Japan fines company over tax avoidance

Japanese authorities have ordered Virgin Entertainment Japan to pay ¥4.3 billion ($36.7 million) in taxes due on the 2003 sale of its local theater chain to Toho Co.

The Tokyo Regional Taxation Bureau also has slapped Virgin with a $12.8 million penalty for allegedly trying to avoid the taxes by routing the sale via its Swiss arm, Virgin Holdings.

A probe found Virgin Entertainment Japan sold its 60% stake in Virgin Cinemas Japan to Virgin Holdings and allegedly asked all other shareholders to do the same. The 54,000 shares sold for $51.3 million.

Virgin Holdings then sold the shares to Toho for $88 million, clearing a $36.7 million profit.

Investigators uncovered the large mark-up and the fact that Toho paid Virgin Entertainment Japan the $88 million directly. The triangular paper transaction circumvented Japan’s 45% tax on corporate share sales (Switzerland’s is 9.8%).

Due to the New Year’s holiday in Japan, Virgin Japan was unable to comment on the reports.

Acquiring Virgin Cinemas Japan’s eight multiplex theaters, with 81 screens, made Toho Japan’s largest exhibitor.

The only site still bearing the Virgin name is Virgin Toho Cinemas Roppongi Hills, a nine-plex in the heart of Tokyo’s Roppongi Hill shopping and entertainment complex.

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