Lawsuits over how to tax losing bets expected to climb

JIJI

A series of lawsuits have been filed seeking to classify losing bets on horse races as expenses.

Similar lawsuits are expected in light of the Osaka High Court’s decision in May to uphold a lower court ruling last year that allowed losing horse racing bets to be counted as expenses.

In May 2013, the Osaka District Court handed down the decision to a man in Osaka who was charged with evading ¥570 million in income tax for not declaring horse racing payouts in the three years through 2009.

According to the ruling, the defendant, 40, began buying betting slips in 2004 over the Internet that earned him ¥3 billion in payouts between 2007 and 2009. The lawsuit focused on whether his losing bets, worth ¥2.74 billion, could be counted as expenses.

At the district court, the presiding judge, Masaki Nishida, sentenced the Osaka man to two months in prison, suspended for two years, for failing to declare ¥160 million in income over the period. But the ruling said he only evaded ¥52 million in taxes, rather than the ¥570 million asserted by prosecutors, thus recognizing the losing betting slips as expenses.

The prosecutors argued that only the winning slips should be counted as expenses because racing proceeds are incidental temporary income. The defendant stressed that expenditures for all slips, including losing bets, should be counted as expenses because payouts are miscellaneous income.

The district court ruled in favor of the defendant on the grounds that he bought the betting slips on a continuous basis as a profit-making activity.

The prosecutors are taking the case to the Supreme Court.

Regional taxation bureaus have traditionally treated horse racing winnings as temporary income in line with a 1970 National Tax Agency notice.

At least four lawsuits, including one by the Osaka man, have been lodged to seek nullification of taxation on such payouts as temporary income.

Lawyer Kazuhiro Nakamura, who represented the Osaka man, said racing payouts should be tax-free due to the difficulty of defining whether they are miscellaneous income.

About 3 million people bought betting slips in 2013 through the Japan Racing Association’s online system, which debuted in 2002. Their purchases that year came to ¥1.285 trillion, accounting for 50 percent of JRA’s sales.