Yuki Kohara

THE BIG STORY

A TAXING
TOKYO For years, Japanese tax regulators
have been grappling with a mystery that has
also become their biggest headache: Why does
SoftBank Group -- which became Japan’s most

PROBLEM
profitable company last year -- pay so little tax?
Officials from the Tokyo Regional Taxation
Bureau have conducted tax inspections almost
every year in recent years to check the accuracy of
SoftBank’s tax filings, even flying to London in one
instance to check documents.
A Nikkei investigation looks into So far, SoftBank has the upper hand: It has

why SoftBank, once Japan’s most

stayed clear of accusations of wrongful tax
evasion. But it has been a target for regulators who
profitable company, pays so little tax have sought to close, in their eyes, loopholes the
company has been exploiting legally to lower its
tax bill. In 2020, a new set of rules was introduced,
TOMOSHIZU KAWASE, KATSUYA MIYAKAWA and WATARU SUZUKI
Nikkei staff writers known as the SoftBank tax rule, to block a specific
type of transaction that experts say helped
SoftBank create billions of dollars in tax savings.
Still, in 2021 SoftBank’s corporate income tax
was zero after the group reported the highest-
ever profits for a Japanese company.
The growing level of scrutiny is not

Under Chairman and CEO

Masayoshi Son, SoftBank
has evolved into one of
the world’s largest
investors in startups.

Nikkei Asia - Special excerpt from Aug. 29-Sept. 4, 2022 Print edition. Nikkei Inc. No reproduction without permission.
 THE BIG STORY

Zero
SoftBank Group* faced corporate taxes four times in the
last 15 years (In trillions of yen)
5
Consolidated net income
4
3
Nonconsolidated income SoftBank’s 2021
corporate tax
before taxes
2
1 Source: Nikkei research
0
–1
FY2007 ‘10† ‘12† ‘13† ‘15 ‘17† ‘19 ‘21
Fiscal year ends March
*Nonconsolidated †Years with corporate tax obligations Source: QUICK-FactSet

“
It seems strange that a company with trillions
of yen in profits has zero corporate tax for years,
even if it is legal. We should examine whether
there are any problems with the system

Koji Uema

Illustration by Shiho Takiguchi

Hideki Tomonaga Head of the Taxation Institute of Japan

Son stands next to Pepper at an event
in August 2015. The robot was unveiled
in 2014 but SoftBank suspended
its production in 2020.
A SoftBank store in Tokyo: SoftBank Corp.,
a subsidiary of SoftBank Group, is one of
Japan’s biggest telecommunications providers.
only a risk to SoftBank’s bottom line but also to its reputation. “SoftBank
is an extremely rare case of a Japanese company with very aggressive tax
planning,” said a former senior tax official.
Japanese companies are known for their conservative approach to business,
but SoftBank under Chairman and CEO Masayoshi Son has always stood out
as an ambitious, risk-taking enterprise. “Son is a difficult character to assess,”
one Japanese management consultant said. “He is one of the few CEOs that
can paint a huge dream and realize it, which this closed country is desperately
lacking. But some of his actions do not seem appropriate.”
The issue has largely avoided public scrutiny because tax information
The scope of SoftBank’s unusually low tax obligations has not been
previously reported. Experts say they are in accordance with tax laws and
are based on the group’s unique business model as an investment holding
company, which takes its income in dividends from domestic and foreign-
owned subsidiaries. But the massive gap between its large reported profits
and low tax burden may raise questions over the effectiveness of Japan’s tax
system and whether companies are disclosing enough information about their
tax payments. The debate is swirling amid a wave of moves by other large
economies to push for greater tax compliance.
“It seems strange that a company with trillions of yen in profits has zero
SoftBank’s
Masayoshi Son is the

