The Tokyo Regional Taxation Bureau has accused Tokio Marine & Fire Insurance Co. of hiding about 4.3 billion yen in income through dealings in earthquake reinsurance transactions, sources said Wednesday.

The nation’s largest nonlife insurer has appealed the case to the National Tax Tribunal, contending the money formed expenses exempt from taxation.

The Tokyo tax bureau, which audited Tokio Marine’s accounts, concluded the company failed to declare some other income due to accounting errors, raising the total that should have been declared to 9 billion yen from 1997 to 2002, the sources said.

The insurer, a unit of Millea Holdings Inc., faces an estimated 4.2 billion yen in back and penalty taxes, the sources said.

The tax bureau’s audit centered on the reinsurance dealings Tokio Marine had in the five-year period with a wholly owned overseas subsidiary, which then made another reinsurance arrangement with a European insurance house, the sources said.

Under this contract, the bulk of insurance premiums is designed to be repaid to the subsidiary with interest added if the insurer does not have to offer coverage for earthquake-related damages.

The tax authorities concluded that they are taxable funds as they are repayable when there is no coverage obligation, the sources said.

The authorities also believe Tokio Marine was dealing with the European insurer and using the subsidiary as a cover to conceal those funds as income.

A Tokio Marine spokesman said: “Not all the premiums will be repaid, and they form expenses. The authorities’ views are based on misunderstandings.”

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