August 16, 2022

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The Japanese government is preparing to levy fines against overseas tech giants that have failed...

The Japanese government is preparing to levy fines against overseas tech giants that have failed to register their main global headquarters in Japan, Nikkei reported, citing unnamed sources.

The move comes as countries around the world push forward with efforts to regulate multinational tech companies.

In April reports said that some 48 overseas tech giants, including Google and Facebook parent Meta Platforms, were asked to complete the registration as required under Japan’s Companies Law, but the report suggested some of them still have not complied.

Japanese law requires firms to register not only their Japanese subsidiaries, but also their overseas headquarters in the country, according to the government.

Japan © Maxx-Studio Maxx-Studio Shutterstock 2012Local registration

In the past many overseas companies refrained from completing the obligation unless they had a physical presence in Japan.

But with the growth of the internet it has become easier to offer services to Japanese users without a physical presence, creating tax loopholes and making it more difficult for local consumers to obtain legal redress.

The situation became more acute in the early phases of the Covid-19 pandemic, when lockdowns massively boosted e-commerce companies’ businesses while devastating physical stores.

The Justice Ministry and the Internal Affairs and Communications Ministry jointly issued the April request for foreign companies to register in Japan and said at the time they would press for reasons if firms didn’t comply.

Legal accountability

Following registration companies are obliged to release a public notice of their settlement of accounts, amongst other requirements.

But the penalty for non-compliance is only about 1 million yen (£6,049), and some government officials reportedly believe certain firms have intentionally refrained from registering.

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“Although registration as a foreign company under the Companies Act itself is fairly straightforward, registered companies are subject to certain continuous obligations under the Companies Act, such as publication of financial statements and updating their registration,” said law firm Baker McKenzie in a research note about the regulatory tightening.

The firm said the tightening of regulations on registration could have Japanese tax implications and impact on legal proceedings in the country.

‘Transparency and fairness’

In May Japan’s parliament also enacted a law requiring more business transparency and fairness from tech companies such as Google, Amazon, Apple and Facebook parent Meta, but also Japanese giants such as Rakuten or Yahoo Japan.

The law takes aim at concerns that large platforms are taking advantage of smaller businesses who rely on them to sell products, for instance changing terms and conditions without warning.

Regulators elsewhere in the world are moving to tighten regulations on tech giants, with multiple laws on the matter making their way through the US legislative system and the EU finalising the Digital Markets Act and Digital Services Act.