Apple Japan hit with $98 million in additional taxes

TOKYO — Apple Japan is being charged 13 billion yen ($98 million) in additional taxes by Tokyo authorities, apparently for bulk sales of iPhones and other devices to foreign tourists that were incorrectly exempted from the consumption tax, Nikkei learned on Monday.

Bulk purchases of iPhones by foreign shoppers were discovered at some Apple stores, a source said. At least one transaction involved an individual buying hundreds of handsets at once, suggesting that the store missed taxing a possible reseller.

Japan’s tax-free shopping allows visitors staying for less than six months to buy items such as souvenirs or everyday goods without paying the 10% consumption tax, but this exemption does not apply to purchases for resale purposes.

Apple Japan is believed to have filed an amended tax return. The company also voluntarily stopped offering tax-free shopping in June.

“We do not offer tax-free shopping at our stores,” the company told Nikkei. “We apologize for the inconvenience.”

Apple’s sales in Japan totaled $26 billion in fiscal 2022, according to the company’s latest annual report.

The unusually large back tax charge underscores a glaring loophole in Japan’s unique tax-free shopping rules.

Tax-exempt purchases of consumables such as cosmetics or pharmaceuticals are limited to 500,000 yen, but no cap exists for general goods like home electronics.

Stores are responsible for covering unpaid taxes on any purchases failing to meet the requirements that slip through the cracks.

A survey by tax authorities found roughly 24,000 cases of failure by companies to report consumption tax payments in the year through June. A record total of 86.9 billion yen in back taxes was levied, up 11% from five years earlier.

Since last year, Tokyo’s tax bureau has charged three big department store chains a total of more than 100 million yen in unpaid consumption taxes.

Japan has made inbound tourism and consumption a centerpiece of its growth strategy since 2012, expanding flight slots and duty-free stores. Tax-free purchases, a measure of foreign visitors’ appetite for shopping, set a third straight yearly record in 2019 at over 340 billion yen, the Japan Department Stores Association reported. But improper exemptions cost the government money that it needs to fund social security programs.

In contrast to Japan’s system, other nations typically have visitors declare purchases when they leave the country and refund taxes at that point. Though this involves cumbersome paperwork, it is less likely to result in lost tax revenue.

European Union members generally have stores send the refunds after confirming with customs, while government agencies handle the process in other countries.

Japan in April 2020 set up a system to share data electronically between the National Tax Agency and customs authorities. Tax authorities have ordered some sectors not to allow exemptions on transactions that appear suspicious.