Lee Seong-geul, director of the National Tax Service's investigation bureau, briefs reporters at the NTS press room in Sejong on Tuesday on the results of a first-round tax investigation into businesses that privately used high-value properties held in corporate names to evade taxes. [NTS]
Lee Seong-geul, director of the National Tax Service's investigation bureau, briefs reporters at the NTS press room in Sejong on Tuesday on the results of a first-round tax investigation into businesses that privately used high-value properties held in corporate names to evade taxes. [NTS]

The National Tax Service has launched tax investigations into 50 companies — including five conglomerates — after detecting suspected tax evasion totaling 1.9 trillion won ($1.38 billion) linked to the private use of luxury corporate-owned properties.

The NTS announced Tuesday it had opened investigations into 50 businesses with credible evidence of serious tax evasion through the private use of company-owned residences.

Five of the targets are large conglomerates, and six are listed companies — four on the Kospi and two on the Kosdaq.

The NTS categorized the cases by type. The most common was the "owner-family residence" type, accounting for 28 of the 50 companies, in which high-value properties in Seoul's three Gangnam districts or the Mapo-Yongsan-Seongdong-gu corridor were provided to the controlling shareholder's family.

Company A, a large conglomerate in the food and hospitality industry, acquired a luxury home in Hannam-dong, Yongsan-gu, Seoul, valued at more than 20 billion won, and covered more than 10 billion won in extension and interior renovation costs.

The company already held a separate nearby property worth more than 30 billion won, but the acquisition was made to accommodate the controlling family, who wished to live in the new home.

About 20 billion won in corporate funds was also found to have been improperly funneled to the owner's family in the form of payroll expenses. The controlling shareholder in particular received a salary roughly 10 times the average paid to the highest earners in the same industry.

Company B arranged a villa in Cheongdam-dong, Gangnam-gu, Seoul, valued at about 4 billion won, for use as a private luxury residence.

The company also paid rent on an upscale overseas residence for the owner's child studying abroad, issued fictitious wages to the owner's spouse to cover living expenses, and otherwise channeled about 3 billion won in corporate funds out of the company.

Company C, a service-sector firm based in Busan, acquired a roughly 4 billion won apartment in Banpo-dong, Seocho-gu, Seoul, and provided it to the owner's child who worked in Seoul.

The NTS said the owner also rented real estate unrelated to the company's own business operations and paid inflated fictitious rent, effectively distributing profits to shareholder children.

Company D, a manufacturer, acquired a high-end officetel in Sincheon-dong, Songpa-gu, Seoul, worth about 6 billion won, leased it to the controlling shareholder, and charged only a nominal maintenance-level rent — a practice that drew the tax investigation.

The company was also found to have manipulated sales figures through fraudulent accounting with affiliated entities and transferred about 10 billion won in corporate funds overseas under the guise of loans to foreign subsidiaries.

Seventeen companies fell into the "villa" category, in which firms purchased expensive resort condominiums or vacation homes under the pretext of employee welfare, then reserved them exclusively for the chairman's personal use.

Company E used subsidiaries to acquire an ultra-luxury villa worth more than 10 billion won, then strictly restricted access so it could be used solely by the controlling family.

Foreign-owned Company F used a luxury standalone condominium worth about 6 billion won — with nightly rates of 3 million won — as a private retreat exclusively for the owner's family.

The company also paid about 2 billion won to cover interior renovation costs at the owner's apartment in Dogok-dong, Gangnam-gu, and channeled about 6 billion won in corporate funds to a domestic affiliate controlled by the owner's younger brother in the form of fees and to the owner's older sister as wages.

Company G, a manufacturer, acquired a premium condominium inside a members-only golf club in Pyeongchang, Gangwon Province, for about 3 billion won, then fabricated internal company documents and usage logs to make the property appear to serve employee welfare purposes — allowing it to claim a value-added tax input credit it was not entitled to.

The company also processed purchases of jewelry and luxury goods for the owner's family as corporate expenses, and acquired goodwill with no asset value from the controlling shareholder, among other irregular methods of diverting corporate funds.

The NTS said it also confirmed cases in which a luxury detached home with an outdoor swimming pool was falsely described as employee housing to claim a VAT input credit, and in which maintenance service fees were inflated through a company set up by an employee's child while fictitious wages were paid to the owner's children.

Five companies were classified under the "real estate speculation" type, in which corporate-name properties were used to help the controlling family evade multi-home ownership and lending regulations.

The controlling shareholder of Company H, a wholesale and retail firm, acquired an apartment in Banpo-dong, Seocho-gu, Seoul — slated for reconstruction — just before the management and disposal plan was approved, making the shareholder the owner of two homes. The reconstruction was expected to generate profits of tens of billions of won.

The owner then transferred an existing high-value property worth about 4 billion won to Company H, claiming the single-homeowner tax exemption, while continuing to live in the transferred property rent-free, according to the investigation.

The company is also suspected of supplying raw materials to affiliated entities at below-market prices to share profits, and of paying fictitious wages to the owner's younger sister and other related parties who did not actually work for the firm.

Company I, a retailer, provided a high-value apartment in Hannam-dong, Yongsan-gu, Seoul — home to many celebrities and valued at about 10 billion won — to the owner's family and processed the interior renovation costs as corporate expenses.

The owner's family, meanwhile, held two Gangnam apartments in their own names to profit from price appreciation, while living in the company-owned property to avoid multi-home ownership regulations, including the surcharge on the comprehensive real estate holding tax.

The NTS also confirmed a case in which one of two high-value properties with a combined assessed value of about 20 billion won was registered in a company's name so the owner could use both as a single living space and reduce the tax burden, and another case in which a company took out a business loan to help the owner's child purchase a detached home worth more than 3 billion won and covered the interior renovation costs as well.

The NTS said it plans to deploy all available investigative tools — including on-site seizure, account inquiries and digital forensics — to conduct thorough investigations. Controlling shareholders and others found to have improperly diverted corporate funds for personal gain will face tax assessments, and those caught committing criminal tax offenses such as tax evasion or the use of false tax invoices will be referred for criminal prosecution under the Punishment of Tax Evaders Act.

The NTS screened all 2,639 high-value corporate-owned properties, confirmed private use in 1,097 of them — about 42 percent — and then conducted further analysis of the tax filings of the companies holding those properties to select the current investigation targets.

Lee Seong-geul, director of the NTS investigation bureau, said companies subject to the full screening but not yet included in this round of investigations are still being analyzed, and that firms with serious suspected evasion will be investigated in sequence.

Lee added that the NTS would expand its scrutiny beyond domestic luxury residences to cover the broader misappropriation of corporate funds — including the provision of overseas housing and tuition support for chairmen's children studying abroad — and said the agency hoped the investigations would prompt companies where the line between corporate affairs and the owner's personal interests has grown blurred to restore proper principles.


oskymoon@heraldcorp.com