Apple Japan to Pay $98 Million in Back Taxes for Missing Duty-Free Abuses

Apple Inc (NASDAQ: AAPL) unit in Japan has been charged with as much as 13 billion yen ($98 million) in additional taxes for bulk sales of Apple products to foreign tourists and their exemption from the consumption tax. As Nikkei has reported, the Tokyo Regional Taxation Bureau found bulk sales in some of the stores, and one of them conducted a transaction that involved selling hundreds of handsets at once.

As per the policy applied in Japan, foreign tourists can stay in the country for up to six months without paying a 10% consumption tax. Consumption tax in Japan, known in other countries as VAT, GST, or sales tax, is applied on all items except food, drinks, and newspaper subscriptions for which it is 8%. Tax-free shopping is available to visitors at licensed stores when making purchases of over 5000 yen at a given store or mall on one calendar day. However, when it comes to resale, this exemption does not apply.

Notably, iPhones are cheaper in Japan than abroad. As a result, Tokyo authorities suspect vendors trying to take advantage of the country’s duty-free system, purchasing the products and then selling them overseas, turning a profit by bypassing consumption tax.

When reached for comment, Apple Japan said:

“We do not offer tax-free shopping at our stores. We apologize for the inconvenience.”

The company is believed to have filed the amended tax return.

Since Japan offered tax-free shopping for visitors as a measure of attracting them and bringing more money to the country, there have been a lot of cases of violations. According to tax authorities, there have been about 24,000 cases of failure by companies to report consumption tax payments in the year through June. A total of 86.9 billion yen in back taxes was levied, which is 11% higher than five years earlier.

Apple in Japan

In fiscal 2022, Apple’s sales in Japan totaled $26 billion. According to a Central News Agency Tokyo report, Japanese consumers have always been willing to pay for the latest gadgets. In the past, many Japanese were skeptical of second-hand goods such as electronics. But now, as the yen has fallen, some can no longer afford the price of a new iPhone, while second-hand trade is emerging in a key market for Apple Inc. Therefore, Apple’s sales in the region have been falling this year.

In July, Apple raised the price of the entry-level iPhone 13 by nearly 20%. The new iPhone 14, which was launched later, was another 20% more expensive than the iPhone 13, and the price in the US was flat at $799. As Apple said in its annual regulatory filing back in November, sales in Japan fell by 9% due to a weaker yen.