Photo/Illutration The main office of Ushin in Tokyo’s Shinjuku Ward (Photo by Yuji Harada)

A liquor store in Tokyo’s Takadanobaba district unwittingly became entangled in a fraud investigation by tax authorities into an elaborate scheme to obtain consumption tax refunds on exported products.

Employees of the liquor store thought something didn’t add up when two men began making frequent bulk purchases of bottled water around three years ago.

At first, the pair brought a dolly to transport 100 boxes each containing six 2-liter bottles of water.

This was during the novel coronavirus pandemic, so it was not unusual for customers stuck at home to buy a large amount of bottled water.

Still, even allowing for emergencies, employees figured that a household would only need around 10 boxes.

That led to questions about what the men were using the water for. Later, the purchases went through the roof--to 400 boxes--and the pair turned up in a car to take the loads away.

Store employees never questioned the pair because they always paid in cash.

In 2022, another visitor to the store gave the president of the company operating the outlet a business card that identified him as being with the National Tax Agency.

The man asked for the store’s cooperation, explaining that it was not a target of a tax audit. The man wanted to know if anyone had been making large purchases of water.

The company president had heard from store employees about the two men who frequently made bulk purchases.

Later, tax inspectors set up a stakeout near the liquor store to check on those who came to make the purchases.

HITTING PAY DIRT

That investigation led the Tokyo Regional Taxation Bureau to order the payment of back taxes totaling 4.4 billion yen ($32 million).

At the center of the scam was Ushin, a cosmetics wholesaler based in Tokyo’s Shinjuku Ward that operated near the liquor store.

According to sources, for about two years until November 2021, Ushin submitted tax reports claiming it had purchased around 37 billion yen in expensive cosmetics from various companies in Tokyo and sold a similar amount to 10 or so export companies.

Those export companies filed reports saying they had exported the “cosmetics” to Hong Kong. Export companies are exempted from consumption tax. This allowed them to later seek refunds of the consumption tax paid to Ushin when purchasing the “cosmetics.”

But the tax investigation found that what was being traded was the water purchased at the Takadanobaba liquor store.

The company Ushin claimed to have purchased the “cosmetics” from was in name only and the export companies claimed they were only allowing Ushin to use their names in return for a slice of the fraudulent consumption tax refund.

Ushin employees changed the labels on the boxes containing the bottled water to indicate cosmetics were included.

In the end, tax investigators determined that Ushin paid about 3 billion yen in bottled water purchases.

Ushin was ordered to pay around 3.5 billion yen in back consumption rate taxes and penalties. The export companies were ordered to pay a total of about 900 million yen in back taxes for illegally applying for the tax refund.

(This article was written by Yuji Harada and Yuta Hanano.)

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