Editorials

Slush funds and tax evasion

Special investigators of the Tokyo District Public Prosecutors Office have arrested the president of the Oita-based consulting firm Daiko and 11 others on allegations of tax evasion. It is suspected that a Daiko-affiliated interior-work company evaded ¥292 million in corporate taxes by not declaring ¥976 million in income for two business years ended May 31, 2006. It is further suspected that the Daiko group failed to declare a total of about ¥3 billion in income.

What distinguishes this tax-evasion case is that the corporate income is suspected to have included commissions and slush funds received from Kajima Corp., the nation’s top general contractor. Daiko is also suspected of having created its own slush funds.

Creation of slush funds appears to be something the construction industry cannot do without. In January, the special investigative squad arrested the president of Nishimatsu Construction Co. on suspicion of instructing four others to bring ¥70 million into Japan without reporting it to customs authorities between February 2006 and August 2007. The money is thought to have been part of a ¥1 billion slush fund created overseas.

Since 2003, Kajima has won orders from Canon Inc., a major precision machinery and electronics maker, to build a digital camera plant and a printer print in the city of Oita and a research facility in Kawasaki, Kanagawa Prefecture. The Daiko president served as an intermediary to help Kajima receive the orders.

Before the public prosecutors made the arrests, the Tokyo Regional Taxation Bureau had found that Kajima concealed ¥600 million in income. Because Kajima would not disclose how it used ¥500 million of the money, the bureau slapped a punitive tax — an additional 40 percent tax on top of the normal corporate tax — on the ¥500 million. It is suspected that the Daiko president received commissions including slush funds from Kajima. It appears that Kajima would rather pay punitive taxes if its activities help the company get orders for work.

The investigators should find out for what specific purposes Kajima used the slush funds and what kinds of moves the Daiko president made to help Kajima get orders.