TT-687 -- How to Collect Tax on eBooks? Ebiz news from Japan.

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, Nov 18, 2012, Issue No. 687


- What's New -- How to Collect Tax on eBooks?
- News -- Jetstar reprimanded over safety checks
- Upcoming Events
- Corrections/Feedback
- Travel Picks -- Shimoda temples and Tsukiji dining
- News Credits

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Ever since Rakuten's Hiroshi Mikitani announced earlier
this year that he would use his January acquisition of
Canada ebook seller Kobo Inc., to deliver Japanese ebook
titles to Japanese customers, the Japanese Ministry of
Finance has had its knickers in a knot. The reason is
because with Toronto-based Kobo, Rakuten would be able to
"do an Amazon" and bypass Japan's consumption tax laws by
selling Japanese-language ebooks from abroad. This would
mean no tax take for the Japanese government -- not
necessarily a major threat if 1-2 companies do it, but an
unhealthy precedent if the same strategy was subsequently
followed by hundreds or thousands of other retailers.

Indeed, the way the yen is staying so high, international
air freight costs are plummeting, and Japanese consumption
tax is set to double or triple, the Finance Ministry is
probably right to be worried. It is already possible for
bargain-hunting Japanese to import apparel, entertainment,
and recently even groceries cheaper than it is to buy the
same things here, and all of these transactions are sales
tax-free. They are also import duty-free, because Customs
finds itself unable to cover inspection costs on imports
valued at less than JPY15,000 or so. Therefore, it is
reasonable to expect that online imports will only continue
to increase after the nation's tax rate increases to 8% in
2014 and 10% the year after.

So the Ministry of Finance, apparently using the online
ebook market as a test case, says that it is getting ready
to start taxing international web purchases at the same
rate as those sold domestically. The Ministry says that it
plans to model its new taxes on the European Union tax
system, which imposes taxes on any company selling products
into an EU country and which has more than a certain
threshold of annual sales there. While we understand the
rationale behind the Ministry of Finance not wanting to
miss out on taxes, the idea of modeling on the Europeans is
in our opinion a terrible idea. We say this because the EU
tax system on online cross-border transactions itself is a
mess and is in transition.

How much of a mess can be seen in the number of
high-profile lawsuits going on at the moment against such
companies as Apple and others. Although not necessarily
relevant to Japan, which anyway has a single rate of tax,
the EU tax system requires suppliers to charge the ebooks
at the Services tax rate rather than as products. In
France, this means that an ebook has to be taxed at 19.6%
while its paper equivalent is just 5.5% -- a ridiculous
state of affairs which has caused France to unilaterally
decide to reduce ebook taxes to the same rate as paper and
in response for the EU to threaten legal action to
stop them.

[Continued below...]

---------------- Go Global? it's not a joke! --------------

SunBridge Global Ventures, Inc. and Venture Now, Inc. have
created a entrepreneur competition to help Japanese
startups to become global thinkers and players. All
competitors have been through a grueling series of
mentoring sessions and pitch presentations. Now we're down
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Who will the winner be? Find out by coming along.
Date: Tuesday, 4th December 2012
Place: JIJI PRESS Hall (JIJI PRESS Building 2nd Floor)
5-15-8 Ginza, Chuo-ku, Tokyo
104-8178, JAPAN
Fee: JPY6,000 (JPY3,000 for students)

More details can be found at:

[...Article continues]

More relevant to Japan is the fact that the EU idea of
taxing foreign suppliers will create a lot of confusion and
loop holes. Both Amazon and Apple are based in Luxembourg
presumably because that country only requires them to pay
3.5% in sales tax, while selling into countries like the UK
with a 20% rate of tax. While this doesn't sound like a
problem, in Amazon's case, the company has been accused of
making UK publishers compensate the company for the full
20% UK tax rate, then pocketing the 17% difference in
Luxembourg. This situation won't last for long, however,
and apparently the EU is strong-arming Luxembourg (like
France) to increase its online tax sales rates to more
acceptable levels (presumably 15%-20%) or face legal action
as well. Japan's solution to this problem is to require
suppliers to register as a taxable entity in Japan, and
they will be taxed here.

To make things even more complicated, over the next 3 years
the EU will move the taxable online transaction onus from
the supplier to the consumer, which will be no doubt
possible in the EU where everyone is supposed to have a tax
record, but it will be a nightmare (or impossible) to
collect for anyone buying from outside the EU. Perhaps
since online transactions as a percentage of overall
commerce in the EU are still minor, at just 8% at the end
of 2011, maybe the EU tax authorities have decided that
collecting taxes from non residents is not worth worrying

Anyway, for Japan, the situation will be difficult. The
idea is to have suppliers register with the Japanese tax
office as taxable entities even though they are not
resident in Japan. But without cooperation with the tax
authorities of other countries, the Japanese will have no
enforcement powers. It may sound fine to say, "Oh, but we
already can do tax collaboration with IRS" (for example).
But the reality is that unless the case is worth millions
of dollars, the authorities in either country won't want to
pursue a case that is difficult in terms of language and
legal enforcement. Also, it won't just be the Japanese who
will be contacting the IRS, the world's 100 other national
tax agencies will be as well -- a recipe for a right mess.

