Tokyo tax authorities are expected to impose back taxes of about 17.8 billion yen on life insurer Alico Japan for its failure to declare corporate taxes when valuing foreign currency-denominated assets, sources familiar with the matter said Sunday.
The Tokyo-based insurer affiliated with American International Group Inc. said the company and the Tokyo Regional Taxation Bureau have different views on the application of relevant laws and it will consider countermeasures including objecting to the additional taxes.
According to Alico Japan, around half of the premiums paid by policyholders were managed in foreign currency-denominated securities and the value of the premiums sharply decreased amid the yen's rapid appreciation after the subprime loan crisis in the United States in the summer of 2007.
Alico Japan, therefore, booked the latent losses as actual losses by applying "the 15 percent rule" of the tax code, under which valuation losses in terms of the exchange rate at the end of a fiscal year that exceed book values by more than 15 percent can be counted as actual losses.
But as the assets made use of derivatives trading, which can hedge foreign exchange risks, the tax bureau said the 15 percent rule was not applicable to foreign currency-denominated assets using derivatives trading and valuation losses could not be booked, according to Alico Japan.