NEC evaded taxes through Hong Kong firm

Japanese electronics maker allegedly hid more than US$124.19 million of taxes for three years by overcompensating a Hong Kong company for exiting overseas mobile phone business, report notes.

Japan's National Tax Agency has found that NEC Corporation concealed more than 10 billion yen (US$124.19 million) in income over three years to March 2010 via extra "compensation" paid to a Hong Kong company, when it pulled out of mobile phone business overseas.

The Asahi Shimbun reported on Monday that the payments, had been found through a routine audit by the Tokyo Regional Taxation Bureau. The authorities claimed that NEC had intentionally hid this payment and concealed the income used to make the payment, accroding to the article.

However, the Japanese electronics maker did not appear to have been given a penalty or extra tax charges since the taxes were offset by the company's huge deficits, explained the unnamed sources to the news daily,

The news daily noted that NEC had bought a stake in a Hong Kong communications carrier, which operated mobile phone services in Britain and Italy in 2002, as part of its plan to move into European mobile phone markets.

Asahi noted that the Japanese electronics maker withdrew from the markets in 2008, and the Hong Kong company asked for compensation. It added that at that time, NEC paid more than 10 billion yen to the Hong Kong company--in addition to compensation stipulated in their contract--which was recorded as a loss associated with costs.

However, the tax authorities took issue, saying the reasons for the payment were not clear and concluded the payment amounted to entertainment expenses, which were taxable, said the report.

Regarding the alleged large sum, NEC told the Japanese news agency that it had a "different view" from that of the tax authorities. However, it "ultimately conformed to the judgement of tax authorities", NEC said.