is a closely held secret. But an investigation by Nikkei has found that on a
nonconsolidated basis, which excludes group companies that pay their taxes
separately, SoftBank was required to pay corporate tax in Japan four times in
15 years since the fiscal year ended March 2007. The total amount was about
17 billion yen ($123 million), about 0.25% of the 6.6 trillion yen in pretax
profits it earned during the period.
Japan’s current corporate tax rate is 23.2%, although experts say rates vary
across industries and tend to be low for holding companies that generate
income from dividends, like SoftBank.
The 11 years that SoftBank’s corporate tax was zero include the fiscal year
Getty Images
3rd-richest
corporate tax for years, even if it is legal,” said Hideki Tomonaga, head of
the Taxation Institute of Japan. “We should examine whether there are any
problems with the system.”
Tomonaga was previously involved in corporate tax reform at the Ministry
of Finance.
In response to questions by Nikkei regarding the number of tax
payments and reasons for its low tax bills, a SoftBank spokesperson said
person in Japan
that it makes “no disclosure other than the corporate tax item in our annual Source: Forbes
securities report.”
“There are multiple errors [in the questions submitted by Nikkei], but we

ended March 2021, when it reported a consolidated net profit of nearly decline to comment further,” the spokesperson said. SoftBank also declined to
5 trillion yen, the largest ever for a Japanese company. SoftBank reported a comment when Nikkei asked what the errors were.
1.7 trillion yen net loss for the year ended March 2022. Nikkei also questioned SoftBank about its tax disclosure policy. In Illustration by Chuan Ming Ong

Nikkei Asia - Special excerpt from Aug. 29-Sept. 4, 2022 Print edition. Nikkei Inc. No reproduction without permission.
 THE BIG STORY

correspondence from February, the company said it was “making appropriate
disclosures” and that it was considering disclosing its tax policy on its website
within two to three months. It said subsidiary disclosures are made at the
discretion of each company.
Nikkei reached out again on July 26 to ask whether SoftBank had disclosed
its tax policy. On July 29, SoftBank responded that it had disclosed its tax
policy on its website, effective the same day. The policy states SoftBank will
“endeavor to ensure appropriate payment of taxes and optimization of tax
costs” and comply with laws and regulations.
Led by billionaire founder Masayoshi Son, SoftBank has evolved into one
of the world’s largest investors in startups. Son is the third-richest person in
Japan, according to Forbes, thanks to his 29% stake in SoftBank.
29 %
corporate tax obligations in the fiscal years ended in March 2010, 2012, 2013
and 2017, the sources said.
SoftBank’s revenue structure allows it to present two distinct faces to
observers: Last year, SoftBank wooed investors by reporting a 5 trillion yen
Stake in SoftBank consolidated net profit. But when it presents itself to tax authorities, it is a
company suffering huge losses.
held by Son On a nonconsolidated basis, SoftBank generated operating revenue of
Source: FactSet 1.62 trillion yen for the year ended March 2021. Almost all of that came from
dividend income, including $4 billion from a U.K. subsidiary called SoftBank
Group Capital Ltd., which held assets like shares in U.K. semiconductor
design company Arm.

“
After studying in the U.S., Son founded Softbank Corp. Japan in 1981 as
a distributor of PC software. The company later started investing in internet
companies, such as Yahoo of the U.S. in 1995 and China’s Alibaba in 2000. [SoftBank and its group companies] pay a considerable
The burst of the dot-com bubble sent SoftBank’s fortunes plunging. But Son
eventually made a comeback with a $15 billion acquisition of Vodafone’s
amount of taxes. While continuing to do so, we will also
Japanese unit in 2006. try to save taxes to some extent within the legitimate
In 2017, Son launched the nearly $100 billion SoftBank Vision Fund, the scope of what we can do
largest tech-focused investment vehicle ever. Analysts noted that the fund

”
Getty Images

Arm, the British-founded
semiconductor company, has been
owned by SoftBank since 2016.
differs from a typical venture capital operation in that many of the executives
brought in to manage the fund were former bankers.
“The team has a reputation of structuring investments well, rather than Masayoshi Son Speaking at SoftBank’s annual shareholders meeting in 2019
making successful investments,” said Mio Kato, founder of LightStream
Research who publishes on Smartkarma. “It would not be a surprise if
structures are carefully considered to minimize tax. A big risk is that countries According to Japanese tax law, 95% of dividend income from a foreign
will take notice and close the loopholes.” subsidiary with ownership of 25% or more is exempt from taxation, and
During SoftBank’s annual shareholders meeting in 2019, Son said “investors almost all dividend income from a domestic subsidiary with ownership of

