Facebook found to have under reported income in Japan

August 29, 2019

Tokyo--Japanese tax authorities have found Facebook Inc.'s Japan unit failed to declare 500 million yen, or 4.7 million dollars, in taxable income over the two years through December 2017, informed sources said Thursday.

Facebook Japan has agreed to correct its income declarations, according to the sources. Back taxes and penalties are believed to have totaled around 150 million yen.

Japanese advertisers and ad agencies paid ad fees to a Facebook unit in Ireland under contracts with the Irish company, while Facebook Japan received compensation for assisting the Irish unit's operations, the sources said.

Ireland's effective corporate tax rate stands at 12.5 pct, much lower than around 30 pct in Japan.

The Tokyo Regional Taxation Bureau has told Facebook Japan that its compensation should have been linked to the ad fee revenues.

The bureau figured out the undeclared amount by calculating the Japanese unit's ad revenue-linked compensation and deducting from it the amount actually received by the unit.

Tax authorities around the world are struggling to regulate tax avoidance efforts by global information technology giants, also including Google LLC, Apple Inc. and Amazon.com Inc.

Google's Japan unit has also been found by the Tokyo tax bureau to have underreported its income by 3.5 billion yen by shifting profits from its ad business to Singapore.

Facebook Japan is considering measures to improve the transparency of its advertising operations, a company official said, while declining to comment on the alleged underreporting. Jiji Press