The Japanese tax authorities have lost more than 3 billion yen in taxable income from dozens of the country’s high net worth individuals who...

The Japanese tax authorities have lost more than 3 billion yen in taxable income from dozens of the country’s high net worth individuals who invested in American real estate through German securities firm Commerz International Capital in Tokyo and failed to declare income from the scheme, according to The Yomiuri Shimbun. Claims for losses relating to the real estate investment program were illegal according to the taxation authorities. The property had been purchased by a corporation inside the US and therefore the investors could not count losses as their own. The authorities say that investors who did not file corrected returns owe back taxes and that the scheme has been constructed as a tax shelter. The majority of the investors have applied to the Japanese board of tax appeals for review of their claims. The Tokyo branch of German securities firm Commerz International Capital Management (Japan) began soliciting investors for the scheme in the late 1990s. Investors injected funds into LPS, an investment group set up in Los Angeles that had concluded trust agreements with financial institutions. LPS then used the funds as seed money to purchase existing apartment buildings in the US. The investment lost money with costs to cover depreciation and maintenance of the properties exceeding what it was earning through rent. This was written off as a personal loss of income incurred through investment and deducted from personal assets on tax returns, thus reducing income tax. Most of the “profit” from the scheme was savings of income taxes. As LPS was commercially registered and could become a major figure in a court proceeding, it should be subject to Japan's taxation law as a corporation, according to the Japanese authorities. The authorities also rejected amortization costs for properties purchased by a corporation, saying they could not be divided up between the individual investors. The Tokyo branch of Commerz opened in November 1986, and closed in June 2005 after it was discovered that the bank had received a 270 million yen rebate for an insurance contract from the former Meiji Life Insurance Co.