0.25%
around the world are doing [business] legally, within the rules of the world, more than one-third is exempt from taxation. There is no information on
and with proper tax savings.” SoftBank and its group companies “pay a the ratio of dividend income that SoftBank generates from domestic and
considerable amount of taxes. While continuing to do so, we will also try to save foreign subsidiaries.
taxes to some extent within the legitimate scope of what we can do,” he said. In addition to generating little taxable income, SoftBank has also
Japanese companies do not need to disclose how much tax they pay.
Financial statements of publicly listed companies include some information on
corporate taxes, but those figures are based on financial accounting standards.
Total corporate taxes from
A separate process based on tax accounting calculates the amount of tax that 6.6 trillion yen in pretax
companies ultimately pay. The details, which are included in tax returns filed profits earned by SoftBank
SoftBank’s tax disclosures
The parent company: SoftBank Group
with the National Tax Agency, are not made public.
The tax agency declined to comment on individual companies.
in the 15 years from the fiscal
Most tax payment The best indicator of SoftBank’s actual tax obligations is an item called year ended March 2007
SoftBank Group information “income taxes” in its nonconsolidated statement of income, published in
is not public
its annual report. Tax experts say that when the figures remain the same
Consolidated subsidiaries* for multiple years, it is likely that only local taxes, which are determined by
factors such as the amount of paid-up capital, are reflected and that corporate Son holds an online press conference
SoftBank taxes, which increase or decrease depending on income, have not been in Tokyo on May 12 to announce SoftBank’s
A summary record consolidated net loss of 1.708 trillion yen
of tax payments is generated.
LINE Askul for fiscal 2021 that ended in March.
made public on In SoftBank’s case, that figure was the same 5 million yen in 13 of the past
SoftBank’s website 15 years. A person close to SoftBank confirmed to Nikkei in 2020 that “no

Ken Kobayashi
ZOZO Yahoo
corporate tax has been incurred” when this item was fixed at 5 million yen. Source: Nikkei research
According to multiple other sources, there were some years when tax
*Taxes paid separately from the parent company
Source: Nikkei research was incurred after SoftBank amended its returns. In total, SoftBank had

Nikkei Asia - Special excerpt from Aug. 29-Sept. 4, 2022 Print edition. Nikkei Inc. No reproduction without permission.
 THE BIG STORY

1.62
accumulated a large amount of tax losses that can be used to offset future
income. SoftBank had 3.4 trillion yen in tax losses on a consolidated basis
as of March 2020. A large portion of these is estimated to be held by the

trillion yen
holding company.
Nikkei previously reported details of a scheme that likely created a big
chunk of these losses using shares in Arm Holdings that SoftBank acquired
back in 2016. In the fiscal year ended March 2018, SoftBank received shares
SoftBank’s nonconsolidated of Arm’s key subsidiary as dividends, and transferred the majority of its
operating revenue for the stake in Arm Holdings, which had declined in value, to entities including
the Vision Fund. The difference in the value of Arm when SoftBank bought it
year ended March 2021, and when it was transferred to the Vision Fund generated a tax loss of about
which mostly came from 2 trillion yen. Despite the significant tax benefit, the internal reorganization
dividend income had no impact on SoftBank’s earnings.
Initially, tax authorities were suspicious about the transaction, but Son speaks at an earnings
Source: Nikkei research following heavy scrutiny they could only dispute the timing of a part of conference on May 12,
the loss that SoftBank had booked. They approved SoftBank’s tax return 2021, announcing a
after the company resubmitted it. Regulators subsequently started work group net profit of 4.99
trillion yen, which was
on revising rules to prevent tax savings from combining dividends from the largest posted by a
subsidiaries and the transfer of their shares. The new rules came into effect Japanese company
in 2020. Among tax accountants, they are known as the “SoftBank tax rule.”

