NAGOYA – Tax authorities have filed a criminal complaint against a former executive of Microsoft Co., a wholly owned Japanese subsidiary of Microsoft Corp. of the United States, on suspicion of evading income taxes by exercising stock options from the U.S. firm, informed sources said Monday.
The Nagoya Regional Taxation Bureau filed the complaint against Shoji Hasegawa, 52, for evading some 275 million yen in income taxes by failing to declare 720 million yen in taxable income arising from stock option-related profits in 1998 and 1999.
Although there have been many cases in which Japanese tax authorities have slapped punitive fines and back taxes on those who failed to declare income from exercising stock options, the move is the first filing of a criminal complaint in connection with such an incident.
Stock options are the right to buy or sell a stock at a specified price within a stated period. They have become a popular form of employee incentive and compensation.
Hasegawa, a former managing director at Microsoft Co., sold his shares in the parent firm in 1998 and 1999 and secured some 920 million yen in income, the sources said.
However, much of the profit was hidden in overseas financial accounts, and he failed to declare some 720 million yen in income, the sources said.
Although Hasegawa corrected his tax statements, authorities launched a probe into the case in November and determined that his actions constituted tax evasion, according to the sources.
The action by tax officials was seen by many observers as an effort to better scrutinize the stock option system, which has been criticized as being a potential hotbed for tax evasion.
Of the top 100 taxpayers in Japan in 2000, the fortunes of 10 stemmed from income made through exercising stock options, according to tax officials.
In cases where the stocks involved are issued by non-Japanese firms and traded in overseas markets, it has been difficult for tax authorities to track down the flow of funds.
A former Microsoft Co. employee said that the parent firm in the U.S. was the only party with full knowledge of the amount of stock options individual employees were receiving.
Last year, the Tokyo Regional Taxation Bureau found that roughly 150 Microsoft Co. employees failed to declare a total 7 billion yen in income from stock options.
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