Irish unit in Japanese tax probe

THE JAPANESE tax authorities are pursuing a US investment firm claiming that it owes 14 billion yen (€89 million) in taxes on profits transferred through the Republic to a fund in Bermuda.

Lone Star, a buyout firm based in Dallas, Texas, is denying a claim by Japan's national tax agency (NTA) that it avoided taxes on profits made collecting on non-performing loans at Japanese lender, Tokyo Star.

Lone Star has since sold Tokyo Star to Advantage Partners, Japan's biggest private equity firm, for 248 billion yen (€1.5 billion).

A spokesman for Lone Star said in a statement: "We believe strongly, on the advice of our expert tax advisors, that the reporting of all of Lone Star Funds' investments in Japan is in full compliance with Japanese tax law, including its relevant double-taxation treaties.

"In this case, we understand that the company that the NTA claims has a Japanese tax liability in fact has no connection whatsoever with Japan; it has never made any investments or otherwise conducted business in Japan. Thus we believe the NTA's position is incorrect."

Lone Star has two subsidiaries in Dublin: Lone Star International Finance Holdings (Ireland), which, in turn, owns another Dublin firm, Lone Star International Finance, according to records at the Companies Registration Office. Five Bermuda-based entities are listed as shareholders of Lone Star International Finance Holdings (Ireland), three of which have their shares in a number of currencies.

Lone Star International Finance made a profit of $9.3 million (€5.9 million) in 2006 and recorded a further $30.2 million on its profit and loss account as "appropriation of capital".

The Dublin company, which had a tax bill of $4.2 million in 2006, paid dividends of $30 million. In its accounts, it lists a related Japanese company, Atago Finance, of which it owns 36.8 per cent. The nature of the Japanese firm's business is described as "Japanese loan book".

The NTA declined to comment. - (Additional reporting, Reuters)