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Following Japanese legal procedure, the accusations of tax evasion against Shinji Tokutake have been forwarded to a local public prosecutor's office for further investigation. The Kanto-Shinetsu Regional Taxation Bureau said that Tokutake should have paid ¥300m (£1.6m) in tax on the sale of the stock, gained from stock options awarded between 1999 and 2000.
Tokutake left Tokyo-based Microsoft Japan last October, said Kazushi Okabe, a Microsoft spokesperson.
"The stock option system is each individual's responsibility," Okabe said. "Having said that, however, the liability to pay taxes is our duty. Every year, we hold a seminar for tax payment by self-assessment within the company and try to make everyone understand that the profits that came from the stock option should be reported," he said.
Tokutake is the second Microsoft Japan executive to fall foul of tax investigations in the past two years. Another executive member, who left the company in 1999, has been accused of hiding a profit of ¥720m (£3.9m), which came from sales of stock options last June, according to reports.
People found guilty of tax evasion in Japan face being fined heavily and sometimes also receive light or suspended jail sentences.