Amazon ordered to pay 14 billion yen in back taxes by Japanese tax authorities
According to the news media, Japanese tax authorities have levied 14 billion yen in back taxes on an affiliate of Amazon.com, headquartered in the US. The rationale behind this decision is that income earned by the US affiliate on sales of books and other merchandise to its Japanese customers is “Japan Source Income”. The Japanese tax authorities seem to have applied the “deemed PE principle” in making this decision, saying that the Japanese subsidiary is deemed to constitute a permanent establishment of the US affiliate and hence taxable in Japan. Amazon officials stated that the tax assessment is inappropriate and that they are currently in discussions with the authorities.
In a similar case on the deemed PE issue, the Japanese government has recently lost its case against Adobe Systems at the Supreme Court. It will be interesting to see how this issue will develop.