Tax Evaders Avoiding Taxes but Enjoying Welfare Benefits: National Tax Service Investigates 54 'Yamchejok' Offshore Tax Evasion Cases

[Sejong=Asia Economy Reporter Kim Hyun-jung] A, a foreign permanent resident living in Korea, established a paper company abroad and purchased real estate under the corporation's name, then transferred shares to his children as a form of illicit overseas real estate gifting. Although the gifted shares were reported to the local tax authorities, no tax was paid due to falling short of the deduction limit. The children, who mostly resided in Korea except during their study abroad periods, disguised themselves as non-residents by exploiting their foreign citizenship and did not report the gift tax on the inherited real estate.

Company B changed its corporate structure to a limited liability company in 2019 to avoid external audits, then engaged in excessive management consulting fee contracts and internal transactions to pay large consulting fees to its overseas parent company, causing the company to incur losses. It continued unfair support by receiving low service fees or no support fees from domestic affiliates.

The National Tax Service (NTS) announced on the 24th that it has launched tax investigations into 54 suspects who attempted sophisticated offshore tax evasion by laundering nationality and other identities or using international transactions.

The types of tax evasion confirmed by the NTS include ▲laundering nationality and identity ▲illicit wealth accumulation ▲concealment of foreign income. In cases of laundering nationality and identity, individuals disguised themselves as non-residents who have no tax obligations, hiding income and assets overseas while enjoying national welfare and conveniences such as COVID-19 quarantine and medical services (14 individuals), or foreign companies that established or changed their corporate form to limited liability companies without external audits and transferred income abroad unfairly through internal transactions (6 companies).

Cases include individuals who acquired Korean nationality, lived domestically with their families, acquired and leased domestic real estate worth around 10 billion KRW, and operated real estate companies, but acted as dual nationals and failed to report foreign income. Another case involved a wealthy real estate owner with assets worth around 20 billion KRW, residing domestically with family and operating multiple rental businesses, who did not acquire foreign nationality but disguised as a non-resident and failed to report foreign income and overseas financial accounts.

Additionally, 16 wealthy individuals suspected of tax evasion were detected for planning complex international transaction structures to increase their wealth without compensation. These include cases where offshore funds secretly established in Hong Kong and other locations were used to set up paper companies in tax havens for indirect investment, avoiding major shareholder status and failing to report large capital gains from stock transfers through complex international transaction structures.

Furthermore, 18 suspects who disguised normal transactions such as intermediary trade and overseas investment to transfer income abroad and concealed assets overseas through offshore secret accounts have also become subjects of tax investigations. Cases include corporations paying large royalties to subsidiaries located in tax havens fully controlled by the owner to defer income, paying salaries to children studying abroad through subsidiaries, thereby hiding income overseas and attempting tax avoidance (including succession of management rights through transfer of subsidiary shares).

The NTS has conducted simultaneous tax investigations on 318 suspects of offshore tax evasion and aggressive tax avoidance by multinational corporations in three rounds since 2019. Through these investigations, it recovered evaded taxes amounting to 1.1627 trillion KRW, including 562.9 billion KRW in 2019 and 599.8 billion KRW in 2020, and filed five cases with the prosecution for tax evasion and related offenses.

An NTS official emphasized, "Since these investigations target antisocial offshore tax evaders who exploit national and social crises for personal enrichment and use their superior economic status and expertise for tax evasion, we will thoroughly verify offshore tax evasion allegations, tax according to laws and principles, and strictly respond by directly reporting to the prosecution when tax evasion is confirmed."

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