These headlines just don’t stop, do they?
The tax consolidation scheme the IBM Japan group has adopted allows a parent company and its wholly or majority-owned companies to file tax reports as a single entity.
IBM Japan allegedly traded its own shares with IBM AP Holdings, which suffered a huge loss through the transactions. The IBM Japan group then allegedly offset the parent company’s losses with IBM Japan’s profits to underreport the group’s income, the sources said.
With only this information, I’d have to give a wild guess that what they really mean is that IBM Japan somehow combined for tax purposes with a corporation that was carrying unusable loss carryforwards (it didn’t have the profit to offset it). And by doing this, IBM Japan availed itself of those losses to offset its overall tax bill.
The NTA is saying that whatever they did was wrong, and now there will be a fight about whether IBM owes the $333 million to Japan.
I wonder if there is a political angle to this. That, when it was a Jiminto government, the officials were a little more lax about whatever rule the NTA is now relying on. And since Minshuto needs the money, they are being much more critical in analyzing whether tax transactions are done with business purposes (“economic substance doctrine”) or simply to avoid tax.
[Update: can you find any discussion of this position, which apparently is a very aggressive one, anywhere in the 2009 IBM Annual Report?]
[Update: more detailed reporting from Asahi Shimbun. It involves IBM in America giving money to IBM Asia-Pacific Holdings, Inc., (IBM-APH) to buy shares of IBM Japan from IBM in America. (So, financing the subsidiary’s purchase with IBM money.) Then, IBM-APH sold those very shares to IBM-Japan for less money than what they paid the parent. The “loss” was entirely within IBM-related entities.
I figured it involved that Yugen Gaisha (Y.K.) that was around, but that may be there for the sweet tax deal IBM has with Congress . . . ]