Photo/Illutration Daikokuya's website (Captured from the internet)

Tax authorities have uncovered a wide-ranging abuse of the duty-free shopping system that exempts foreign tourists from paying consumption taxes, with a luxury used goods retail chain the apparent victim.

The scam involved recruiting shoppers off social media to buy items from the company's outlets where employees were in on the scam and then selling them elsewhere. 

According to sources, the complicated scheme borrowing some techniques of scam groups unfolded at Daikokuya, which operates a national network of outlets selling used brand goods.

And while the company itself appears to be the victim of fraudulent practices carried out by former employees, under tax laws it is obligated to pay back taxes and penalties related to acts carried out by workers.

Sources said over a two-year period until March 2023 Daikokuya was ordered to pay a total of about 230 million yen ($1.5 million) in consumption taxes and penalties.

As in many fraud schemes often targeting unsuspecting senior citizens, those involved in the Daikokuya violations used social media to recruit individuals to carry out specific tasks, in this case, going to assigned outlets and buying specified items.

Daikokuya employees and outside companies colluded to have the “buyers” then resell the items back to the outside companies.

Those holding foreign passports do not have to pay the consumption tax as long as they agree not to use or resell the items they purchased while in Japan.

But tax authorities have uncovered major abuses of the system with some foreigners making purchases exceeding 100 million yen and reselling all the items while in Japan.

Sources said Daikokuya was lax in checking the passports presented at sales counters to verify the buyer was a foreigner. Some foreigners used the ID cards of other individuals to make the tax-free purchases and store employees did nothing to stop the practice.

And at some outlets, a certain number of employees colluded with outside companies, which recruited foreigners to make the purchases at Daikokuya outlets. The employees and outside companies contacted each other so the workers knew when the buyers would arrive and which items they would purchase.

Tax authorities tacked on higher penalties because of the egregious nature of that practice.

Daikokuya officials said the employees in question had quit the company before the tax audit began. They added that they took the matter seriously and submitted revised tax statements and paid the taxes.

The parent company, Daikokuya Holdings Co., is listed on the Tokyo Stock Exchange’s Standard Market. Daikokuya operates 25 outlets in major urban areas. In the fiscal year ending March 2023, the company had total sales of about 12.4 billion yen.

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