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On October 1, 2019 (effective date), the consumption tax rate will be raised to 10%.
If the sales of goods or service is simply one-time transaction, it will be taxed at 8% until 23:59:59 on September 30, and 10% after October 1, so just paying attention to the time is enough. 

So, what tax rate will be applied to on-going basis transaction that commences before the effective date？ 
For instance, prepaid annual fee for cloud service from this month, construction work started this year but will be completed after the effective date, and long-term lease agreement, etc.

National Tax Agency (NTA) has summarized guidance on such cases as a Q&A and published it on its website.
It is nice but little bit hard to read (and only in Japanese) .
So I will give you a briefing on the Q&A, what is IN or OUT of the scope. 

Whats is Grandfather clause?

It is an unexpected situation for taxpayers to change tax implication on transaction that has already commenced, due to change of tax laws.
In Japan, under the principle of “no taxation without law”, there is no retroactive application of new law (although there are some exceptions), past transactions will not be taxed under current tax law.
However, there may be complications in the taxation on transactions that have been going on before the tax law change.
For such cases, the new tax law usually have provision in which an old rule continues to apply to some existing situations while a new rule will apply to all future cases.
That is “grandfather clause”.

Grandfather clause is tentative measures for the sake of taxpayers.
Accordingly, application and scope of the grandfather clause is limited to the cases where new law imposes significant burden on taxpayers, businesses or consumers.  

Grandfather clause is not applicable at the discretion of the tax authorities, but should be legislated in the tax laws.
In most cases, the Supplementary Provisions of each tax law provide for grandfather clauses.
The consumption tax rate including local consumption tax will be 10% (8% for food and beverages, etc.) after October 1, 2019.
The tax rate for the national tax portion will be changed from 6.3% to 7.8% (6.24% for food and drink) from the current rate (Article 29 of the Consumption Tax Act), but the grandfather clauses related to this tax rate change are provided in Article 34 to 40 of the 2018 revised Consumption Tax Act.
Besides, Articles 44 through 52 of the Supplementary Provisions are grandfather clauses concerning the invoice system.

Principle treatment

Tax liability of consumption tax is realized when goods or services are sold.
It is when such goods are physically delivered (legal ownership is transferred), or provision of such service is completed.
In the case of a transaction that requires a certain period of time from conclusion of the contract to the completion of the delivery of the goods or service provision, the tax rate may change as a result of the law change.
Even in such cases, it is the principle that the tax liability is realized at the current tax rate at the time of delivery of the goods or service provision.
As a result, transactions that are not subject to grandfather clause are taxable at tax rate applicable as of the transaction date.

Generally speaking, buy and sale of movable property is taxed at the principle rate whereas long-term continuous transactions, such as contract for work, leasing, and service provision are likely to subject to the grandfather clauses when there is a tax rate change in between contact date and delivery date.
Buy and sale of completed building is taxable at the principle rate. 
In the case of construction work, the grandfather clause will be applied if the contract is concluded by the end of March 2019, otherwise, taxed at the principle rate.
The above perception would help you to understand the Q&A. 

Scope of the grandfather clause

Major grandfather clauses are outlined in the chart on page 5-6 of the Q&A.
That chart is well designed to explain basics of each grandfather clause.
So you should visit the chart first then move on to each Q&A example.
The grandfather clauses are applied to transactions having time lag between the contract date or payment date  (closing date) and the delivery date. 
When new tax rate (10%)  becomes effective during the time lag, the transactions under the grandfather clause is taxed at old tax rate (8%).
Transactions to be taxed at reduced tax rate is not in the scope of the grandfather clause.

Type of transaction	Relevant Q&A	Probable time lag
Inspection of delivery, year end closing	#3	Physical delivery versus inspection or closing.
Return of product	#4	Sales versus return of product.
Service provision over the effective date	#6	Upfront payment versus service provision
Fare, advance ticket	#9 and 10	Payment versus service provision.
Supply of electricity, gas, water; telephone and internet services	#11 to 13	Actual supply versus closing for invoice.
Contract for construction, manufacturing, and work	#14 to 27 and 44	Contract date versus completion date
Leasing, renting	#28 to 31 and 41 to 43	Contract date, payment date versus actual usage.
Money reserve funded to department stores and mutual benefit associations	#32 and 33	Payment versus delivery, service provision
Order purchase, subscription of book	#34 and 35	Payment versus delivery
Mail order	#36 to 40	Order versus delivery
Periodical publication	#45	Publication versus delivery
Nursing home, nursing care service	#46	Upfront payment versus service provision
Recycling of home appliance	#47	Payment versus recycling

Please note that contract for construction, manufacturing and work; service provision; leasing and renting should be concluded before end of March 2019 to apply the grandfather clause.
It has been said that labor and materials are being occupied for the 2020 Olympic game in Tokyo. So it may be difficult to conclude a contract with contractor or home builder before March 2019. 

In principal, a business operator (i.e., seller, supplier) should make judgement whether the grandfather clause is applicable or not.
If you are engaged in any of the above transaction, you should confirm the implication.

Attention to services via the internet!

A concern is “reverse charge“.
A business operator (i.e., a  buyer) who subscribes service from foreign businesses through the internet need to report and pay consumption tax on the service on behalf of the foreign service provider.
As the foreign service provide is indifferent about the consumption tax implication, the buyer has to judge whether the service is subject to the grandfather clause.

Confusingly, the reverse charge is not applied to services aiming for general consumer even if it is provided via the internet because the foreign service provide is obliged to report and pay the tax as same to domestic business operators.
Accordingly, the foreign service provider should confirm implication of the grandfather clause though, from buyer’s point of view, it is not for sure if the foreign service provider can fulfill its duty.   

Able to apply lessons of the past? 

In the past, Japan experienced tax rate raise twice, with the grandfather clause as same to this time. 
However, so many business operators misunderstood, got confused with, or disregard the grandfather clause.
You have to apply the grandfather clause to all transactions as far as they are in the scope of the clause (i.e., mandatory), therefore you need to segregate transactions by applicable tax rate; either 8% or 10%.
In the past, quit a few business operators misunderstood that they can apply the grandfather clause at their discretion and collect the tax from customers at new tax rate.
Even if your customer had agreed to bear the tax amount at new tax rate, the customer needs to amend tax amount for its tax reporting purpose. So you should apply the grandfather clause correctly for the sake of your customers.
In particular, long-term leasing or rental will be subject to the grandfather clause for multiple years, you must keep track the applicable transactions till the maturity.
If you can appropriately apply the grandfather clause, your customer would be impressed with it. 
It may be the only one motivation to comply with this bothersome rule, I would say…