Tax Investigation on 43 Suspects of Offshore Tax Evasion and National Wealth Outflow Including Luxury Online Platforms

Online Platforms and Overseas Luxury Brands Thriving Amid Untact Demand Expansion: 21 Caught
Strict Crackdown on Offshore Tax Evasion... Up to 60% Penalty and Prosecution for Intentional Tax Fraud

[Asia Economy Reporter Kwangho Lee]#Case 1= Mr. A, the owner of a domestic self-made corporation Gap (甲), is a foreign permanent resident suspected of evading gift tax by illegally transferring tens of billions of won of his assets to his own foreign account and making illicit gifts to his spouse and children without proper tax payment. It is alleged that Mr. A’s spouse and children, who reside abroad, withdrew funds to purchase luxury homes in Beverly Hills and Las Vegas, USA, and that some of the funds were brought back to Korea to purchase an apartment worth around 2 billion won along the Han River. Additionally, the spouse and children received several hundred million won in fictitious salaries from the domestic corporation Gap, where they did not actually work. The family also installed an overseas branch office of Gap in their Beverly Hills luxury home and transferred tens of billions of won under the pretext of maintenance and operation expenses of the branch office, which were then used as living expenses for the family abroad. The National Tax Service (NTS) is conducting a thorough investigation into the use of funds transferred abroad, whether the family provided actual labor, and allegations of improper outflow of corporate funds.

#Case 2= A domestic subsidiary Gap of a globally renowned multinational corporation imports products from a foreign affiliate B and sells them, while separately signing a management consulting service contract with the foreign parent company C. According to domestic laws and international tax standards, management consulting fees must be recognized as legitimate business expenses only if the consulting services are actually provided and expected to improve business profitability, and the fees must be at an appropriate level. However, the domestic subsidiary Gap has been reducing its domestic income and evading corporate tax by paying hundreds of billions of won annually in management consulting fees that are unreasonably high compared to the actual services provided by the foreign parent company B, thereby improperly transferring income earned in Korea abroad. Furthermore, it has been importing products at prices higher than normal to transfer income unfairly to the foreign affiliate B and reduce corporate tax payable domestically. The NTS has imposed a tax assessment of ○○○ billion won in corporate and withholding taxes on the domestic subsidiary Gap.

Some multinational corporations, including online platforms enjoying a boom due to increased untact (contactless) demand amid the COVID-19 pandemic and the steadily growing overseas luxury goods sector, have been caught transferring huge income earned in Korea abroad without proper tax payment. In response, the NTS has launched tax investigations to strictly crack down on offshore tax evasion that undermines Korea’s tax sovereignty and causes the outflow of national wealth that should be used for domestic consumption and investment.

On the 27th, the NTS announced that it has launched tax investigations on 43 suspects involved in offshore tax evasion causing national wealth outflow and multinational corporations that transferred huge income earned domestically abroad without proper tax payment.

The main types of tax evasion targeted in this investigation include: ▲7 suspects who concealed financial assets in secret accounts opened in regions such as Switzerland and Hong Kong, where access to financial information was difficult, to evade taxes ▲6 wealthy individuals who disguised themselves or their families as non-residents through nationality shopping and artificial manipulation of domestic stay days to evade tax obligations such as illicit gifting and income concealment ▲9 business operators suspected of illegally transferring corporate funds using overseas local corporations or owner-owned overseas paper companies ▲21 multinational corporations that have recently earned huge income domestically due to the expansion of the untact economy but transferred income abroad without paying proper taxes.

Im Kwanghyun, Director of the NTS Investigation Bureau, stated, "Considering the difficult economic conditions due to COVID-19, the total number of investigations will be significantly reduced," but added, "We will respond strictly to antisocial offshore tax evasion."

Director Im emphasized, "In this investigation, we will actively utilize domestic and international information networks to thoroughly verify not only the offshore tax evasion suspects themselves but also their families and related corporations involved in the evasion. If intentional tax evasion acts such as drafting double contracts or using nominee accounts are confirmed during the investigation, we will impose additional taxes of up to 60% and take strict measures including prosecution."

He also added, "For the majority of foreign and foreign-invested corporations operating in Korea that comply with tax laws and international standards (10,580 companies as of 2019), we will actively support them through tax consulting and the Advance Pricing Agreement (APA) system."

However, regarding tax avoidance by multinational corporations earning huge income domestically, he said, "We will thoroughly manage to ensure that the principle of 'Pay your fair share of tax' on income earned domestically is strictly observed."

This content was produced with the assistance of AI translation services.