Toyota Motor Corp. has been ordered to pay about 2 billion yen in back taxes and penalties after it was found to have failed to declare taxable income, sources said.
The Nagoya Regional Taxation Bureau found that the nation's leading carmaker did not report 6 billion yen during three fiscal years through March 2004.
The tax authority did not make any official announcement about the issue.
However, sources said Toyota sold vehicle parts and components at below-market rates to two overseas subsidiaries, reducing Toyota's taxable incomes by about 2 billion yen.
The money was used to finance sales promotion costs at the subsidiaries and help improve earnings results, the sources said.
The tax authority concluded that the discount exports were effectively financial subsidies extended to the subsidiaries, the sources said.
The remaining 4 billion yen included about 500 million yen in padded expenditure for vehicle-related advertisements and an unknown amount of tax-deductible costs booked improperly.
Toyota exported parts of its Camry mid-size sedans to an Australian subsidiary, selling the parts at well below the market price.
The Australian subsidiary booked the savings as part of its income for the Camry model, which totaled about 5 billion yen in four fiscal years through March 2004.
The subsidiary allocated part of the reserved money to offer incentives to a sales agent in the Middle East, which purchased assembled Camry sedans from the subsidiary.
Such incentives for vehicles assembled and sold by the Australian subsidiary should be paid by the subsidiary.
According to sources, the tax authority determined that the parent company exported the parts at lower prices to cover the payment of incentives.
If Toyota had paid the sales incentives directly to the Middle Eastern sales agent, the carmaker would not have been able to deduct the payment from its taxable income.
The company found a loophole by selling the parts at a discount, according the sources.
Toyota pulled off a similar arrangement with a Brazilian subsidiary, according to sources.
It exported parts for its Corolla compact model at a considerable discount, again shrinking the parent company's taxable income, the sources said.
The tax authority has unearthed an internal document, which called for financial support for the Brazilian subsidiary, whose performance was in the doldrums.
The arrangements with the Australian and Brazilian subsidiaries added up to around 2 billion yen in undeclared income in the three fiscal years to March 2004, the tax authority concluded.
Takeshi Suzuki, Toyota's senior managing director in charge of financial affairs, admitted that the tax authority had contacted the carmaker about the irregularities.
“I thought that we properly dealt with the issue, but I don't remember well about details,” Suzuki told The Asahi Shimbun.
Toyota posted consolidated net profit of 1.372 trillion yen on group sales of 21.037 trillion yen in fiscal 2005. Both figures were record highs for the company.
It is almost certain that Toyota will surpass the global leader General Motors Corp. in 2007 in unit production and sales on a consolidated basis.(IHT/Asahi: January 2,2007)
