The Inland Revenue, the UK tax agency, has spent two years auditing IBM's books after allegations of irregularities made by a former IBM sales and marketing manager, Gerard Churchhouse.

He alleged that his former employer had evaded as much as $500 million in taxes between 1991 and 1996. IBM called the probe ``a normal and routine procedure'' and said it is cooperating with the Inland Revenue while declining to comment on Churchhouse or his allegations. The technology giant is alleged to have circumvented UK tax law by raising the royalty payments made to the US parent on goods and services sold in the UK to 12 per cent from 8 per cent.

This practice would have lowered the operating profits of the UK unit, and hence lowered its British tax payments. IBM did not have to pay any taxes in the US between 1991 and 1993, as the company wasunprofitable.