation while actually providing a return, etc., the donation remains eligible for special tax credit. Based on this, it is reasonable to consider as follows: even if a local body states that it would not provide any return, etc. at the time of making an offer for designation, the Minister for Internal Affairs and Communications can objectively examine whether the case falls under one where the local body would provide a return, etc., and if it is so recognized, the minister can make the local body's conformity to the statutory return standards subject to examination.

When this determination is applied to the Offer for Designation, Izumisano City explained at a news conference that it stated that it would not provide any return, etc. because it did not have enough time to make adjustments with relevant enterprises (2.(6)D. above). Therefore, the city can objectively be said to have had a plan to provide returns, etc. Therefore, it cannot be said that the appellee's act of having made its conformity to the statutory return standards subject to examination contains illegality.

(2) Reason for Non-Designation (iii) is that Izumisano City is not found to conform to the statutory return standards in consideration of the status of efforts for the solicitation of donations that it is actually implementing.

Certainly, Izumisano City continued to provide returns, including those that have a high rate of return and are not local products, while many other local bodies were autonomously carrying forward the review of returns. In addition, even after the enactment of the Amendment Act, the city escalated the solicitation of donations emphasizing returns in the names of campaigns for a scheduled period up to immediately before the enforcement of the Amendment Provisions while saying that it would issue Amazon gift vouchers in addition to conventional returns. Such form of the provision of returns by the city up to the Non-Designation is inevitably evaluated as having lacked moderation in terms of socially accepted conventions.

However, while there had been no statutory regulation that specially provides for the provision of returns, the statutory return standards were legally established by the Amendment Provisions, which set a statutory regulation that a designated local body becomes subject to the revocation of designation and becomes unable to obtain designation for two years after the revocation if it violates said standards. Taking these facts into account, a premise used for evaluating a local body's behavior differs before and after the enforcement of the Amendment Provisions, and it cannot be presumptively recognized based on the form of the provision of returns by Izumisano City prior to the same enforcement that the city will continue the provision of returns, etc. in a similar form even after the same enforcement. In addition, there is no hint showing that there was a specific circumstance indicating that the city had a plan to provide returns, etc. that do not conform to the statutory return standards after the enforcement of the Amendment Provisions at the time of the Non-Designation. Based on these, under the circumstances at the time of the Non-Designation, it should be said that the city cannot be determined to not conform to the statutory return standards with regard to the Offer for Designation.

(3) Therefore, it is impossible to not make a designation with regard to the Offer for Designation for Reason for Non-Designation (iii), that is, the fact that Izumisano City is not found to be a body that conforms to the statutory return standards.

6. For the reasons described above, the Non-Designation made on the grounds of Reasons for Non-Designation (ii) and (iii) should be considered illegal. Incidentally, as Reason for Non-Designation (i) was determined not to be treated as an independent reason by the appellee, the Non-Designation cannot be considered lawful based on this reason.

7. The determination of the court of prior instance different from those described above contains violation of laws and regulations that obviously affects the judgment. The counsel's arguments are well-grounded as arguments to this effect, and the judgment in prior instance should inevitably be quashed. According to the explanations made above, the appellant's claim is well-grounded. Therefore, it should be upheld.

Accordingly, the Court unanimously decides as set forth in the main text of the judgment. There are concurring opinions by Justice MIYAZAKI Yuko and Justice HAYASHI Keiichi.

The concurring opinion by Justice MIYAZAKI Yuko is as follows.

I agree with the court's opinion, but I would like to supplement reasons therefor while giving a quick overview of some issues behind this case.

The hometown tax donation system is a "system established for the purpose of making it possible for people to convey their appreciation or supportive feelings to their hometowns and local bodies that helped them or to voluntarily decide the way tax will be used," as mentioned in the Public Notice. However, the part "convey their appreciation or supportive feelings to their hometowns and local bodies that helped them" can be understood as being based on a premise that those payments that local bodies receive under this system are donations. On the other hand, the part "making it possible … to voluntarily decide the way tax will be used" means to make it possible for taxpayers to determine the allocation of tax on their own will to a certain extent on the premise that those payments that local bodies receive under this system are substantially tax. Therefore, this part is based on a different premise from the former part.

If those payments that local bodies receive are tax, local bodies' act of giving consideration or thank-you gifts (providing returns) to taxpayers goes against the concept of tax, and it is obvious that such act cannot avoid being labelled illegal as an act committed by a tax executive agency unless any ground for the lawfulness of such act is provided by law. On the other hand, if those payments that local bodies receive are donations, even if local bodies provide returns to donors, the returns are neither considerations for tax payments nor thank-you gifts for tax payments and do not immediately cause the issue of illegality though they should be recognized as the amount of income of individuals who receive them.

The Amendment Provisions provide as follows: provision of returns is to be squarely permitted as an lawful act under laws and regulations while maintaining the purport of the hometown tax donation system from its establishment as it is and also maintaining the premise that those payments that local bodies receive under the same system are donations, and the Designation System in which only donations made to designated local bodies for each period subject to designation are made eligible for special tax credit is to be introduced. This amendment of law can be considered to have confirmed and made clear that the legislature had considered that there was no reason for the provision of returns itself to be regarded as illegal, for example, on the grounds that a return is a consideration for tax payment because those payments that local bodies receive are donations, irrespective of whether they are received before or after the enforcement of the Amendment Provisions. The Amendment Provisions introduced, for the first time, a mechanism for making an adjustment concerning the provision of returns, which is considered indispensable to achieve, in a balanced manner, both the purport of the hometown tax donation system on the premise that those payments that local bodies receive are donations and the purport of the system on the premise that those payments that local bodies receive are substantially tax, which have been upheld since the earliest days of the establishment of the system. That mechanism is the Designation System, and the fact that such mechanism was provided by law for the first time has a significant meaning though further improvement may be required in the future. To put it the other way around, law providing for the hometown tax donation system prior to the enforcement of the Amendment Provisions is considered to have lacked such mechanism for adjustment, which had made apparent the question of whether provision of returns on the premise that those payments that local bodies receive are donations may result in impairing fairness in the substantial allocation of tax among local bodies.

