Murata Sogo Tax Accounting Office is located in Miyakojima-ku, Osaka City and specializes in inheritance and international taxation.

This time, we will write about the taxation of executive compensation related to corporations, especially the relationship between the timing of deductible expenses, the payment date, and regular fixed salary.

1. Facts

Our company is an ordinary corporation with a fiscal year ending in March. Until now, monthly executive compensation has been paid at 1,200,000 yen per month, but in the minutes of the general shareholders' meeting dated May 26, 2025 (Reiwa 7), it was approved that "the executive compensation will be 1,300,000 yen per month from April 2025 (payment on May 31).

The relationship between the timing of deductible expenses and the payment date for executive compensation for the fiscal years ending March 2024 (Reiwa 6) and March 2025 (Reiwa 7) is as follows (partial excerpt).

Booking Expenses	Amount	Payment Date
February 28th, 2025	JPY1,200,000	March 31st, 2025
March 31st, 2025	JPY1,200,000	April 30th, 2025
April 30th, 2025	JPY1,300,000	May 31st, 2025
May 31st, 2025	JPY1,300,000	June 30th, 2025

Therefore, in this case, it can be seen that the directors' compensation has increased from April 2025 (paid on May 31, 2025) as stated in the minutes of the general shareholders' meeting.

2. Basis for Recording Directors' Compensation as an Expense

① Article 22, Paragraph 3 of the Corporation Tax Act

The amount to be included in the amount of expenses for the fiscal year in calculating the amount of income of a domestic corporation for that fiscal year shall be the following amounts, unless otherwise specified.

・The cost of sales, cost of completed construction, and other costs equivalent thereto related to revenues for the fiscal year in question

・In addition to those listed in the previous item, the amount of sales expenses, general administrative expenses, and other expenses for the fiscal year in question (excluding expenses other than depreciation expenses that are not determined as liabilities by the end of the fiscal year in question)

・The amount of losses for the fiscal year in question that are related to transactions other than capital transactions

②　Article 34, Paragraph 1, Item 1 of the Corporation Tax Law

Regarding executive compensation, it falls under the separate provision of ①, so it is necessary to check Article 34, Paragraph 1, Item 1 of the Corporation Tax Law.

The following article makes this case a regular fixed salary.

・The payment period is a fixed period of one month or less (Act 34①-1)

・The payment amount is the same for each hourly wage period from the start of the business year to the day before the first payment period after the salary revision, and from the day after the last payment period before the salary revision to the end of the business year (Act 69①-1)

・This corresponds to a revision of the amount of regular fixed salary made from the start of the accounting period to which the business year begins until three months later (Act 69①-1-i)

③　Q&A on Executive Salaries (revised April 2012)

In addition, a case similar to this one is listed as an example of regular fixed salary in Q2 (p6-9) of "Q&A on Executive Salaries (revised April 2012)".

When applied to this case, the payment amount is the same for each of the following payment periods, so it corresponds to regular fixed salary.

・The amount paid for each payment period from the start of the relevant business year (April 1) to the day before the first payment period after the salary revision (May 30) is the same

⇒The amount paid for each payment period from the day after the last payment period before the salary revision (May 1) to the end of the business year (March 31) is the same

⇒The amount paid for each payment period from May 31, June 30, July 31, August 31, September 30, October 31, November 30, December 31, January 31, February 28, and March 31 is the same, 1.3 million yen

From the above, this case also falls under regular fixed salary and is included in the amount of loss.

3. About the Period for Expenses is before the Shareholders Meeting?

As per the facts in 1, when the executive compensation was increased to 1.3 million yen, it was recorded as an expense on April 30 (paid on May 31), which was before the general shareholders' meeting on May 26.

In this case, the question arises as to whether the executive compensation for the previous month will be allowed to be recorded as an expense at the general shareholders' meeting.

In this regard, although Article 34 of the Corporation Tax Law, which regulates executive compensation, describes the relationship between the payment date and regular fixed salary, there is no specific provision regarding the timing of deductible expenses, and the National Tax Agency's Q&A does not mention it either, so as long as it is regular fixed salary, there is no problem under tax law.

In this article, we have written our views on executive compensation, which is closely related to corporate tax practice. If you are having trouble with issues like this one, or if you have been pointed out about your executive compensation during a tax audit, please feel free to contact us using the inquiry form.