Ghosn's salary has long been a source of friction. Last year, he earned 13 million euros for his efforts to overhaul Renault and Nissan, making it the largest automotive group in the world.
Yet, his reward for doing so has often raised eyebrows, not least with the French government, which owns 20 percent of Renault.
It has now emerged that Brazilian-born Ghosn, in fact underreported his income, putting it lower than its actual amount, according to Nissan after months of investigation into both Ghosn and Representative Director Greg Kelly.
"The investigation showed that for many years Ghosn and Kelly have been reporting compensation amounts in the Tokyo Stock Exchange securities report that were less than the actual amount, in order to reduce the disclosed amount of Carlos Ghosn's compensation," Nissan said in a statement on Monday.
The Japanese automaker has accused its chairman of numerous other "significant acts of misconduct," such as personal use of company assets, and is seeking his resignation.
The astonishing news first emerged Monday evening, when the Asahi Shimbun newspaper reported Ghosn was being questioned by prosecutors and was likely to face arrest.
It has sent shockwaves throughout the automobile industry, with shares in Renault plunging to more than 12 percent in late morning trading in Paris.
Analysts predict that Ghosn's arrest is likely to rock the Renault-Nissan-Mitsubishi alliance.
At its head, he has succeeded in creating an industrial behemoth. The alliance's combined 470,000 employees last year sold 10.6 million vehicles from 122 factories worldwide.
Ghosn has a high profile in Japan and is known as a major advocate of the country's auto sector. He has not yet commented on the allegations.