TOKYO -- Big American tech companies that had maneuvered to reduce their tax exposure in Japan are changing course amid mounting criticism worldwide that they are not shouldering their fair share of the burden.
Amazon.com's Japanese subsidiaries paid about 15 billion yen ($137 million) in corporate taxes in each of the years ending December 2017 and 2018, according to an insider. This marks a more than 10-fold surge from 2014 -- when two units together paid 1.1 billion yen -- compared with an increase of only 75% in Amazon's Japanese sales over that period to $13.8 billion in 2018. The news was first reported by Kyodo News.
This represents just one example of multinational technology companies backing off from aggressive tax-reducing strategies. As governments hash out ways to more effectively tax a growing digital economy that has made it harder to tell where value is generated, Big Tech is taking the initiative in hopes of heading off a more severe crackdown.
Amazon now handles most of its Japanese e-commerce business directly through its local units, rather than via contracts with the U.S. parent, resulting in more income taxable in Japan. Previously, the Japanese subsidiaries had reported just providing support services for Amazon.com itself, and thus booked little profit of their own.
An Amazon Japan representative told Nikkei that Amazon has paid required taxes in every country where it operates. But a source familiar with the situation said Japanese tax authorities pushed the company to change how it handles its taxes to bring them in line with actual operations.
Amazon now pays about as much tax in Japan as Lawson, the country's third-largest convenience store operator, which reported 14.3 billion yen in income taxes for the fiscal year through February 2019.
Google and Facebook are moving in a similar direction. Google had booked revenue from its Japanese advertising business in Singapore and elsewhere, but began handling it locally in April. The change will likely result in more taxable earnings for Google Japan.
Facebook's Japanese unit has said it is "considering" changing its approach to taxes. The social media company, which had recorded all its international revenue in low-tax Ireland, said in December 2017 it would "move to a local selling structure," booking income where it is generated.
The internet has allowed companies to expand abroad with little to no physical presence in many countries, letting them easily route earnings through jurisdictions with low corporate taxes. On average, American tech companies pay less than 20% of their pretax income in taxes, compared with 28% for listed domestic businesses.
This has fueled accusations of tax avoidance. The Organization for Economic Cooperation and Development issued a report in 2015 on base erosion and profit shifting by multinationals, along with a package of measures to tackle those practices. The Group of 20 major economies aim to agree on rules for digital taxation by 2020, and countries including France have imposed or are working on taxes of their own.
Big tech companies are taking steps to defuse the criticism. Amazon voluntarily disclosed details of its 2018 taxes in the U.K. this past September, reporting that it paid 220 million pounds ($288 million) on 10.9 billion pounds in revenue.
Whether the shift in attitudes will mean more tax revenue for Japan remains unclear. U.S. policy changes under President Donald Trump have led to effective corporate tax rates falling below 30% in most states, while also making it easier for businesses to move profits from overseas subsidiaries.
"If payments to American head offices for things like data analysis technology increase, a lot of their profits will shift [to the U.S.,] and tax [payments in Japan] could be limited," said Hiroki Yamakawa, a partner at Deloitte Tohmatsu Tax who worked for Japan's National Tax Agency for more than three decades.