Originally, taking into account that donation and tax that differ from each other in nature are the premises of the system, it is unreasonable to evaluate the form of the solicitation of donations and the act of providing returns implemented by local bodies prior to the enforcement of the Amendment Provisions from the perspective of whether they go against the purport of the system or whether they are acts that seem to distort the purport of the system, under circumstances lacking the aforementioned mechanism for adjustment. In addition, although the purport of the hometown tax donation system remains the same throughout the period before and after the enforcement of the Amendment Provisions, norms applicable to the form of the solicitation of donations and the provision of returns under the same system were newly established by the Amendment Provisions. Therefore, it is impossible to evaluate whether an act committed prior to the enforcement of the Amendment Provisions goes against the purport of the system based on the norms that should be applied to the acts committed after the enforcement of the Amendment Provisions. This does not apply if there are other provisions in the Amendment Act or other laws and regulations. However, there are no such provisions.

In addition, there is no reason for considering that the aforementioned analysis is not applicable in consideration of the principle of statutory involvement pointed out in the court's opinion, even taking into account that this case is not an issue relating to the relationship between the State and private persons but is an issue relating to the relationship between the State and local bodies.

Based on the aforementioned points, I think that paragraph 4 of the court's opinion is appropriate as an interpretation of the Amendment Provisions (interpretation of the scope of delegation under Article 37-2, paragraph (2) of the Local Tax Act).

The concurring opinion by Justice HAYASHI Keiichi is as follows.

I come into line with the court's opinion, but I felt somewhat uncomfortable with the conclusion in favor of the appellant in consideration of the background to this case. Therefore, I would like to supplement my way of thinking as follows.

The cause of uncomfortableness exists in the fact that Izumisano City had received a large amount of donations in a concentrated manner as a result of pushing forward the solicitation of donations in a form especially emphasizing returns while other local bodies were basically following the repeated technical advice of the Minister for Internal Affairs and Communications. In particular, I must frown on the fact that the city accelerated solicitation by increasing the rate of return even after the enactment of the Amendment Act. In addition, the hometown tax donation system itself is not one that increases the total sum of tax revenue of the entire State but is, simply put, a zero-sum game in which transfer of tax revenue to local bodies is promoted at the expense of the State and some local bodies. This problem inherent in the system increases ambivalence in part. As a result, Izumisano City had already obtained revenue that significantly exceeds the level of revenue ordinarily expected to be obtained through the hometown tax donation system, and it had excessively achieved the purpose of the system in a sense. Therefore, it does not seem to be very unjust to have a feeling that the city should not be permitted to pursue further transfer of tax revenue at the same starting line with other local bodies under the new system or that at the least the city does not need to be permitted to pursue it. This is the awareness of the issue of the same sort as a perspective referred to as fairness with other local bodies by the appellee.

However, this is an issue at the level of right or wrong in the hometown tax donation system prior to the enforcement of the Amendment Provisions. If the appellee aims at resolving such unjust condition as a legal issue in consideration of not only acts to be committed in the future but also acts committed in the past, the appellee should have pursued the establishment of explicit provisions to that effect at the level of law in amending the system. The reason for this is as follows: prior to the enforcement of the Amendment Provisions, there was no special legal regulation on the form of solicitation, including the content of returns and the rate of return, and the way of increasing donations was left to free competition based on each public entity's ideas; although Izumisano City pursued such competition to the utmost limit in disregard of the advice of the competent government agency, it can be evaluated as having merely thoroughly taken actions within the framework of law; therefore, no matter how far the actions seem to be inappropriate in the eyes of the competent government agency, making an adverse disposition against the city for that reason cannot be naturally justified. Incidentally, a standard that retroactively questions past record and handles an act as if it had already been illegal at that time, like Article 2, item (iii) of the Public Notice, was not established presumably because it was difficult not only to explicitly write that effect in a bill but also to give explanations in a manner that such effect would be clearly understood in the process of examination and deliberation of a bill.

The appellee also argues that Article 37-2, paragraph (2) of the Local Tax Act does not impose any special constraint on the way by which the Minister for Internal Affairs and Communications establishes a standard. However, there are, needless to say, constraints in a sense that it is necessary to conform to the provisions of the Local Autonomy Act and other related laws, including the principle of statutory involvement and the prohibition of unfavorable treatment on the grounds of not following technical advice, as pointed out in the court's opinion. If a standard like Article 2, item (iii) of the Public Notice is established in a form that is subordinate to law, conformity to these provisions become an issue. Therefore, it is obviously necessary that explicit delegation as well as delegation of powers to that effect have at least been made by law. Therefore, even if I feel uncomfortable with the conclusion, I must think as mentioned in the court's opinion from a legal perspective.

Presiding Judge

Justice MIYAZAKI Yuko

Justice TOKURA Saburo

Justice HAYASHI Keiichi

Justice UGA Katsuya

Justice HAYASHI Michiharu

(This translation is provisional and subject to revision.)