The Curious Case of Missing Yen
January 25th, 2009 by ken
We created FileMagnet together with our good friends at Magnetism Studios. When the App Store checks started to arrive, the confusing task of dividing up the proceeds went to Dave Keay. Sure, we could have just split the profits evenly and called it a day, but Dave endeavored to understand the ultra-confusing sales report.
If you haven’t seen an App Store sales report, then let me explain why it’s so confusing. Sales reports are divided up by currency zone. This is necessary for several reasons. Firstly, App Store products are priced differently in different currencies. For example, if you choose to price your app at $4.99 in the US, then it’s going to be priced €3.99 in the Eurozone. This isn’t an exact conversion based on exchange rate, but instead it’s rounded to the nearest “pretty price”. The second confusing thing is that while the foreign currencies amounts are reported, the actual payment to Magnetism is made in dollars, converted using whatever exchange rate the bank in question decided to use at the time the payment was made.
Dave built an elaborate Excel spreadsheet to run all of the numbers himself. When the dust settled, what he found was curious. Everything added up nicely except for the Yen column. After a few months of sales reports, he noticed that we were consistently missing 20% of our money from Japan!
It’s absolutely certain that if Dave hadn’t done all the legwork to manually verify the sales numbers, this 20% would have gone completely unnoticed. When you combine pricing differences and changing exchange rates, who’s going to miss a percentage of a percentage of a percentage?
I can haz more Yen?
Dave wrote to Apple to find out what the deal. This is what they told us:
“There is a 20% withholding tax in Japan until the Japanese tax authorities have accepted your tax exemption forms. This can take 90 days or longer. … They were required at the contract setup time in iTunes Connect. If you haven’t completed these and sent them in, you must or you should not have been paid.”
Japanese tax exemption forms? This is the first we’ve heard of those. I think Dave would have remembered filling out 12 pages of tax forms in Japanese! Clearly they weren’t required at the time we set up our account. We eventually found some fine print at the bottom of the tax forms webpage explaining the need for the forms.
“For developers residing outside of Japan who wish to sell applications in Japan, for Japanese tax treaty information, click here”.
Nothing is certain with Yen and Taxes
Our forms have long since been submitted. It says it takes about 90 days, so I’m not sure that we’re going to get the full amount yet. We should get the December payment in a few days, so we will see if we still get only 80% or the full 100%. I’m curious to see when we get the extra 20% amounts from the previous months.
Onaji Kama no Meshi o Kutta
We thought we’d blog about this because I’m sure there are other devs out there in the same situation. If you don’t remember filling out 12 pages of Japanese tax forms, you might want to go do so immediately.
Happy Tax Season from all of us at Ecamm and Magnetism!
January 26th, 2009 at 12:29 pm
Out of curiosity, did you find someone who spoke Japanese (perhaps a tax pro who specializes in this) to fill out the forms, or did you muddle through them yourselves?
January 26th, 2009 at 1:32 pm
RE: David – The forms have English along with the Japanese, so while they’re unmistakably Japanese tax forms, they’re not too bad to fill out. Apple also provides pretty clear instructions for the whole thing.
There is a more complicated form which has to get sent to the IRS to complete the process, but we were able to get through both of them without too much trouble. This form comes in the same PDF as the Japanese form- you get them both at the same time.
January 26th, 2009 at 1:33 pm
We had exactly the same problem. Just posted the forms today, in fact. It would have been nice if Apple had mentioned this in more than just small print. I doubt you’ll be seeing the 20% withholding from past months back, but the tax treaty should let you offset any amount you’re taxed in Japan against US tax.
January 26th, 2009 at 2:27 pm
Hey guys, we just read this post this morning and are filling out our forms now, thanks for the heads up!
January 26th, 2009 at 3:38 pm
I’ve had the same issue with figuring out how to split earnings. Its a total nightmare.
Do you guys feel like sharing that spreadsheet with the rest of the iphone developer community? I think it would help a lot of us out.
Thanks for the hot tip on the tax form!
January 26th, 2009 at 5:08 pm
Thanks for the article… it made me want to find out what Filemagnet is.
So, I clicked the “learn more” link in the sidebar, and it bloody LAUNCHED iTUNES. GRRRRR.
I do not want your links launching iTunes without warning. I was expecting it to go to an actual web page about the product. Either place a warning on your link, or just put up a regular web page. I’m not interested in finding out about products via iTunes – I’ll go there myself when I’m ready to purchase.
I was interested in buying your product, but will not because of these shenanigans.
January 26th, 2009 at 6:24 pm
Herbert, if your web browser is launching external programs that you don’t want it to, that sounds like a problem with (a) your configuration and/or (b) your choice of web browser. You can’t expect every web designer on Earth to read your mind and cater to you personally. I’m afraid you’re just not that special or important. Better luck next life.
January 26th, 2009 at 6:32 pm
“Shenanigans?” What is so objectionable about them linking to their product in the app store — which is only accessible through iTunes?
January 26th, 2009 at 7:28 pm
So what happens if you are not based in the US? Are there other tax forms for Revenu Canada?
Those Japanese, always making things complicated.
January 26th, 2009 at 7:32 pm
It is the same for non-US residents. I actually live in Japan and I had to fill out a US tax treaty something form and send it to the US (I even had to call to the US before and ask for some tax identity number for non-residents). Otherwise the US is withholding 30%(!!).
