3 Tokyo department stores ordered to pay back taxes over suspicious duty-free sales

The Yomiuri Shimbun

17:53 JST, October 22, 2022

The Tokyo Regional Taxation Bureau has ordered three major department stores to pay back a total of ¥110 million in taxes for transactions that did not meet the requirements for duty-free sales, The Yomiuri Shimbun has learned.

The transactions were uncovered during tax inspections that started last year at Sogo & Seibu Co., Odakyu Department Store Co. and Matsuya Co., according to sources.

In June, the bureau issued administrative guidance to department stores in Tokyo, calling for them to process duty-free sales correctly. According to the national tax authorities, it is highly unusual for administrative guidance to be issued to a specific industry with regard to duty-free sales.

The authorities might have felt a need to ensure duty-free sales were being processed appropriately as international visitors are expected to flock back to Japan following the easing of coronavirus pandemic-related border restrictions.

According to the sources, the three department stores were found to have not followed duty-free requirements, such as processing transactions by foreign residents who had been in Japan for more than six months so are ineligible for tax-free shopping, and failing to keep relevant transaction records.

The investigations also uncovered cases in which the same person may have repeatedly purchased large quantities of cosmetics for the purpose of resale, which is not allowed under the terms of duty-free sales.

Visitors to Japan can avoid paying consumption tax on purchases of souvenirs and goods for their personal use outside Japan. Duty-free purchases are not permitted for items that are consumed in Japan or bought for the purpose of resale.

The bureau has ordered Sogo & Seibu to pay back about ¥100 million in taxes for transactions that did not meet the requirements over two years through February 2021, according to the sources.

Odakyu Department Store and Matsuya are believed to have corrected their tax returns and repaid the taxes.

Responding to The Yomiuri Shimbun, a Sogo & Seibu official said, “We take the remarks seriously and will strive to strictly process tax-free sales.” An official of Odakyu Department Store said the company would “work to ensure the system is implemented correctly,” while Matsuya said it would “appropriately conduct duty-free sales.”

Bulk purchases

Purchases for the purpose of resale have been highlighted as a problem in duty-free sales, with suspected resellers spotted buying goods in bulk from shoppers near department stores.

Products purchased in bulk, tax-free often end up for sale online at lower prices than the list price, with resellers earning profit from the consumption tax saving.

In April 2020, a system was introduced in which duty-free stores send digital data to the National Tax Agency with customer information and purchase records, making it easier for the tax authorities to identify suspicious bulk purchases.

Tax-free purchases of cosmetics and other consumable goods are currently limited to ¥500,000 per transaction.

In a case uncovered by authorities, a Chinese student who arrived in Japan in the autumn of 2020 bought cosmetics and other items worth about ¥490,000 tax-free on 10 occasions over a period of about a month.

A senior bureau official in June asked department stores not to process tax-free transactions for bulk orders of items that are clearly not souvenirs and when the name on the credit card is different from that of the purchaser, among other suspicious cases.