Shiseido fined over US tax income, but plans to dispute the action

The company has already paid a ¥1.7 billion tax penalty last week relating to the under-reporting of ¥3.8 billion in income relating to its declared revenues during the five years up to March 2012, according to a report in The Japan Times.

The fine is said to relate to both the under-reporting of the income during that period as well as local government duties, and was implemented by the Tokyo Regional Taxation Bureau under its transfer pricing tax code.

Authorities use the transfer pricing tax code​

This code enables the authorities to make businesses liable for income tax in Japan if they are found to have moved or retained profits abroad through transactions relating to subsidiaries or affiliates.

According to the report, the taxation bureau determined that the profit margin at the US subsidiary was significantly higher than that at competing local Shiseido businesses, leading the authorities to suspect that it was inflating prices on products imported from the US.

Currently the US is the company’s biggest overseas market beyond the domestic market, with the Americas accounting for approximately 16% of the global sales figures in 2013, while more than half of its revenue being derived from outside the domestic market.

Focus falls on New Jersey subsdiary​

Sales for its US subsidiaries grew significantly after 2010, when it bought US colour cosmetics players Bare Escentuals, which at the time of the acquisition had annual sales of $560m.

The company also has a New Jersey-based manufacturing subsidiary, from where many of its own brand products are manufactured and shipped throughout the US and also back to both the domestic and Asia Pacific market.

The taxation authorities’ investigation has focused on the products being imported from the manufacturing facility in East Windsor New Jersey, which was expanded last year after a significant investment.