Japan Press Weekly

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2018 May 9 - 15 TOP3 [ECONOMY]

Corporate taxes paid by Amazon Japan were 1/30 of that of Japan's major retailers

Corporate taxes for Amazon. com, Inc., the largest online shopping company, paid in fiscal 2014 in Japan accounted for only one thirtieth of taxes paid by Japan's top ten retailers.

According to Akahata on May 14, Amazon paid as little as 1.1 billion yen in corporate taxes although it posted sales of 838.7 billion yen in FY 2014 in Japan. Its corporate taxes turned out to be far smaller than that of Japan's No.1 Internet marketplace Rakuten (33.1 billion yen).

Amazon booked about 90% of the 838.7-billion-yen operating revenue in the United States, apparently as a method to evade paying taxes in Japan. Loopholes in the Japan-U.S. tax treaty make this possible.

This bilateral convention exempts foreign companies from paying corporate taxes unless they have "permanent branches or offices in Japan". It also excludes warehouses used only for storage and shipping from permanent establishments. Amazon reportedly insists that its distribution depots in Japan are simply warehouses.

With Amazon's tax evasion in mind, many nations worked on implementing amendments to their tax treaties. In 2016, a number of nations reached agreements to close the loopholes by broadening the definition of permanent establishments. As of March 22, 2018, 78 countries and areas, including Japan, became signatories. However, the U.S. itself has not signed the accord. "Japan doesn't even know if the U.S. is willing to sign," according to an official of the Finance Ministry Tax Bureau.

An expert, who serves as a tax service manager for one of the four biggest accountancy firms in the world, warns that leaving this situation as it is will lead to negative consequences.

The tax expert said, "Allowing Amazon to not pay taxes in Japan will bring serious disadvantages to Japanese companies in terms of competition. Amazon can improve its services by using the money saved from its tax-evasion method for investments, which will most likely increase the number Amazon users. The more consumers choose Amazon, the more Japanese companies will be pushed out of the marketplace. Thus, Japan's tax revenues will become smaller and smaller."

The Japanese government must establish a fair tax system before unfair competition entirely changes Japan's economic structure.

Past related articles:
> Apple avoids paying 1.2 trillion yen in tax in Japan [December 27, 2017]
> Apple evaded 200 billion yen in taxes in Japan [February 11, 2017]