Attention on Private Equity Funds... Tax Authorities Launch Investigation into Affinity

Following MBK and KCGI, Now Under Scrutiny
Investigations Into SSG.com and Burger King Investment Recoveries

The National Tax Service (NTS) has launched a tax investigation targeting the global private equity fund Affinity Equity Partners (Affinity). Following the recent Homeplus incident, the Financial Supervisory Service (FSS) has been conducting intensive inspections on private equity funds, and now the tax authorities appear to be expanding their investigations as well.

According to industry sources on the 10th, the NTS began its investigation into Affinity the day before. This is the first time in 10 years since 2015 that the NTS has launched an investigation into Affinity. The scope of the investigation reportedly includes major transactions over the past five years as well as the appropriateness of tax reporting during the payment process of key executives' performance bonuses.

Affinity recovered 1.15 trillion KRW from its past investment of 1 trillion KRW for a 30% stake in SSG.com in November 2024, earning a profit of 150 billion KRW. The NTS is expected to scrutinize this transaction closely.

Additionally, Burger King, where Affinity is the major shareholder, has paid approximately 150 billion KRW in cash to Affinity in the form of a paid-in capital reduction since 2017. Whether the tax items and rates were properly reported and paid during this transaction is expected to be a key focus of the investigation.

Furthermore, the industry anticipates a comprehensive investigation covering the source of acquisition funds for Lotte Rent-a-Car, acquired by Affinity, as well as tax law issues during the delisting process of Lock&Lock, the leading company in airtight containers.

Recently, as Homeplus, owned by MBK Partners, entered corporate rehabilitation proceedings, public opinion toward private equity funds has worsened, prompting the government to initiate intensive inspections.

The NTS is currently also investigating MBK Partners and KCGI. Previously, MBK underwent a tax investigation in 2020 for offshore tax evasion allegations and was fined 42 billion KRW after appeal procedures. KCGI mainly operates with investments from general corporate funds rather than financial institutional investors, and the investigation is understood to be examining whether there were any unfair practices during the investment process.

The Financial Supervisory Service has also recently been conducting focused inspections on the debt status of investee companies of major domestic private equity funds. The inspection includes the top 30 funds by assets under management. This is interpreted as a measure to check cases of excessive borrowing during mergers and acquisitions (M&A) and to ensure the financial soundness of acquired companies.

An investment banking industry official said, "Audits by the FSS and NTS are normally conducted, but it seems the tone has changed following the Homeplus incident," adding, "Rather than regular audits, there is a trend toward intensive audits targeting specific companies, raising tension in the industry that anyone could be next."

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