Clifford Chance

The Japanese government has requested several big tech companies doing business in Japan register their global headquarters in the Japanese corporate registry system to comply with the Companies Act.

Summary

The Japanese government has requested several foreign tech companies including US-based Google, Meta (formerly Facebook) and Microsoft register their global headquarters in Japan, based on the obligation under the Companies Act in Japan that foreign companies doing business in Japan register themselves with the legal affairs bureau. One of the reasons behind the request is for consumer's convenience for filing lawsuits domestically.  The request came with the warning that the government would impose a fine for non-compliance. While it was reported that Google, Microsoft, Meta and Twitter agreed to apply for the registration, the Japanese government announced on 1 July 2022 that it has filed a lawsuit at the Tokyo District Court to impose the fine on 7 companies which refused to register or ignored the government's request.

Background - Registration Requirement

The Companies Act stipulates that if a foreign company intends to carry out business in Japan, such foreign company must have a representative in Japan and register itself with the legal affairs bureau within 3 weeks of appointing such representative. Doing business in Japan without such registration constitutes violation of the Companies Act.  However, it came to the government's attention that not every registerable foreign company had made appropriate registration.

Issues arising from non-registration

The Japanese government has been investigating the absence of registration of foreign companies because such situation is not desirable from a perspective of consumer protection.  If, for instance, a victim of defamatory remarks on social networking sites seeks a court order to be served on the platform operator in order to identify the person who made the defamatory remarks, it can be difficult to identify the relevant platform operator to which such court order should be served, or it takes a longer time to serve such court order.

Government actions

Against such background, when the House of Representatives deliberated on the bill concerning the protection of interests of consumers using trading digital platforms in April 2021, the House of Representatives adopted an ancillary resolution setting forth that relevant ministries and agencies shall collaborate to raise awareness of the obligation to register a representative in conjunction with the foreign company registration as required by the Companies Act and shall encourage foreign companies to perform such obligation for the purpose of facilitating the resolution of consumer damages caused by foreign companies.  

However, many foreign companies remain unregistered, and as a result, the Minister of Justice served a letter on 48 foreign companies, including US-based Google, Meta (formerly Facebook) and Microsoft.  In June 2022, Ministry of Justice issued warnings to 42 companies which had failed to register, and they also notified them that penalties would be imposed on those if such violation would not be remedied by 13 June 2022.  Following such warning, many companies applied for the registration or indicated their intention to apply for the registration. According to media reports, 7 companies refused to register or ignored the government's request.  The government then filed a lawsuit at the Tokyo District Court to impose a fine on such 7 companies.

Fine for non-registration

A foreign company's representative or manager in Japan could be subject to a non-criminal fine of up to JPY1 million for failure to register the registrable matters.  

Also, a foreign company which continuously does business in Japan without registration, in violation of the Companies Act, could be subject to a non-criminal fine in the range of JPY 60,000 to 90,000.

The relatively low amount of such penalty is considered to be a reason for non-registration by foreign companies thus far. 

Permanent Establishment and Taxation in Japan

By registering the foreign headquarters in Japan, a foreign company might be considered to have a permanent establishment in Japan, which would result in the corporate taxation in Japan.  This may have been another reason that some foreign companies are not willing to register themselves in Japan.  Tax analysis is needed when a foreign company is to register in Japan.

Looking Ahead

As discussed in our Talking Tech article ( "Japan's digital platform regulations" ), regulations around digital platforms is fast developing area, and the regulators are trying to use all sorts of techniques to ensure adequate consumer protection. 

The next steps might include the announcement of those which failed to register and/or make a request to an even wider group of tech companies.  Meanwhile, theoretically this issue applies not only to tech companies but also those in other industries, and thus all foreign companies active in Japan. Therefore, all multinational companies should look out for the further development of this enforcement activity.