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Hon Hai Precision to pay millions to end US tax disputes

Hon Hai Precision Industry Co (鴻海精密), the nation's biggest maker of electronics components, said it would pay roughly US$20 million to the US government to resolve tax disputes on overseas employee stock bonuses.

The settlement with the US tax authorities will still need approval from the Philadelphia federal court, Hon Hai said in a filing with the Taiwan Stock Exchange on Saturday.

Hon Hai spokesman Edmund Ding (丁祈安) said in the filing that the tax disputes stemmed from Hon Hai's US subsidiary E-Star Inc during the period between 1998 and 2002.

Ding said Hon Hai had allocated funds from the previous fiscal year to cover the payment, without elaborating.

NEW JERSEY REPORT

The news that Hon Hai and E-Star had agreed to plead guilty to a criminal charge of not paying taxes on nearly US$100 million in employee stock bonuses, given in the form of Hon Hai stock, was first reported by the Star-Ledger of Newark, New Jersey, on Friday.

The companies would have to pay more than US$32 million in fines, taxes, penalties and interest because of the negligence, the newspaper report said, citing court documents from the US Attorney's Office in Philadelphia.

It said that a date for change of plea hearing had not been set.

`WILLFUL' OMISSION

"Their failure to withhold and report and turn over these taxes was willful," the Star-Ledger quoted Peter Hardy, an assistant US attorney with the US Attorney's Office in Philadelphia, as saying.

A number of E-Star employees have already rectified their tax returns and paid the US Internal Revenue Service (IRS) about US$12.9 million, the report said.

Federal prosecutors have agreed not to pursue charges against current or former E-Star and Hon Hai executives and employees as long as they file amended returns, according to the Star-Ledger.

RECURRING PROBLEM

The Chinese-language Liberty Times (the Taipei Times' sister newspaper) reported yesterday that the latest tax disputes with the IRS marked the second time Hon Hai has faced IRS problems in the past five years.

In 2003, Hon Hai was under a similar cloud over for stock bonuses paid to employees at California and Texas subsidiaries.

Hon Hai, which is aiming to achieve its chairman Terry Gou's (郭台銘) goal of increasing sales an average 30 percent a year through 2010, reported an increase of 42 percent in sales to NT$71.6 billion (US$2.17 billion) last month.

Analysts said increased orders from companies such as Apple, Sony, Nintendo, Lenovo Group (聯想), Nokia Oyj and Sony Ericsson Mobile Communications will contribute to Hon Hai's sales growth this year.

In a report published earlier this month, UBS AG analysts maintained their "buy 2" rating on Hon Hai with a 12-month price target of NT$288.

Hon Hai shares closed up 1.14 percent to NT$223.5 on Friday.

Additional reporting by Staff writer and Bloomberg
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