Then, also, while the majors in the world such as Amazon
and Apple might be easy to go after, the idea of fairly
applying and enforcing taxation on all sales to Japan is
laughable. How will they prosecute a company with 1,000
subsidiaries in the Bahamas, for example, each doing sales
under the threshold amount? In the EU the threshold is
EURO100,000, so this makes it easy for enterprising types
to just spread their sales around to avoid being taxed. Or,
to simply fake their sales records -- how is the Japanese
Tax Office going to know?

Managing the Internet hydra is exactly the same challenge
that the government already has in trying to restrict
online gambling and porn -- which in fact they can't
control. It's well known that the Japanese are the second
or third biggest (obviously no one knows for sure) users
of such services globally, and there are no effective
controls in sight.

This means that to have proper enforcement, the Japanese
government will have to do something more radical than
simply asking the IRS to help it with cases of more than a
few million dollars. Instead, they will have to do
something like trying to tax all digital traffic coming
into Japan which is conceivably related to a digital
purchase. In fact, we think this option is a high
possibility in the future, since the EU itself is talking
about a similar communications tax to combat U.S. content
companies who are selling to EU citizens. We presume the
logistics will be performed by some kind of deep packet
inspection system similar to what the Chinese have to
constrain political dissent. We can't see this level of
state intrusion going down well with the general voters,

Another method of enforcement would be to tax the buyer.
This will mean that the government will have to force
people to somehow register their digital purchases before
those purchases can be executed -- similar to how they used
to control foreign exchange purchases in the past. This
would of course be difficult to implement logistically, and
then there are just so many work-arounds that it may not
make sense anyway. We already live in a world where you can
maintain a PayPal account in another country and use proxy
servers to pretend to be resident there in terms of IP
address. So how would the tax authorities be able to tell
who is buying what from where? The fact is that they won't.

Perhaps the only thing going for the Tax Office is the fact
that the majority of book purchases in Japanese language
around the world will be by residents of Japan. Therefore,
building on already existing law, the government could require
copyright/licence holders to only contract with overseas
resellers if those resellers are registered. In this way,
the licences themselves could become the base tracking
mechanism of what was sold and where. This wouldn't work
for non-Japanese works, but then the Tax Office doesn't
care about that kind of material anyway -- so porn and
gambling will remain a non-issue for them.

All-in-all, an interesting topic, especially when one man's
ebook is another man's email attachment... :-)

...The information janitors/


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+++ NEWS

- Profiting from wave of retiring company owners
- Japan probably back in recession this quarter
- Software outsourcing to Vietnam jumps 30%
- Photocell panel imports soar
- Jetstar reprimanded over safety checks

=> Profiting from wave of retiring company owners

Resona bank's President has told the press that the bank
will be focusing on baby boomer company owners getting
ready to retire. According to CEO Seiji Higaki, Resona is
putting on 25% more staff to handle the increase in
business from SME company owners seeking to sell their
businesses and move the cash into rent-yielding apartments
and condominiums. Currently small business loans comprise
38% of Resona's loan portfolio of JPY26.2trn. (Source: TT
commentary from, Nov 11, 2012)

=> Japan probably back in recession this quarter

Economists say that the economy shrank 0.9 in Q2
(July-September) of this fiscal year, giving the nation an
3.5% annualized drop off. Exports were particularly hard
hit by a slow-down in orders from China, falling 5% for the
period. Unfortunately, a repeat performance is expected for
the current quarter as well -- leading to the presumption
that the nation is already in a technical recession.
Apparently this will be Japan's third recession since 2008.
***Ed: Significant improvement is forecast for 2013, as the
looming increase in consumption tax leads people to make
large purchases before the rise.** (Source: TT commentary
from, Nov 12, 2012)

=> Software outsourcing to Vietnam jumps 30%

Vietnam's HCMC Computer Association has said that Japan is
the nation's largest buyer of outsourced software services,
accounting for about 23.3% of total orders, and that the
torrid growth rate continues, at 30% a year. Likewise,
Japan's Information Technology Promotion Agency has said
that of 1,100 Japanese IT firms polled, 31.5% of them are
choosing Vietnam for offshore development projects,
compared to 20.6% choosing India and 16.7% China. ***Ed:
Indeed, one of our group companies has found Vietnam to
offer the best compromise of quality, price, and
reliability. Not the cheapest in terms of hourly rates, but
the most efficient in terms of actual working code and
speed of delivery.** (Source: TT commentary from, Nov 18, 2012)