Tax laws and regulations suck!
January 26th, 2009 at 8:18 pm
Herbert, why didn’t you just click the link at the top of the blog post to find out about Filemagnet? Do you just like clicking on pictures?
Also, why don’t you start using your browser’s status bar (which usually provides the URL for the link while you’re hovering over it)?
Filemagnet is an awesome product, and it’s a shame you won’t be able to try it.
January 26th, 2009 at 8:41 pm
Herbert? Didja see the very first link in the article there? The one that leads to filemagnetapp.com?
Putting an iPhone app link that leads to iTunes is hardly “shenanigans”, particularly when you’ve already been presented with a perfectly serviceable (and obvious) link to the “regular web page” you require.
January 27th, 2009 at 12:12 am
Wow, Herbert, wash the sand out. That’s hardly a ’shenanigan’.
January 27th, 2009 at 6:45 am
I worked for a Japanese company and handled contracts with U.S. software companies, and these treaty provisions are similar to those of other countries. I’m puzzled why you only had withholding from Japan. By the way, the terms are mutual, and affect Japanese developers selling to the U.S.
Even when you file the papers, they will withhold 10 percent, which is the most favored nation treaty amount. If you want that back, you’ll need to file a tax return in Japan.
January 27th, 2009 at 2:49 pm
Mark, unless Apple is mistaken, you’re wrong about the 10% withholding unless one files a Japanese tax return. According to the instructions from Apple, the treaty between the U.S. and Japan reduces the withholding rate to 0% for iTunes payments.
I tried to fill out these forms months ago and got stuck on two fronts. First, the IRS lived up to typical government bureaucracy and rejected my application for proof of residency, requesting much of the same information I sent with my original application. Not until after cashing my $30 check for the processing fee, of course.
Second, my company is a two person LLC electing pass-through taxation and Apple’s instructions defer to the Japanese forms for what constitutes acceptable documentation. The Japanese forms are very vague themselves, and Apple never answered me when I sent them email asking for clarification.
My products don’t sell much in Japan, though, so it might be years before I have to worry about that 20%.
January 27th, 2009 at 2:57 pm
To Herbert’s credit, the link that takes you to the itunes store is an affiliate link, so you *can’t* tell from the link that it goes there; it’s just an http link.
(I just had the same surprise. I don’t care as much, though.)
January 27th, 2009 at 4:58 pm
I built the same elaborate set of excel sheets and saw the exact same issue with the Yen and the Euro. Asked Apple and got a different answer about Japan, with no indication I needed to fill out any forms:
——-
Hello
Europe financial reports customer price includes VAT, whereas the USA reports and others do not. This is consistent with how the customer is used to seeing pricing on items. In the USA, the sales tax is added at the time of checkout, and not included in the individual item.
This VAT is then deducted, and paid to local tax authorities, before the 70% calculation.
Next, there is a 20% withholding tax deducted on Japan payments until your tax exemption form is accepted by the Japanese tax authorities.
Lastly, there are intermediary/correspondent bank fees deducted en route on all international cross border wire transfers.
If you have any further questions, please don’t hesitate to contact us.
Kind regards,
Apple Finance
January 29th, 2009 at 1:08 pm
You’re right: The 2003 treaty revision eliminated the 10 percent withholding at source for royalty income:
http://www.orrick.com/JP/news/newsletters/Feb_2004.htm
April 22nd, 2009 at 10:47 am
My question has still not been answered from Apple: maybe you can help me figure it out:
In iTunes Connect it says “World” and then “Free Apps” has been accepted. It also says “US” and “Paid Apps” accepted. But there doesn’t seem to be a place for “World” and “Paid Apps.” I want to sell my paid app around the world, and specifically in the Japan, Australia and Canada iTunes stores. Am I allowed to do this without filing out the tax forms at the bottom of iTunes Connect? (Let’s just say at this time I don’t care about the extra 20% withholding) Is it automatic that we can sell paid apps overseas if we are a US developer? The whole “free apps” listing under “world” is what is so confusing to me.
Thanks for your help,
Jessica
May 1st, 2009 at 9:10 am
Great catch Ken – may be useful to any UK readers reading this post – UK devs need to send their proof of residence certificate to their local HMRC office to claim exemption from Japanese taxes…
November 8th, 2009 at 10:26 pm
Has anyone tried to file the Japanese tax form 11 and sent it to Apple in order to the get their withheld money back from the Japan Tax Authority?
November 17th, 2009 at 12:42 pm
Did you guys know those money withheld for Japanese tax reason will never come back to you? I contacted Apple today regarding this issue. I got email back stated,
“Therefore, any taxes withheld prior to the date that your submitted tax forms were approved by the Japan Tax Authority are not eligible for refund.”.
Do you guys had similar experience?
I had quite money withheld in Japan…
November 18th, 2009 at 6:43 pm
I’m an accountant at a firm who will be selling apps on the app store.
Just a tip for you, although you might have ‘lost’ the 20% withholding tax when it was deducted from Apple’s payment, you should be able to get it back again by claiming a tax credit when you file your end year tax return. I.e. you should pay less to your local tax department because you have already paid the tax in Japan.
Sure, it sounds a bit strange, but be sure to tell your accountant or tax advisor that you’ve have tax withheld in Japan and you want to claim a credit in your end of year return.
January 28th, 2010 at 3:24 am
cool pics