A now-defunct Japanese unit of a GE Capital Corp. affiliate has been probed by the Tokyo Regional Taxation Bureau for allegedly underreporting income by around 3.7 billion yen in the two years through December 2003, sources said Tuesday.
The sources said that GE Capital International Funding borrowed funds from overseas investors with a repayment guarantee provided by GE Capital and sent the money to the Japanese unit, which was set up in April 1999 and shut down last July.
The unit loaned the funds to a firm that offers consumer finance under the Honobono Lake brand, acquired by the GE group in 1998, by charging an interest rate higher than prevailing rates then offered by Japanese financial companies to a consumer loan firm with a similar credit standing, the sources said.
The branch, based in Minato Ward, Tokyo, passed much of the proceeds from the higher interest rates to GE Capital, a major U.S. finance company, in the name of guarantee fees, and even padded such fees, they said.
The tax authorities apparently determined that the fees passed on to GE Capital should have been reported as part of the Japanese branch's income in Japan, they said.
The tax bureau is believed to have collected around 800 million yen in back taxes and penalties for underreporting income.
A GE group spokesman in Japan declined comment on the case but said GE and its group firms have been reporting income in line with tax rules.