Transfer Pricing Associates

Universal Music Japan in Trouble of Tax Avoidance

post Monday September 10, 2012

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Universal Music LLC, the Japanese unit of the U.S. record label, Universal Music Group, was accused of conducting tax avoidance practices over a three-year period through December 31, 2010. During the Tokyo Regional Tax Bureau’s transfer pricing assessment in July, the company was found to have failed to report about 9 billion yen ($113.6 million) in taxable income over the period.

Universal Music Japan conducted an organizational restructuring from a joint-stock company to a limited liability company. As part of the restructuring, the company reportedly borrowed 80 billion yen ($1 billion) from an affiliate in France and declared 9 billion yen in expenses as interest paid to the French company. However, according to the sources from the Jakarta Post, there were no actual changes in the firm’s structure and activities. The effective tax rate in France is 33.3 percent, while the rate in Japan is 40 percent.

The Tokyo Regional Taxation Bureau contends that the company lacked financial reasons to conduct restructuring and have ordered Universal Music LLC to pay 3 billion yen ($37.9 million) in back taxes and penalties. Universal Music LLC has appealed to the National Tax Tribunal.

Source: The Jakarta Post, McClure Music

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