Japanese Tax Authorities Bill Sony $243 Million for Undeclared Income

Method By Which Related Parties May Cooperated to Develop Intangible Property and Attribute Cost Proportionately To Anticipated Benefits

On June 30, the Tokyo Regional Taxation Bureau ordered Sony Corporation and its subsidiary Sony Computer Entertainment Corporation to pay 27.9 billion yen (USD$242.8 million) in back taxes on undeclared income stemming from a transfer pricing dispute. Sony officials indicated in a press statement that they intended to pay the amount in full, but would also file an appeal. The revenue in dispute stems from Sony's sales of consumer and entertainment electronics in the U.S. Sony officials maintain that the income in question is being taxed in the United States and should not be taxed in both countries under U.S.-Japan Double-Taxation treaty obligations.

Sony becomes the sixth major Japanese company in recent days to be ordered by Japanese tax authorities to pay millions of dollars in back taxes. Mazda, Mitsui, Mitsubishi, Takeda Pharmecueitical, and Sharp are all facing similar disputes.

Japanese tax authorities are also investigating Sony's transfer pricing operations in other markets into which Sony sold audio and video products. Tax authorities are looking into the valuations of produces sourced in Japan to determine whether taxable income was correctly estimated.

While there has been no official change of policy, the recent crackdown may serve as a warning to other international companies doing business in Japan that their transfer pricing operations may be under intensified scrutiny.

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