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NEC escapes after 10 BILLION YEN tax conundrum

Tokyo taxman accuses firm of hiding income

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Ailing Japanese computing giant NEC has been accused by domestic tax authorities of avoiding tax to the tune of over 10 billion yen (£80.2m), although it managed to escape punishment due to its poor financial health.

The Tokyo Regional Taxation Bureau argued that NEC had orchestrated the cover-up over a three year period ending in March 2010, according to Asahi Shimbun.

NEC’s excuse was that the ¥10bn was paid to a Hong Kong-based telecoms firm by way of compensation after it was forced to pull its investment in the company in 2008, according to the paper’s sources.

The Japanese technology giant had wanted to get in on the comms firm’s success in the European mobile phone business but pulled out because of poor sales.

The tax man’s beef was apparently that the compensation payment exceeded that which NEC legally had to pay the firm according to the contract, making the whole affair seem rather fishy.

As a result, the bureau regarded the payment as a taxable entertainment expense rather than a business loss, however it did not oblige NEC to pay the fee due to its sizeable budget deficit, the report continued.

NEC has had a torrid time of late and at the beginning of the year forecast a net loss of ¥100bn (£820m) for 2011, after which it decided to slash its workforce by as many as 10,000.

The firm blamed “foreign vendors' increasing market share in Japan” for impacting its smartphone shipments domestically, and said that the widespread flooding in Thailand at the end of 2011 had hit its operations there hard.

The firm has now joined the rank of once-proud Japanese tech pioneers including Sony, Fujitsu and Panasonic which have recently fallen on hard times, a trend which BT recently said could benefit foreign IT partners looking to invest in the country.

NEC did not immediately reply to a request for comment. ®

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