Japan orders Amazon.com arm to pay 14 bil. yen in back taxes+

TOKYO, July 5 Kyodo -
Japan's taxation authorities ordered a Seattle-based affiliate of online
retailer Amazon.com Inc. to pay 14 billion yen in back taxes for unreported
income earned in Japan during the three years through December 2005, sources
familiar with the matter said Sunday.
Dissatisfied with the order, Amazon.com has requested the tax authorities in
Japan and the United States to discuss the matter in light of the bilateral tax
treaty, the sources said.
The pact frees U.S. companies that engage in business in Japan without
''permanent establishment'' like branch offices from having to file a tax
return or pay taxes to the Japanese government.
But the Tokyo Regional Taxation Bureau has determined that two Japanese
wholly-owned subsidiaries of Amazon.com have in effect acted as branch offices
of the affiliate, Amazon.com International Sales Inc., they said.
The two subsidiaries -- Amazon Japan Logistics K.K. and Amazon Japan K.K. --
are commissioned to carry out merchandise distribution and other functions.
Amazon.com International Sales has directly concluded contracts of selling
merchandise goods with customers in Japan and received payments for the goods,
they said.
Based on the findings, the taxation bureau appears to have told Amazon.com
International Sales that it should have declared a substantial amount of the
income gained through transactions in Japan to Japanese tax authorities.
Amazon.com, for its part, disclosed that it has been ordered by Japanese tax
authorities to pay the back taxes, in its annual report for its 2008 business
year.
The report says it has been ordered to pay $119 million in back taxes including
an additional tax for no return. The amount would be equivalent to 14 billion
yen.
Amazon.com International Sales is responsible for operations outside the United
States. The company has booked sales posted in Japan as those of the
Seattle-based company, while paying relevant taxes only in the United States.
But the taxation bureau found that employees of Amazon Japan Logistics have
received instructions from the U.S. side through e-mails at its distribution
center in Ichikawa, Chiba Prefecture, while approval by the U.S. side was
required whenever the center's administrators assigned its employees to new
posts, the sources said.
The taxation bureau appears to have determined that the center has in effect
acted as a permanent establishment to which the tax pact refers, because it has
functioned as a branch office, they added.
==Kyodo