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Politics

Japan casts wider net for corporate tax evaders

Japan's National Tax Agency

TOKYO -- Japanese authorities are taking a closer look at dealings by multinational corporations amid a global trend toward cracking down on tax evasion, ordering a local unit of Apple to pay about 12 billion yen ($117 million) in back taxes on royalties.

Under Japanese law, the local iTunes unit should have been paying a roughly 20% withholding tax on software licensing fees paid to another Apple unit in Ireland. The Tokyo Regional Taxation Bureau found that the fees were being transferred to Ireland indirectly through Apple Japan and another unit in Singapore via transactions of marked-up Apple products, skirting tax obligations.

Authorities had honed in on payments that Japan could tax amid a wider probe into cross-border transfers at various companies. The iTunes case "was the result of our investigation, based on the global trend of more aggressively going after tax evasion," a Japanese tax official said.

Apple declined to comment but paid the amount owed in full.

Many foreign companies are moving their intellectual property and profits to Ireland to take advantage of the country's low tax rates, an accountant familiar with the matter said.

Authorities in recent years have been cracking down on companies that use cross-border transfers to evade taxes. The European Commission in August ordered Ireland to collect up to 13 billion euros ($14.5 billion) in back taxes from Apple, on the grounds that it gave illegal tax benefits to the technology giant.

The European Commission ruled that Starbucks and Fiat Chrysler Automobiles benefited from illegal tax deals as well, while McDonald's and Amazon.com are currently under investigation. New rules on tax inversions, where companies move their headquarters to a lower-tax nation through mergers or acquisitions, also thwarted a proposed merger between U.S. drug giant Pfizer and Ireland-based Allergan.

Back in Japan, authorities imposed taxes on shares traded between IBM Japan and its U.S. parent in 2010, as well as transfers between Honda Motor and its Brazilian unit in 2004. But they retracted the taxes in both cases after losing in court.

"We need to have a tax scheme that appropriately reflects the growing movement of people, things, money and multinational corporations," said Japanese National Tax Agency chief Hidenori Sakota. Stricter rules will be inevitable.

As of Sept. 1, Japan had tax treaties with 98 countries and regions. It was unable to fully screen the increasingly complex dealings of multinationals by itself, but many tax officials say sharing information across borders has made it easier to track monetary transfers.

"Global companies were one step ahead of tax authorities in the past," said Yo Ota, a lawyer familiar with international tax regulations. "But the authorities are fighting back, so they will likely be imposing more taxes on excessive evasion schemes, even in Japan."

(Nikkei)

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