Tax authorities ordered Sony Corp. and three other major companies to pay billions of yen in back taxes Friday as part of a crackdown on tax evasion on overseas earnings as the government hunts for more revenue and tries to improve corporate transparency.
In addition to Sony, the Tokyo Regional Taxation Bureau slapped back tax payment orders on automaker Mazda Motor Corp. and trading houses Mitsui & Co. and Mitsubishi Corp.
The move comes days after Osaka tax authorities imposed similar back payments on Takeda Pharmaceutical Co. and Sharp Corp.
The assessments order the companies to pay taxes on overseas earnings the government says are subject to tax in Japan under a 2003 agreement with the U.S. government. The accord aims to prevent parent companies from ducking income taxes in one country by booking profits with an overseas subsidiary.
An official of the National Tax Agency, speaking on condition of anonymity, said there has been no change in the agency’s policy of assessing corporate taxes since the agreement was signed. But companies have become more proactive in disclosing tax information in response to shareholder demands.
The tax authority does not disclose such information out of confidentiality concerns.
“Authorities have been somewhat lax in the past,” said Yasuyoshi Masuda, a tax expert at Toyo University in Tokyo. “They are tightening their surveillance in order to improve the transparency of corporate finances.”
Sony Corp. said in a press statement Friday it was ordered it to pay an estimated 27.9 billion yen in additional taxes related to its game console and other operations in the U.S.
Sony said it planned to file a protest with the tax authorities promptly, arguing that the additional taxes would constitute double taxation under the terms of U.S.-Japan bilateral tax treaties.
Tax authorities found fault with tax payments by Sony and Sony Computer Entertainment Inc. related to profits from the game console operations of Sony Computer Entertainment’s U.S. subsidiary from 1999 to 2004, the parent company said.
The authorities also said Sony should pay additional tax on reported profits from transactions related to CD and DVD disc operations between Sony and a number of overseas subsidiaries in 2003 to 2004.
Based on the tax bureau’s calculations, the two companies had domestic income of 74.4 billion yen more than they reported, which would make them liable for additional taxes of around 27.9 billion yen, the bureau said.
Mazda was meanwhile ordered to pay about 7.6 billion yen in additional taxes for transactions between it and an overseas subsidiary, the automaker said. Mazda said it will ask the bureau to re-examine the transactions.
Mitsui & Co. was also hit for approximately 2.5 billion yen in additional taxes related to operations in Australia, the trading house said in a press statement, adding that although the charge would have a negligible effect on its earnings, it planned to challenge the order.
Mitsubishi Corp. was also ordered by the Tokyo tax bureau to pay approximately 2.2 billion yen in back taxes, the company said, adding that it disagrees with the assessment and will “respond appropriately.”
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