Photo/IllutrationAmazon Japan KK’s warehouse facility that stores a vast array of goods for quick delivery in Kawasaki, Kanagawa Prefecture (Asahi Shimbun file photo)

Several times a month, a 34-year-old working mother in Tokyo shops on the Japanese arm of Amazon.com Inc., mostly for diapers for her child and large bottled beverages.

Amazon offers convenience as it spares her and other mothers from having to carry bulky items home from the store.

“It is difficult to find a mother around me who manages their daily lives without turning to Amazon,” the company employee said.

However, the downside is that thriving businesses of Amazon.com and other IT companies operating globally pose a major headache for Japanese tax authorities and their counterparts in developed countries.

They say the current taxation system makes it almost impossible for them to collect taxes from these companies thoroughly as they exploit differences in taxation between countries and implement elaborate tax-saving schemes.

Shigeki Morinobu, specially appointed professor of tax law at Chuo University Law School, said the existing tax rules established in bygone days are outdated in today’s digital society.

“It is a serious problem for Japan not to be able to impose corporate taxes on online companies at a time when funds for paying into social security programs and public annuities are drying up,” he said. “It is time to have a sweeping review of the taxation system.”

Japan is seeking to raise the difficulty of taxing online retailers as a key agenda item when the country hosts a Group of 20 summit in Osaka next year.

In 2017, Amazon Japan KK's sales totaled $11.9 billion (about 1.34 trillion yen), 1.5 times higher than the figure five years earlier, exceeding that of Takashimaya Co., operator of department stores.

The financial results of Amazon.com showed that the Japanese arm’s overall sales in 2014 stood at $7.9 billion. The same year, Amazon Japan paid about 1.1 billion yen in corporate taxes.

It was the latest year in which the Japanese arm’s corporate taxes were listed in the U.S. company’s financial results.

Making a side-by-side comparison with other retailers’ tax figures is difficult, but Amazon Japan’s corporate taxes total less than one-10th of a Japanese retailing company that logs a similar sales figure.

Amazon.com provides a same-day or next-day delivery service for customers by stocking a vast array of goods, ranging from daily merchandise and food to books and magazines, at huge warehouses.

The U.S.-based Amazon.com considers such a sales system as intellectual property and has Amazon Japan pay a large sum to the parent company for “using” the system, according to Japanese taxation officials. That allows the Japanese company to significantly reduce its taxable earnings as a result.

“Most of Amazon Japan’s profits will be offset by the payment of the usage charge,” a tax official said.

Under the Japan-U.S. Tax Treaty, the Japanese tax agency cannot levy taxes on the payment of using intellectual property made to a U.S. company.

It effectively leaves Japanese tax officials with no recourse for collecting corporate taxes from a company raking in large sums of money.

Amazon.com does pay corporate taxes overseas.

The company has not revealed where it pays corporate taxes, but experts believe it is most likely in countries and regions known for their low taxation rates.

For Japanese tax authorities, the spread of online businesses is adding difficulty to their jobs.

Japanese shoppers contract with the U.S.-based Amazon.com when they purchase e-books, according to Amazon.com’s policy.

Under the setup, Amazon Japan does not have to pay corporate taxes on the sale of e-books because the tax payment will be only required when Japanese branches or centers for transmission are involved in the e-book business.

Airbnb Inc., a U.S. online lodging rental service for travelers, takes a similar approach to Amazon.

Japanese users of Airbnb have to set up contracts with its affiliate in Ireland, where the corporate tax rate is low.

The money they paid as fees is not subject to corporate taxes in Japan.