Jiji
to date.

“
Illustration by Shiho Takiguchi

Most of SoftBank’s revenue is tax-free as part of their environmental, social and corporate governance policy.
[Multinationals figuring out how to keep tax costs down SoftBank Group
SoftBank barely discloses any information about the amount of tax it
pays at the holding company level. On the other hand, SoftBank Corp., a
has] been a problem for a long time, and governments (Nonconsolidated income)
subsidiary that runs a telecommunications business, says on its website that
around the world are trying to prevent loopholes it does “not transfer value created to low tax rate countries to avoid taxes”
and discloses that it paid 389.4 billion yen in corporate income tax in fiscal

”
Dividends from Dividends from
subsidiaries foreign subsidiaries 2020. It is possible that SoftBank may be seen as only disclosing information
with a shareholding with a shareholding
ratio of more than ratio of 25% or
for companies that pay a large amount of tax.
Mio Kato Founder of LightStream Research Countries have moved to push multinational companies to be more
1/3 are 100% tax-free more are 95% tax-free
transparent about their taxes. Australia, for example, has a Tax Transparency

389.4
Domestic Foreign Code, a set of guidelines that companies follow to make voluntary disclosures
subsidiaries subsidiaries
Still, tax losses can be carried forward to offset taxable income 10 years after about their tax payments. The U.K. government requires big companies to
the losses are generated. That means SoftBank can reduce its tax obligations Source: Nikkei research
submit a tax strategy document to outline their tax planning. European Union
for the foreseeable future. lawmakers have agreed on rules to require multinational companies to report

billion yen
Tax experts say holding companies tend to have low tax rates due to where they pay taxes.
nontaxable income. But it is rare for such a large discrepancy between The two different faces of SoftBank Kato of LightStream Research said many multinationals, not only SoftBank,
earnings and taxes to be revealed. TAXATION ACCOUNTING have been figuring out how to keep tax costs down. “It’s been a problem
“For large companies, disclosing as much tax information as possible to A company making A high-earning for a long time,” Kato said, “and governments around the world are trying
Fiscal 2020 corporate tax show proper tax payment is part of their ‘tax governance,’” said Mitsuhiro huge “losses” business to prevent loopholes. It will take time, but methods to minimize tax can be
paid by SoftBank Corp., a Honda, a professor of tax law at the University of Tsukuba. “It will also lead to
Most dividend revenue Huge profits made
eventually thwarted.”
constructive discussions for a fairer tax system.” While scrutiny is focused on big multinationals, it may eventually spread
SoftBank subsidiary that runs Among the ways SoftBank has reduced its tax burden, one that is likely
from subsidiaries from subsidiaries’
to how investment companies are taxed. “Investment companies are similar
a telecommunications
is tax-free dividend revenue
to attract controversy is the system under which 95% of dividends paid by to digital platformers in that unlike manufacturers, their physical presence
SoftBank Group (Nonconsolidated)
business overseas subsidiaries are exempt from taxation. The system was introduced is small so they can aggressively pursue cost optimization,” said a lawyer
after the global financial crisis to make it easier for Japanese companies to Large losses carried No losses recorded familiar with international tax law.
Source: Nikkei research return overseas funds. Since there is no requirement to disclose whether forward from intragroup Another analyst said “unexpected cash outflows” could be a big issue for
transactions of Arm
tax is paid overseas, some have pointed out that there is a risk of double Holdings* shares, etc. SoftBank’s financial health. “If the management is constantly working to
nontaxation in Japan and overseas. prevent tax from being imposed, and suddenly the tax increases, that will
More companies are disclosing detailed information about their tax practices *Currently SVF Holdco (UK) Source: Nikkei research need to be financed somehow.”

Nikkei Asia - Special excerpt from Aug. 29-Sept. 4, 2022 Print edition. Nikkei Inc. No reproduction without permission.