The Japan unit of Facebook Inc. failed to declare about ¥500 million in taxable income over the two years through 2017, sources close to the matter said Thursday.
The tech giant’s advertisement revenues earned in Japan were paid to its branch in Ireland, where the corporate tax rate is lower, in an attempt to reduce taxable income at the Japan unit, the sources said.
Facebook is believed to have corrected its tax declaration and paid the additional levies of over ¥100 million imposed by the Tokyo Regional Taxation Bureau, the sources said.
“We are cooperating with taxation authorities to comply with legal regulations in each country,” officials at the Japan unit said.
Regulators are stepping up scrutiny over tax-saving measures taken by digital hegemons such as Facebook, Apple Inc., Amazon.com Inc. and Google LLC, including transferring locally derived revenues to a unit in a country with lower tax rates.
In the Facebook case, the Irish office paid the Japan unit of Facebook remuneration equal to total expenses plus several percent commission for supporting its ad business in Japan, the sources said.
The tax bureau apparently judged that the Japan unit was effectively running the ad business in the country and that the remuneration it receives should be linked to the revenues, the sources said.
The effective corporate tax rate in Japan is around 30 percent compared to 12.5 percent in Ireland.
Facebook, which opened its Japanese version of the social networking site in 2008, set up the local unit the following year. Its net profit for 2018 jumped to ¥219 million from ¥11 million in 2017.
Google’s unit in Japan was found to have failed to declare about ¥3.5 billion in taxable income for 2015 by shifting advertisement revenues to its branch in Singapore, where the tax rate is lower, other sources close to the matter said in January this year.
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