(Yicai) April 15 -- China Vanke said the authorities have not determined whether a unit intended to evade tax after a business partner reported the cash-strapped property developer for tax evasion and other illegal activities at the start of the month.

Tax inspectors have investigated 11 projects of Vanke’s Yantai unit since last September, Chairman Yu Liang, President Zhu Jiusheng, and Secretary of the Board Zhu Xu told investors yesterday. The builder sent seven employees from Beijing to assist with the investigation.

Yantai Bairun Real Estate published an open letter to the State Taxation Administration on April 1, alleging that Vanke's senior managers, led by Yu, used the Shenzhen-based company to evade tax, misuse funds, run a loan business at high-interest rates, and engage in money laundering. Ten firms stamped the letter with their corporate seals.

The business dispute between Vanke's branch in Yantai, a port city in China's eastern Shandong province, and its local partners is already in legal proceedings and the developer expects a fair ruling, it noted at the time.

Given Vanke's latest statement, the allegations have been filed with the local tax authorities and an audit has begun, Ren Zhengyong, a lawyer at Wang Jing & GH Law Firm, told Yicai.

It would appear that the local tax bureau has not ruled out the possibility that Vanke did not pay tax or underpaid tax, Ren said. But even if Vanke is found to have done so, it may not necessarily constitute tax evasion because according to Chinese law subjective intent must be determined, Ren added.

The tax bureau initially believes that Vanke is not involved in tax evasion with subjective intent, which may indicate that there may be retroactive tax to pay without a fine, or there may have been no issue at all, according to a tax inspector.

Vanke previously rebutted the allegations, saying that they were "gravely unfounded" and defamatory, adding that it would take legal action to protect its rights.

In a separate statement yesterday, Vanke also denied online rumors that managers above the vice president level have been barred from leaving the Chinese mainland. Executives are traveling on official business as normal, it said. Zhu Jiusheng just returned from inspecting a project in Hong Kong, while co-President Zhu Baoquan is in Japan on a business trip.

Vanke's contracted sales reached CNY24.5 billion (USD3.4 billion) last month, up 75 percent from the prior month but down 42 percent from a year earlier, according to its latest data.

Shares of Vanke [SHE: 000002] closed 0.6 percent higher at CNY7.14 (99 US cents) apiece in Shenzhen today.

Editor: Martin Kadiev