Restaurant chain Tokyo City shuts down due to 'unwarranted tax debt'

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As of Monday, September 6, all Tokyo City chain restaurants have closed due to an 'unexpected attack by the State Revenue Service (VID)', Tokyo City's chief executive Gaļina Gaile said September 7.

According to Gaile, the VID, failing to recover tax debts from three companies - Resto Court, Stollons and Restograd, which were liquidated in 2019 and which were previously under the franchise in Latvia, decided to recover the company's debt of EUR 10.5 million from Tokyo City. 

Gaile said that Tokyo City had been operating on the Latvian market since the end of 2017 and had never received any warnings or official requests from the VID before, indicating the existence of such debt. On 9 August this year, Tokyo City received a decision from the VID on the collection of tax debts, which they had previously failed to recover from the three franchise companies mentioned. According to the VID, the successor to these companies must be Tokyo City. Within a few days of the decision, the company's main current accounts were blocked, effectively halting Tokyo City's economic activities.

Negotiations with representatives of the VID on the solution have lasted three weeks. The VID has proposed two options - the legal protection process (TAP) or the schedule for voluntary payment. During the negotiations, an additional penalty interest of €5,000 is calculated daily, Gaile said. She added that if such a situation continues until “fair trial”, the company would have no chance of retaining the company and jobs for its employees.

Gaile also noted that over the course of its existence, Tokyo City has paid more than EUR 6 million in taxes to the national budget, including more than EUR 120,000 per month in labor taxes.

Like many of the industry, the company experienced a particularly difficult period due to restrictions on Covid-19, so Tokyo City also took advantage of the possibility of receiving state aid and tax incentives. No rebukes or denials were received from the public authorities, which would make it possible to think that the company had acted improperly, Gaile said. Total State aid amounted to almost one million euros.

The VID told LSM that the case in question cannot be commented on, but stressed that such decisions, taken as a result of an in-depth investigation and affecting business activities, were not made unexpectedly.

"The State Revenue Service shall inform the company in good time of the findings and the continued conduct of the service. Active communication with the company is essential for both stakeholders – it allows the VID to take a balanced and reasoned decision, while the company has the opportunity to explain the situation and to provide its justification if any," VID said.

According to the VID, transition of a company in different formats into the hands of new owners, leaving the old company as “empty shells”, from which the state, company employees, and other creditors can no longer recover funds, is a practice that has also been used for tax infringements.

According to “” information, Tokyo City was registered in October 2017 with a share capital of EUR 2800. The company is owned by Russian citizen Alexey Sluzov. In 2020, the company worked on a turnover of €7.059 million and a profit of €473 580. There are four Tokyo City restaurants in total.

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