Real estate companies and foreign investors failed to declare a total of 3 billion yen ($28.3 million) in income related to transactions in Hokkaido's popular ski resort destination of Niseko.

The Sapporo Regional Taxation Bureau pointed out the issue, involving about 10 cases, to the domestic and foreign firms and investors, ordering them to pay more than 600 million yen in additional taxes, which they apparently have since paid.

The Niseko area, covering not only Niseko town, but also neighboring Kutchan town and surrounding hills, has become a popular global destination where ski enthusiasts can enjoy powder snow.

Many foreign visitors come to the area to ski or snowboard in the winter, and many shops use English signage to attract customers.

Because of the popularity, land prices have risen sharply in the area. Since more than 10 years ago, companies based in Australia and some Asian countries have actively engaged in conducting land transactions there.

In principle, Japanese income tax and corporate taxes are not imposed on foreign companies or people who are not living in Japan. However, taxes are imposed on profits reaped by such parties through transactions on real estate in Japan.

The Sapporo and Tokyo regional tax bureaus specified the companies involved in real estate transactions in the Niseko area through registration of firms in various countries, information provided by real estate companies and information on the Internet.

The bureaus then informed five companies, situated in such regions as Hong Kong, Samoa and the British Virgin Islands, that they failed to declare a total of 1.5 billion yen in income.

The authorities also identified two Hong Kong investors that failed to declare a total of about 1.2 billion yen in income, and ordered them to pay 200 million yen in additional taxes.

The two individuals are shareholders of an investment firm that was registered in Hong Kong in 2007. The firm sold a forest of more than 10 hectares that it owned in Kutchan to a Singaporean company in 2017.

The sales price was about 300 million yen, almost the same as the figure paid by the Hong Kong firm when it purchased the land.

At the same time, however, the two also sold shares of the Hong Kong firm to the Singaporean company, reaping profits through the sale.

The Sapporo regional tax bureau apparently recognized that profits from the sale of shares in the firm, whose main assets comprise Japanese real estate, were nearly the same as those from the sale of real estate.

For transactions of only shares of companies that own land, the registered owners are left unchanged, making it difficult to identify the transactions.

The tax authorities also pointed out several Japanese and foreign companies that failed to pay withholding tax.

In cases where domestic companies, including foreign firms with branches in Japan, purchased Japanese real estate owned by foreign companies, they have to withhold about 10 percent of the sales prices as taxes that are paid by the sellers. However, several companies failed to do so.

According to the Forestry Agency, a total of 223 purchases were made by foreign companies of forested areas during the period from 2006 to 2018, covering 2,076 hectares of land. Of that, 178 purchases, or 80 percent, covering 1,577 hectares were in Hokkaido.

"Ascertaining the moves of foreign companies that made deals in real estate in tourist spots and water-source areas will become a nationwide challenge," said a high-ranking National Tax Agency official.

Yoshihito Tanaka, 47, a Kutchan town assembly member, said that failures to declare income, which are then uncovered and pointed out by tax authorities, are just the tip of the iceberg.

"I believe there are foreign parties who are trying to escape paying taxes. As a business operator who pays taxes, I feel this cannot be tolerated," said Tanaka, who runs a ski rental business and a coffee shop in Kutchan.

A licensed tax accountant and former employee of the National Tax Agency said: "It is quite difficult to identify transactions between foreign companies. In cases where those that should pay taxes are located in foreign countries, tax arrears occur easily. Tax authorities are making efforts to deal with foreigners' transactions, but they are becoming complicated."

(This article was written by Yuta Hanano and Yasuo Sakuma.)