Major precision instrument maker Konica Minolta Holdings Inc. and several of its subsidiaries have been ordered by tax authorities to pay back taxes on about ¥1.8 billion in income concealed over a two-year period through March 2007.

The company was formed in 2003 by a merger between Japanese imaging firms Konica and Minolta, and reported ¥1072 billion in revenue last year. This gave it a net profit of ¥68 billion.

Additionally, the Tokyo Regional Taxation Bureau found that the company also failed to declare more than ¥200 million in undeclared income, including cases of accounting errors. Consequently, it ordered the group to pay about ¥1.2 billion in back taxes, including tax arrears and fines.

Most of the hidden income involved subsidiary Konica Minolta Healthcare Co.'s questionable leases of medical devices to hospitals. Konica Minolta Healthcare, based in Hino, western Tokyo, sells medical equipment and devices, such as X-ray scanning machines, to hospitals affiliated with Nippon Telegraph and Telephone Corp. and Japan Railway companies, as well as those run by universities and others.

The subsidiary had leased such devices for free with expectations of winning future contracts. The costs for the leased devices were passed on to other transactions, resulting in a reduction in reported income.

The tax bureau branded the practice as illicit and ordered the company to register the equipment as depreciated assets because the sales company owns the equipment.

The Japan Fair Trade Council of the Medical Devices Industry, an association of medical device makers in Tokyo's Bunkyo Ward, prohibits member companies, including Konica Minolta Healthcare, from offering medical institutions special benefits, such as donations of money and products, to secure fair competition.

Another subsidiary, Konica Minolta Photo Imaging Inc., accounted for around ¥700 million of the ¥1.8 billion hidden income. The company, also based in Hino, reported the amount in the fiscal year through March 2007 as tax-deductible costs for its withdrawal from China.

However, the tax authority decided the expenditures were taxable entertainment and social expenses because the funds were excessive and covered compensation for local companies that took over the operations.

Konica Minolta Photo Imaging had operated mini-labs for developing and printing services within camera sales outlets across China. However, the company began to pull out of the Chinese market after the group sold off its camera business to Sony in March 2006.

The subsidiary argued that the ¥700 million had been paid as settlement costs to its agents who had taken over the China operations. However, the tax authorities decried that the expenditures included compensation for lost jobs and possible bribes to government officials.