Tokyo looks to close SoftBank’s billions-saving tax route

Billionaire Masayoshi Son in Tokyo in July 2017. Photographer: Kiyoshi Ota/Bloomberg

Japan’s Finance Ministry plans to close a tax loophole that came to light after SoftBank Group paid no tax in Japan last year thanks to a series of complex paper transactions.

Creating large scale losses by shifting assets within the group, and negating profits made in other sectors with the intent to reduce the tax bill, will not be tolerated.

For instance, if a parent company took away the core operations from a subsidiary and sold off the company for a cheap price, the difference between the book value and the sale price can be counted as paper losses.

To shut down this loophole, the ministry is considering automatically reducing the book value when the core operation is spun off.

In March 2018, SoftBank succeeded in reducing its tax bill by separating the core business from U.K. semiconductor subsidiary Arm Holdings.

The Japanese parent received a three-quarters stake in Arm’s core business Arm Limited. This in turn slashed Arm Holdings’ enterprise value.

SoftBank then sold nearly 80% of its shareholdings in Arm Holdings to group companies including the SoftBank Vision Fund.

Because the book value had fallen sharply compared with when SoftBank acquired the chip designer, the “losses” canceled out SoftBank’s other profits, allowing it to pay no corporate taxes for the year. Arm Limited remained part of the group throughout this entire maneuver.

None of these transactions are illegal on their own. But the Finance Ministry had been considering options to prevent a recurrence since this summer, following an inquiry from the National Tax Agency.

Some experts pushed the government to create a general anti-avoidance rule (GAAR), or a comprehensive framework for preventing tax avoidance — an approach the U.K. and India have adopted. But authorities around the world are still struggling to determine when to take action under such rules.

Meanwhile, companies are wary of new comprehensive framework under which they are not sure how tax authorities will act, and worry that they could face new unexpected tax bills. For now, Japan’s Finance Ministry is opting for a piecemeal approach instead of a general rule.

This article was first published on Nikkei Asian Review.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.