Google Japan fails to declare 3.5 B. Yen in taxable income

January 15, 2019

Tokyo--Japanese tax authorities have found that a Japanese unit of Google LLC failed to declare some 3.5 billion yen in income related to transactions with a Singaporean unit of the U.S. Internet giant in the year through December 2015, informed sources said Tuesday.

The National Tax Agency's Tokyo Regional Taxation Bureau concluded that Google Japan reduced its tax burden in Japan by transferring part of its profits to Singapore, where the corporate tax rate is lower than in Japan, according to the sources.

The authorities are believed to have imposed around one billion yen in back taxes, including penalty, on Google Japan. The company has already taken corrective steps.

The difficulty in appropriately imposing taxes on profits earned in many different countries by global information technology giants, including Google, Apple Inc., Facebook Inc. and Amazon.com Inc., known collectively as GAFA, has become a problem around the world.

According to the sources, advertisers in Japan paid ad money to the Google side via contracts signed with the Singaporean unit of the U.S. giant. The Japanese unit engaged in domestic business operations assisting the Singaporean unit's operations and received payments at the rate of 8 pct above related expenses.

The Japanese tax agency said such revenue should have been calculated by having the income at the Singaporean unit reflected by a certain percentage. The agency concluded that the Japanese unit earned some 10.5 billion yen in the year to December 2015, up by about 3.5 billion yen from the originally declared total.

At the time, the effective corporate tax rate stood at 32.11 pct in Japan and 17 pct in Singapore.

Also regarding its income in the year to December 2016, Google Japan voluntarily made a declaration in line with the tax agency's claim, the sources said.

Under current international rules, a country cannot impose taxes on a foreign company that has no domestic base, such as a plant. This loophole has been exploited for tax avoidance by many IT giants.

To tackle this problem, Britain decided to introduce a new 2 pct tax rate on the sales that such companies make in the country. Jiji Press