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failed to declare about 4.4 billion yen in income in the four years to 1998 in Japan and has been ordered to pay 1.9 billion yen in unpaid taxes and punitive surcharges, industry sources said Friday.

The Tokyo Regional Taxation Bureau determined that GNBV, a subsidy of U.S.-based Guidant Corp., the world’s leading maker of cardiovascular devices, had hid the income it gained through its Japanese affiliate by receiving it through an anonymous association contract, according to the sources.

Objecting to the decision, GNBV has filed a suit against tax authorities with the Tokyo District Court, demanding nullification of the taxes and penalties.

According to the sources, GNBV drew up the anonymous contract with the Japanese affiliate to share profits earned by the branch as dividends in accordance with the amount of its investment.

GNBV annually received about 1 billion yen, or 90 percent of the affiliate’s profit, as dividends through the contract but failed to declare the money as income.

According to the tax convention between Japan and the Netherlands, Japanese tax authorities cannot tax the Dutch firm because the convention has no provisions regarding taxation rights for contracts for anonymous associations.

But after the authorities examined the case, they determined that the income had been earned in Japan, was therefore taxable and that the contract had been used as a way to get around paying taxes.

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