Ministry of Land Demands Corrective Action for Korea Expressway Corporation Retirees' Association over Self-Dividends and Tax Evasion through Subsidiary

Announcement of Audit Findings on Rest Area Operations by Korea Expressway Corporation and Doseonghoe
Tax Evasion Allegations Referred for Audit... Disciplinary Action Demanded for Poor Project Management

An association of retirees from Korea Expressway Corporation, despite being a non-profit organization, established a subsidiary to operate expressway rest areas and received dividends from the profits, of which nearly half was distributed to members as congratulatory and condolence payments. This constitutes tax evasion by exploiting the tax exemption benefits granted to non-profit organizations. Irregularities were also found in the process of selecting rest area operators.

On May 7, the Ministry of Land, Infrastructure and Transport announced the results of an audit regarding the adequacy of expressway rest area operations, which targeted Korea Expressway Corporation and other relevant entities since January of this year. According to the findings, Doseonghoe, an association of retired employees of Korea Expressway Corporation established in 1984, founded the rest area operation subsidiary H&DE in 1986 with 100% investment. Over the past ten years, H&DE paid Doseonghoe an average annual dividend of 887 million won. Of this, approximately 392.88 million won was spent on birthday gifts, congratulatory and condolence payments, and commemorative items. This means about 44% of the dividend was used for such member payments.

Doseonghoe accumulated all membership dues paid by Korea Expressway Corporation retirees as deposits and distributed the subsidiary’s dividends to its members. While non-profit organizations are permitted to earn profits, they are not allowed to distribute them to their members. Such distributed profits must be reported as taxable income, including corporate tax, but Doseonghoe claimed these were used for the non-profit’s original purposes, thereby evading taxes by abusing non-taxable benefits, according to the Ministry of Land, Infrastructure and Transport.

Vehicles are lined up in a long queue at the Altteul Gas Station in Mannam Square Rest Area, Seocho-gu, Seoul, waiting to refuel. This gas station is operated by H&DE, a 100% subsidiary of Doseonghoe, an organization of former highway corporation employees. Photo by Hyunmin Kim kimhyun81@

Four executives, including the CEO of H&DE, were selected from among Doseonghoe members, and the secretary-general of Doseonghoe simultaneously held positions as a non-executive director at H&DE. The secretary-general took on various roles and received an annual salary of over 40 million won. As the sole shareholder, Doseonghoe self-distributed profits and made all major decisions regarding the operating rights of rest area facilities. The ministry explained, "Contrary to the intent of the non-profit organization system, they operated the rest areas and effectively controlled the subsidiary, focusing on the for-profit business of rest area management."

Issues were also identified last year during Korea Expressway Corporation’s pilot project for mixed public-private investment. The corporation selected operators for four old rest areas, including Seonsan Rest Area (Changwon direction), allowing private construction investment for remodeling and granting 15-year operating rights. During the process, when different companies operated the rest area and the gas station within a facility, the operations were consolidated, resulting in the H&DE subsidiary The Way Distribution’s gas stations being transferred to H&DE for operation.

In previous bids for rest area facility lease operation rights, the corporation regarded affiliated companies within the same group as a single entity to prevent duplicate bidding. However, in this case, subsidiaries within the same group were recognized as separate companies. As a result, The Way Distribution transferred its gas station operating rights to its parent company and received other gas station operating rights in exchange. According to public enterprise contract regulations, approval from the Minister of Strategy and Finance was required, but this process was not followed. Moreover, it was confirmed that Korea Expressway Corporation leaked related information to Doseonghoe during the operator selection process.

Additionally, the Ministry of Land, Infrastructure and Transport found it problematic that remodeling work began arbitrarily before the investment amount was finalized after the pilot project operator was selected. There should have been reviews of construction costs and management of project progress, but these were not carried out. In 2015, when Munmak Rest Area (Seo-chang direction) was switched to direct management, H&DE was allowed to operate convenience stores and other facilities temporarily for 6 years and 6 months without competitive bidding, which was also discovered.

Construction status of the mixed private pilot project at Seonsan (Changwon, Yangpyeong direction) rest area in January this year. Construction is proceeding without prior measures such as reviewing construction costs. Provided by the Ministry of Land, Infrastructure and Transport

The ministry has demanded corrective actions such as amending the articles of incorporation to prevent non-profit subsidiaries from distributing profits to members. Regarding suspicions of tax evasion, they plan to request a tax audit from the National Tax Service. For the procedural failures in the mixed private investment pilot project, disciplinary action against those involved will be sought, and irregularities such as preferential contracts or information leaks identified during the bidding process will be referred for investigation. In addition, a comprehensive survey on unfair practices such as delayed payment for supplies, which has recently been raised as an issue, is underway, and a review of rest area operator management will also be conducted.

Minister of Land, Infrastructure and Transport Kim Yoon-deok stated, "We will swiftly and thoroughly push forward the reform of the rest area operation structure as the first step to break up the cartel entrenched for decades among Korea Expressway Corporation, retirees, and rest area operators, and to return expressway rest areas to the public."

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