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Business trends

Japan's bigger companies slash tax bills to record low

Overseas operations and accounting specialists reduce burden

Larger Japanese companies tend to possess the budget for hiring a team dedicated to minimizing tax bills.   ¬© Reuters

TOKYO -- Japan's larger publicly traded companies enjoyed record-low tax burdens last fiscal year, Nikkei has found, benefiting from factors such as a heavier overseas presence and greater accounting resources compared with their smaller counterparts.  

The median tax burden for 2,025 Japanese companies during the year ended in March was 31.4%, roughly 7 percentage points lower than five years prior.

But the median for those making at least 50 billion yen ($470 million) in pretax profit was even smaller, at a record low of 27.8%. The gap between the average rates for big earners and all companies came to 3.5 points, widening from 1.8 points in fiscal 2009.

SoftBank Group offers a striking example. The tech company on its own paid no corporate taxes in Japan for the year ended in March, due to intragroup capital transactions that generated losses for tax purposes. The group as a whole saw a tax burden of 14%.

Bigger Japanese companies are more likely to have extensive operations in countries with lower tax rates. Trading house Sumitomo Corp. reduced its burden by 3 points in fiscal 2018 to 16.4%, while rival Marubeni paid 17.2%. Both expanded their presence in Southeast Asia and the U.S., where effective tax rates are lower.

Chemical makers, which often have production bases in low-tax countries like Saudi Arabia and Singapore, also tend to have a lesser burden. Mitsubishi Gas Chemical and Sumitomo Chemical paid 13.2% and 19.1%, respectively.

Larger companies also may possess the budget for hiring a team dedicated to minimizing tax bills. Businesses that have a herd of subsidiaries -- like trading houses -- "are adopting more measures to avoid being taxed twice, like reducing the number of indirect subsidiaries," said KPMG Tax Corp. partner Naoki Ishizuka.

Meanwhile, pharmaceutical companies are aggressive in taking advantage of tax breaks tied to their massive research and development costs. Astellas Pharma cut its tax burden by 14 points to 10.7%.

Losses from previous years also can slash a company's tax bill. Despite posting a record operating profit in fiscal 2018, Sony paid just under 5% in taxes due to a more than 400 billion yen loss carried forward from problems at its TV and smartphone operations. Hitachi, which similarly posted a record operating profit, paid about 36%.

The tax burden ranged between 20% and 30% for nearly half of Japanese companies -- 46% of the group. Eighteen percent of the businesses paid between 10% and 20%. Thirteen percent paid 10% or less.

Big shifts in economic and corporate performance also can produce drastic differences in tax burdens. Companies are expected to face higher burdens as they pay down losses incurred in the aftermath of the 2008 financial crisis.

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