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By Bloomberg

The Chinese film company that Alibaba Group Holding Ltd. invested $800 million in before its record initial public offering misstated tax payments and must pay interest on the charges.

Alibaba Pictures Group Ltd., formerly known as ChinaVision Media Group Ltd., incorrectly reported the money it owed in income, business and value-added taxes, according to a filing to the Hong Kong stock exchange yesterday. The mistakes were largely due to lax accounting practices and internal controls under the company’s previous management team, rather than fraud, the film company said.

The accounting flaws were found in August, five months after the e-commerce company founded by billionaire Jack Ma announced plans to buy a 60 percent stake in the film company to gain rights to TV dramas and English Premier League soccer. The unit’s tax problems have raised questions about Alibaba’s due diligence as it considers more acquisitions in the wake of a $25 billion IPO in September that made it more value than Facebook Inc. or General Electric Co.

“It’s apparent the company was sloppy about tax accounting,” Paul Gillis, a Peking University accounting professor, said of the film unit. “Alibaba’s been doing a lot of acquisitions and they are probably learning about pre- acquisition due diligence.”

Tax Payments

Alibaba has announced about $16 billion worth of deals since 2012, according to data compiled by Bloomberg. It had about $20 billion of cash and equivalents on its balance sheet as of Sept. 30. The film investment was announced March and completed in June.

Yesterday’s filing comes almost a month after the date Alibaba had set for delivering the results of the PricewaterhouseCoopers review of the Hong Kong-listed company. Bob Christie, a spokesman for Alibaba, declined to comment on the delay.

Alibaba Pictures would likely make interest payments on back taxes, decreasing last year’s profit by HK$25 million ($3.2 million) and the year before by HK$29 million, according to the filing. It will cut its profit for the six months that ended June 30 by HK$324 million to HK$390 million.

The film company could potentially reduce payments from film and TV copyrights and other money it expects to collect by HK$257 million to HK$323 million, it said.

Alibaba named Zhang Qiang, a former vice president of state-owned China Film Co., as the pictures unit’s chief executive officer Aug. 5. It has appointed Shao Xiaofeng, Alibaba Group’s chief risk officer, and Liu Chunning, a group vice president, to the unit’s board.