A Hong Kong company that distributes internet game apps in Japan was ordered to pay about 450 million yen in back taxes in the business year ended December 2017 for dodging consumption tax payments, The Yomiuri Shimbun has learned.
Flyingbird Technology Ltd. refused to pay the back taxes, so the Tokyo Regional Taxation Bureau earlier this month put a lien on the game app fees collected by Apple Inc.'s Japanese arm that were to be paid to Flyingbird Technology. The Hong Kong-based game app distributor used Apple's Japan unit to distribute its apps, according to sources.
The tax bureau is expected to take the unpaid consumption tax out of the seized game app fees.
When the tax system was revised in 2015, online services used for items such as games, music and e-books distributed to Japan by overseas operators became subject to the consumption tax. However, it has not been easy to determine the actual state of transactions, and some firms refuse to pay penalty taxes.
This is the first time that the national tax authority has been found to have put a lien on an obligation to pay app usage fees, in order to collect back taxes.
Flyingbird Technology was ordered to pay the penalty tax for distributing smartphone game apps in Japan through the Japanese arm of Apple's iTunes in Tokyo, and other means, according to the sources.
Users of Flyingbird app games paid the fee to iTunes and others. Flyingbird made a huge profit by receiving the paid fees, with a commission charge subtracted by iTunes and others, the sources said.
The taxation bureau launched an investigation after Flyingbird failed to report and pay consumption tax, the sources said.
After learning the amount of fees it earned through iTunes and others, the bureau estimated that the firm's sales in Japan totaled more than 4 billion yen in the business year ending in December 2017, and imposed about 450 million yen in back taxes, including a penalty for failing to file a tax return, according to the sources.
However, Flyingbird refused to pay, so the bureau reportedly seized its claims on iTunes this month.
"It seems they couldn't accept being the only target for paying the taxes, while many foreign businesses have been allowed to operate unchecked even though they didn't pay consumption tax." a source close to Flyingbird said.
In principle, companies are not subject to corporate taxes even if they make huge profits in foreign countries by selling goods and services to consumers via the internet. There is a rule that bars countries from levying taxes on companies that do not have bases, including factories and outlets, in those countries.
The Organization for Economic Cooperation and Development is currently discussing a digital taxation system that would allow countries to impose taxes on such sales in foreign companies.
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