Japan's Tax Man Cracks Down

In Japan, Friday was a good day to hang onto your wallet.

First, four more corporate giants got hit with bills for billions in back taxes.

Then, a top ruling party official said the 5 percent consumption tax is likely to be raised by 2009, as the nation searches for new ways to boost revenue to offset the cost of retirement benefits and health care for Japan's aging population.

That forecast, attributed by Kyodo News to Hideo Nakagawa of the Liberal Democratic Party, came as Japanese Prime Minister Junichiro Koizumi visited Washington and prepared to make a daytrip with President Bush to Graceland, the home of Elvis Presley, a longtime favorite of Koizumi's.

Tax officials in Tokyo also had their thoughts overseas Friday, as they ordered Sony, Mazda Motor Corp., Mitsui & Co., and Mitsubishi Corp. to pay billions of yen (hundreds of millions of dollars) in back taxes as part of a crackdown on foreign earnings.

The move by the Tokyo Regional Taxation Bureau comes just days after a similar action by tax authorities in Osaka, who slapped Sharp Co. and Takeda Pharmaceutical Co. with hefty bills for back taxes.

The assessments order the companies to pay taxes on certain overseas earnings that the government says are liable for taxes 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 under a subsidiary in another.

Several of the companies say they will fight the new assessments.

An official of the National Tax Administration 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 inked. But companies have since become more proactive in disclosing tax information in response to shareholder demands, he said.

The tax authority itself does not disclose such tax information out of confidentiality concerns, he said.

Sony Corp. said Friday it was ordered it to pay an estimated 27.9 billion yen (US$243 million, euro193.95 million) in additional taxes related to its game console and other operations in the U.S.

Sony plans to file a protest with the tax authorities and argues that the additional taxes 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 SCEI's U.S. subsidiary from 1999 to 2004, Sony said.

The authorities also said Sony should pay additional tax on reported profits from transactions relating to CD and DVD disk business operations between Sony and a number of overseas subsidiaries in 2003 to 2004, Sony said.

Based on the taxation bureau's calculations, the two companies had Japanese income of 74.4 billion yen (US$647 million, euro516.4 million) more than the amount they reported, which would incur extra taxes of around 27.9 billion yen, it said.

Mazda, meanwhile, was ordered to pay about 7.6 billion yen (US$66.4 million, euro53 million) in additional taxes for transactions between it and an overseas subsidiary, the automaker said.

Mazda says it will ask the bureau to further review the transactions.

Also hit was Mitsui & Co. for approximately 2.5 billion yen (US$21.8 million, euro17.4 million) in additional taxes related to operations in Australia, Mitsui said. The company said in a statement such a charge would have a negligible effect on its earnings, but it will challenge the order.

Mitsubishi Corp. was also ordered by the Tokyo tax bureau to pay approximately 2.2 billion yen (US$19.2 million, euro15.32 million) in back taxes, the company said, adding that it disagrees with the assessment and will "respond appropriately."

The notifications came a day after electronics maker Sharp Corp. said it will pay 300 million yen (US$2.61 million, euro2.08 million) in back taxes after Japanese tax authorities accused it of hiding income over three years. Sharp denied intentionally hiding income and said it would comply with the order to pay the back taxes.

On Wednesday, Takeda Pharmaceutical Co. said it would fight similar assessment from Osaka tax authorities that said the company has to pay 57 billion yen (US$491 million; euro390.61 million).

Authorities said Takeda's stated profit did not accurately reflect revenue from transactions between Takeda and TAP Pharmaceutical Products Inc., which Takeda operates jointly with the U.S. company Abbott Laboratories.