Tokyo tax authorities have accused NEC Corp. of hiding more than 10 billion yen ($125 million) in income over a three-year period to March 2010, but did not punish the struggling electronics giant.
When asked to explain, NEC said it incurred huge losses with a Hong Kong communications company when it pulled out of the mobile phone business overseas, sources said June 24.
The Tokyo Regional Taxation Bureau concluded that NEC not only intentionally covered up the payment but concealed the income used to make the payment.
However, additional taxes were not imposed as the income was offset by the company’s huge deficits, the sources said.
In 2002, NEC invested heavily in the Hong Kong communications company, which was doing business in the European mobile phone market, in hopes of tapping into that success.
But NEC faced an uphill battle and withdrew from the European market in 2008.
At that time, NEC paid more than 10 billion yen to the Hong Kong company, in addition to compensation stipulated in their contract. NEC recorded the payment as a loss associated with costs.
However, the tax authorities took issue, saying the reasons for the payment were not clear. They concluded the payment amounted to entertainment expenses, which are taxable.
“There was a difference of interpretation between the tax authorities and us,” NEC said in a statement. “But we abided by the conclusion of the authorities.”