Author: Attorney at Law Mei Suzuki

“DX” (digital transformation) has long been shouted about, but with the influence of the corona virus our office has also seen an increase in questions regarding electronic agreements. In this article we succinctly set out some dos and don’ts for a company considering introducing electronic agreements.

There is no definition of “electronic agreement” in laws, but looking at inquiries we get the impression that many people are seeing electronic agreements as electronic signatures, electronic agreement service, electronic mail (e-mail), and other agreements entered into without a paper document.

The most common question we receive is “Is it ok to change our XX agreement to an electronic agreement?”, so we consider in the following order from a legal point of view.

（1）Does it fall under a format that is not allowed to be rendered electronically?

Among agreements, there are ones that are not allowed to be rendered electronically (periodic land rental agreement, periodic building rental agreement, etc. (Land Lease Act, Articles 22 and 38)). These types of agreements cannot be electronically rendered. A worker dispatch agreement was one of the agreements that could not be rendered electronically, but by a revision in January 2021 it has become possible to render the agreement electronically.

（2） Is an electronic agreement difficult for the reason that the relevant organization/agency is not able to handle it, etc.?

In the case where the electronic agreement is to be used for submission to an agency (legal affairs bureau, immigration, etc.) it is necessary to confirm whether the relevant agency can accept an electronic agreement.

（3）In the case where there is not particular problem with the above (1) and (2).

In the case where there is no particular problem with the above (1) and (2), we need to decide on the basis of risk control whether to proceed with an electronic agreement and accept the risk or utilize a conventional style agreement.

There are various risks depending on the format of the electronic agreement, but in general, compared with a paper agreement, the following risks are present:

• Since the hurdle for consent is low, it is easier to mistakenly consent to an agreement.
• Since the seal of a representative or decision-maker is not used, even if there is an indication of consent from the other party it is easy to confuse who actually gave consent and it is unclear whether the necessary decision-making has been undertaken.
• There are few precedents relating to handling of electronic agreements as a document so whether the electronic agreement will be allowed as proof in the case of litigation, etc., is unclear.

In the case where a decision can be made that the merits of an electronic agreement are greater than the risks and the risks are acceptable, then if the content of the agreement and its amount, etc., are important, and the necessity for an electronic agreement is high, and the risk control measures (use of electronic signature and electronic agreement service with higher reliability, and the consent of the other party, internal rules for operation, etc.) are considered overall then introduction of electronic agreements can be considered.

（4）Is there any problem from a tax point of view?

In the case where an electronic agreement is introduced, it is necessary to confirm whether there are any tax issues. In particular, there are rules for the maintenance of invoices, receipts, and other accounting related electronic data under the Electronic Book Storage Act, which is being re-considered in recent years and care should be taken in this regard.