Photo/Illutration The Tokyo Regional Taxation Bureau in the capital’s Chuo Ward (Asahi Shimbun file photo)

Tokyo tax authorities have ordered online financial giant SBI Holdings Inc. to pay an estimated 200 million yen ($1.3 million) in taxes on the unreported income of a subsidiary, sources said.

SBI BITS Co., which develops and manages tech systems for the SBI Group, failed to report 3.4 billion yen in income over three years ending in March 2022, according to the sources.

SBI Holdings told The Asahi Shimbun that the order stemmed from a difference in understanding between the company and tax authorities.

The company said it has already filed an amended tax return and paid the amount, including a penalty for the initial incorrect tax declaration, to the Tokyo Regional Taxation Bureau.

According to the sources, SBI BITS had contracts for the development and operation of systems with a Chinese company in which it had invested.

The tax bureau’s investigation revealed that SBI BITS paid the Chinese firm more than three times the amount in typical labor costs, without justification, the sources said.

Tax authorities scrutinize excessive payments to overseas partners because the sums can be used to improperly lower profits earned in Japan, leading to reduced income tax payments.

In this case, the tax bureau recalculated the profits as if the transactions had occurred at standard prices between independent businesses with no capital ties.

It was also revealed that SBI BITS officials knew they risked being flagged by tax authorities for making triple-scale payments to the Chinese company, the sources said.

SBI Holdings, rather than SBI BITS, was subject to the tax payment order because it oversaw the tax management of its subsidiaries under the consolidated tax system.

According to Tokyo Shoko Research Ltd., SBI BITS was established in 2015 and currently has about 300 employees. It had estimated sales of 9 billion yen for fiscal 2023.

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