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Nippon Yusen K.K., Japan’s biggest shipping company, failed to declare about 5.8 billion yen in taxable income in the five years through 1999, sources said Tuesday.

The Tokyo Regional Taxation Bureau has found that several subsidiaries of Nippon Yusen’s client companies located in tax-haven regions, including Panama, are effectively controlled by Nippon Yusen, and the income of those subsidiaries should therefore be considered as that of the Japanese parent company, the sources said.

The tax authorities ordered Nippon Yusen to pay an estimated 2.7 billion yen, including penalties, they said.

“We didn’t agree with the allegations, but have agreed to follow the orders of the tax authorities,” a spokesman for Nippon Yusen said.

Many Japanese shipping companies register their vessels through subsidiaries set up in tax havens to avoid the high costs levied on ships registered in Japan.

However, such companies are required to consolidate the income of their subsidiaries when they declare income tax.

The sources said Nippon Yusen has sold about 10 freighters to two client companies since the late 1990s.

The client firms then had subsidiaries in tax havens take over ownership of the vessels before leasing the ships back to Nippon Yusen, they said.

But the tax authorities came across a contract stipulating that the subsidiaries were not allowed to dispose of the freighters without Nippon Yusen’s permission, the sources said. The authorities then concluded that Nippon Yusen had only transferred the ownership of the ships.

Nippon Yusen, established in 1885, has more than 100 distribution centers in more than 20 countries. It operates some 580 ships, including those owned by subsidiaries.

For the business year to last March 31, the company posted about 740 billion yen in revenues on an unconsolidated basis.

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