Photo/Illutration The Finance Ministry (Naoki Tsuzaka)

Since some international companies are not paying consumption taxes on revenue from online games and other mobile apps, the government plans to start collecting those taxes from platform operators instead.

In a report published Nov. 14, an expert panel under the Finance Ministry called for an early introduction of a new system, similar to that used in Europe and other countries, to collect the consumption tax from platform operators such as Google LLC and Apple Inc. 

The panel said this was key to establishing a fair competitive environment.

Under Japan’s current tax system, app and game companies are responsible for paying the consumption tax on app sales themselves. However, many overseas companies are believed to have failed to pay these taxes.

Since many of these companies don’t have a base in Japan and all transactions--from concluding contracts and distributing games to receiving payments--are completed in platform operators’ app stores, it is difficult for Japanese tax authorities to conduct investigations, gather information and collect taxes.

This issue has been viewed as unfair to domestic companies, which have to pay consumption taxes.

Under the new system to be considered by government and ruling coalition officials, platform operators that distribute overseas mobile applications through their app stores would be obligated to pay the consumption tax on behalf of overseas companies, sources said.

The panel’s report said it hopes that the new system would cover a wide range of platform operators to ensure fairness among app providers and proposed that those platform operators be selected based on total sales from overseas companies.

The report also said that the new system would only target overseas companies, since domestic companies already pay taxes correctly under the current system because they are required to file corporate and other taxes in addition to the consumption tax.

The government and ruling parties will discuss details of the new system based on the report toward the end of the year.

The domestic market for mobile apps continues to grow annually, led by online games, and is expected to expand from $6.8 billion (1.027 trillion yen) in 2015 to $38.7 billion in 2024.

It has been pointed out that 30 to 40 percent of the top-selling online games in the Japanese market are overseas titles.

In a rare case, the Tokyo Regional Taxation Bureau has ordered a Luxembourg-based subsidiary of U.S. Epic Games Inc. to pay an estimated 3.5 billion yen in back taxes and penalties for failing to pay the consumption tax over three years on items Japanese users purchased to play the online shooter game Fortnite.

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