The Tokyo Regional Taxation Office has ruled Olympus Corp. did not declare about 1.6 billion yen (S$25.3 billion) in income over five business years until March 2011 in relation to the firm's huge loss-covering case, The Yomiuri Shimbun has learned.
The national tax authorities did not recognize the company's claims of some expenses related to the purchase of a British company as legitimate, informed sources said.
The Tokyo-based optical and medical equipment manufacturer allegedly purchased medical device manufacturer Gyrus Group PLC to cover up its massive losses.
A back tax of about 4 billion yen, including an additional tax for deficient declaration, will be imposed on the company.
Olympus is unlikely to submit a revised tax report and instead will pay the back tax, the sources explained.
The taxation office said Olympus' failure in the declaration of income involved an accounting process on expenses described as rewards to financial advisory companies in relation to the firm's purchase of Gyrus in February 2008, according to Olympus and sources close to the matter.
Olympus purchased Gyrus for 206.3 billion yen in February 2008.
Concerning the acquisition, Olympus paid the advisory firms' fees in cash and stock options in an attempt to raise money to cover the losses.
A stock option is the right to engage in a transaction of stocks at a particular price by a certain date.
The stock options were later exchanged for preferred shares in Gyrus, whose holders are given priority in the distribution of dividends.
Olympus bought the preferred stocks back from the advisory firms for 57.9 billion yen in March 2010, although the price was allegedly padded.
As Gyrus reduced its capital later, Olympus reported an appraisal loss of about 14 billion yen out of the 57.9 billion yen.
But the tax office did not recognize the expenses as legitimate, since it believes the price of the preferred stocks was padded, and that the expenses were used to cover losses.
As Olympus' legitimate expenses were reduced, its taxable corporate income increased, resulting in the back tax.
Olympus shifted losses generated from investment failure since the 1980s to funds set up in the British Cayman Islands. Olympus sold financial goods with latent losses to the funds at book value to inflate the company's assets, a scheme known as "tobashi."
Olympus later partially injected the money squeezed from the acquisitions of Gyrus and three domestic companies into the funds to cover up the losses.
"We want to accept the tax authorities' decision," an official of Olympus said. "We won't file an objection to the decision."