=> Photocell panel imports soar

Thanks to the new feed-in tariff rules, and high-value
payments to producers of alternate energy, the market for
photovoltaic panels in Japan is booming. The Nikkei has
found that 32% of solar cells installed in July-September
were imported products, up from 19% in the same period
2011. Most of the imports come from China and cost about
10%-30% less than local brands. South Korea is another
major source of solar cells, and one mega project in
Niigata, run by West Holdings, is using South Korean
panels. (Source: TT commentary from, Nov 16,

=> Jetstar reprimanded over safety checks

Although apparently not serious, Jetstar Japan has been
reprimanded by the Transport Ministry for employing
aircraft mechanics with insufficient experience and for
having insufficient employees to conduct pre-flight safety
checks. As a result, a newly planned service between Narita
(Tokyo) and KIX (Osaka) will be delayed, and other routes
between KIX and Naha (Okinawa) may also be affected.
Customers booked on the suspended service will be offered
alternative Jetstar flights or a full refund. ***Ed:
Jetstar has responded by saying that the work done by the
engineers in question was OK and no issues were found.**
(Source: TT commentary from, Nov 18, 2012)

NOTE: Broken links
Some online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.


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Entrepreneur's Handbook Seminar 9th of February, 2013

If you have been considering setting up your own company,
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Terrie Lloyd, founder of over 17 start-up companies in Japan,
will be giving an English-language seminar and Q and A on
starting up a company in Japan.

This is an ideal opportunity to find out what is involved,
and to ask specific questions that are not normally answered
in business books.
All materials are in English and are Japan-focused.

For more details:


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Join ClearWater Nippon to celebrate Thanksgiving with
friends old and new while helping us provide clean water
to villagers in northern Uganda.

* Traditional Thanksgiving Buffet
* JPY500 Drink Menu
* Exciting Raffle/Auction Items

November 22, 2012, 19:00 doors open; 19:30 start
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Speaker: Jason Wik, Managing Director - Sentry K.K.
Title: "Empower your Sales Teams with Realtime Mobile

Details: Complete event details at
(RSVP Required)

Date: Tuesday, December 11, 2012
Time: 6:30 Doors open, Buffet Dinner included and cash bar
Cost: 4,000 yen (members), 6,000 yen (non-members)
Open to all
Venue is The Foreign Correspondents' Club of Japan


In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to

=> No comments this week.



=> Shimoda - Gyokusenji & Tsumekizaki, Shizuoka-ken
A historical temple and beautiful coastal park (Part 3)

While Perry Road and the incredible beauty of Mt. Nesugata
can be easily accessed by foot, there are several sites
well outside the city that should be on everyone’s
itinerary when in and around Shimoda. In order to get to
these places you’ll have to have your own car or hire a
taxi, as they are about a 25 minute journey from the town
and public buses might require considerable walking and

From Shimoda take National Route 135 north into the winding
mountainside, with incredible views of the bay. Be on the
lookout for the smaller Route 116 which will lead you
towards two prominent sites, one a temple of great
historical importance (about 10 minute drive from Shimoda
Station), the other a nature park far from the throngs of
tourists that descend on many of Izu's beaches. (a further
15 minute drive). Hiring a taxi, saves time and allows you
to see sights outside of the city on your own schedule.

=> Toyo-chan, Tsukiji market, Tokyo
Hearty affordable yoshoku cuisine in the inner market

The Tsukiji fish market instantly conjures up visions of
giant frozen tuna, endless stalls of diverse seafood and
early morning lines for incredibly fresh sushi, but in the
midst of all this lies a variety of counter-style
restaurants serving up authentic hearty comfort food. Most
people head directly to Building 6 in the inner market to
line up for Sushi Dai and Daiwa Sushi. Off the better known
main row of numbered buildings lies Building 1, where
several yoshoku (Western style Japanese food) restaurants
are housed including the original Yoshinoya beef bowl

Toyo-chan is an unassuming restaurant with minimal signage.
Just look for the pig in a chef’s hat flipping an omelet.
The space is small with only counter seating, but the
service is fast and the food delicious. Seating turns over
quickly as most of the customers are locals working in the
market. The menu is diverse with fried foods including pork
cutlet or oysters, hamburger steak, or various stewed
dishes on rice including curry or hayashi (hashed beef).
The signature dishes displayed in the front window with
English translation are the omuhayashi rice and katsu curry



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