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Japs Hit Apple For Back Taxes, As Apple Screws Developers

As rent a crowd customers clamoured for their new iPhone at Apple stores in Australia on Friday, it was revealed that Apple had been ordered to fork out ¥12bn in back taxes by the Japanese Government. It’s also been revealed that Apple is screwing developers who sell apps via the Apple Store.

The move to claw back taxes from a Company who believe that they have a right to sell products in Australia but not pay their fair share of taxes, comes days after the European Union ruled that Apple was liable for withholding tax on royalties paid from local subsidiaries such as Australia to an Irish holding company.

Currently Apple Australia is being investigated by the Australian tax office.

The Japanese ruling highlights how royalty payments let the iPhone maker concentrate profits in low-tax Ireland, while earning less in markets such as Australia.

Apple’s attitude to not paying a fair amount of taxes in Australia is a practice that is drawing scrutiny from tax authorities around the world. It also shows how countries around the world are increasingly cracking down on multinationals diverting profits offshore.

Apple has paid just €344m of tax in its main European markets over the past decade, according to Financial Times calculations. Last year, it paid a €318m fine to settle a long-running tax investigation in Italy.

The EU has separately ordered Ireland to claw back €13bn in taxes from Apple, saying it gave the company illegal state aid. In response, a group of 185 American chief executives have written a letter to Angela Merkel, German chancellor, protesting the move.

Apple declined to comment and the Tokyo Regional Taxation Bureau said it does not discuss specific cases. Local reports said Apple has paid the demand in full.

The Japanese case relates to royalties for iTunes software built into the iPhone. Hiroko Sakashita, a partner at Sakashita International Tax Accountants, said that Japanese law imposes a withholding tax of 20.42 per cent on payments of royalties to offshore licensers.

The local iTunes subsidiary was paying royalties to Apple Japan. However, the tax authorities ruled that Apple Japan had bundled the royalty into the cost of buying iPhone handsets from another subsidiary in Singapore, which meant the withholding tax was not paid.
The back taxes were levied on ¥60bn in royalties paid by the Japanese iTunes unit during 2013 and 2014.

Separately, a report by Japan’s Ministry of Economy, Trade and Industry criticised Apple and Google for actions it said could potentially undermine competition in the market for smartphone apps.

The report examined practices such as the 30 per cent commission Apple charges on app sales and its requirement that any purchase made through an app must go through the company’s system.

It said that the handling of refunds was convenient for consumers, because they could easily get their cash back, but was disadvantageous to app makers, as they had to refund the full price without recovering the commission they paid to the app store.

“To decide whether the reality of these transactions violates ordinances such as the Anti-Monopoly Law requires delicate and detailed consideration, and we cannot draw specific conclusions,” says the report produced for METI by a group of experts.

The dominance of Apple and Google in smartphone markets has drawn increasing scrutiny from competition authorities in Europe and elsewhere.