A recent investigation conducted by Guangdong Local Taxation Bureau finds that Netease (NTES) has evaded more than CNY260,000 in taxes in its transactions with associated companies in Guangdong.

According to local media, GLTB has asked Netease to make up for all the unpaid taxes and pay CNY215,000 as a late fee and fine. GLTB says Netease did not pay the taxes on as much as CNY864 million of its business, which it also did not report to the taxation department.

Li Tingbin, CFO of Netease, admits that between 2003 and 2004, Netease did not have formal contracts for part of the transactions with its associated companies, but he says that after 2005, the company has had contracts for all the concerned transactions.

Local media speculate that since contracts do not exist, it is suspected that Netease has conducted some transactions with affiliated companies at abnormal market prices.

So far, Netease has not made any comment on the issue.