Sony Hit For Back Taxes in Japan

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Friday, June 30, 2006

Sony Hit For Back Taxes in Japan

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ET Japanese tax authorities ordered Sony and three other major companies to pay hundreds of millions of dollars in back taxes Friday as part of a crackdown on overseas earnings by the central government.

In addition to Sony, the Tokyo Regional Taxation Bureau slapped the tax orders on automaker Mazda Motor Corp. and trading houses Mitsui & Co. and Mitsubishi Corp.

The assessment orders the companies to pay taxes on certain overseas earnings that the government says are liable for taxes under a 2003 agreement with the U.S. government. The accord aims to prevent parent companies from ducking income taxes in one country by booking profits under a subsidiary in another.

Sony Corp. said it was ordered it to pay an estimated 27.9 billion yen ($243 million) in additional taxes related to its game console and other operations in the U.S.

The authorities also said Sony should pay additional tax on reported profits from transactions relating to CD and DVD disk business operations between Sony and a number of overseas subsidiaries in 2003 to 2004, Sony said.

Based on the taxation bureau's calculations, Sony had Japanese income of 74.4 billion yen ($647 million) more than the amount reported, which would incur extra taxes of around 27.9 billion yen, it said.

Sony planned to file a protest with the tax authorities, arguing the additional taxes would constitute double taxation under the terms of U.S.-Japan bilateral tax treaties.

The notifications came a day after electronics maker Sharp Corp. said it will pay 300 million yen ($2.61 million) in back taxes after Japanese tax authorities accused it of hiding income over three years. Sharp denied intentionally hiding income and said it would comply with the order to pay the back taxes.