Board of Audit and Inspection: "National Tax Service Wrongly Selected 184 Tax Audit Targets"... 68.5 Billion Won in Missed Taxation

The Board of Audit and Inspection uncovered numerous cases during its regular audit of the National Tax Service (NTS), revealing that the selection of targets for regular tax audits was unfair, and that tax base management was inadequately conducted with respect to real estate transactions among family members and so-called "paper hospitals." The Board demanded a total of 23 corrective actions from the NTS, including 11 warnings and 12 notifications.

Yonhap News Agency

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On April 27, the Board of Audit and Inspection announced the main findings of its "Regular Audit of the National Tax Service," stating that it had requested corrective measures regarding the unfair selection of regular tax audit targets, insufficient review of deemed gifts in transfer transactions, and the neglect of value-added tax (VAT) imposition on paper hospitals.

The audit found that, in the process of assessing the compliance of corporations for the 2022 and 2023 fiscal years, the NTS omitted basic scores for some evaluation items for thousands of corporations in certain categories. As a result, the compliance of those corporations was rated lower than it should have been, leading to the erroneous selection of 30 corporations for tax audits in 2024 and 90 corporations in 2025-a total of 120 corporations-on suspicion of non-compliant reporting.

Problems were also found in the selection of individual business owners for tax audits. Regional tax offices violated the headquarters' selection guidelines or neglected their duties, resulting in the improper selection or exclusion of 64 individuals as tax audit targets for the 2020-2022 fiscal years. Specifically, the Central, Busan, and Gwangju offices mistakenly selected 59 individuals due to work errors or arbitrary criteria, while the Gwangju, Daejeon, and Central offices improperly excluded 5 individuals due to insufficient review of identical names and audit history.

The compliance assessment criteria, which form the basis for tax audit target selection, were also found to be applied unreasonably. The Board pointed out that the NTS included items in the evaluation criteria that were irrelevant or only weakly related to reporting compliance, thereby disadvantaging taxpayers. As a result, 1,615 corporations suffered disadvantages in compliance assessments for the 2020-2022 fiscal years.

Additionally, cases were found where corporations previously recognized as exemplary taxpayers later submitted non-compliant reports, but these issues were not properly reflected. In 2022, nine exemplary taxpayer corporations were excluded from audit reviews because their non-compliant reports were offset in the evaluation process.

Tax omissions due to inadequate post-management of debts were also uncovered. The NTS is supposed to register private debts confirmed during the assessment of inheritance and gift taxes in its administrative system and monitor whether the debts are repaid and interest is paid. However, as of March 2025, there were over 1.11 million items to be managed, but only about 10,000 were actually reviewed each year, representing just about 1%.

The Board of Audit and Inspection stated that the NTS failed to prioritize the review of long-term debts and neglected to address superficial reports from regional offices, resulting in omissions of a total of 7.2 billion won in income tax, gift tax, and inheritance tax. Specifically, there were nine cases of income tax totaling 245 million won, 20 cases of gift tax totaling 5.242 billion won, and 11 cases of inheritance tax totaling 1.734 billion won.

The review of deemed gifts in real estate and stock transactions among family members was also found to be inadequate. The Inheritance and Gift Tax Act stipulates that transfers of property between special related parties, such as spouses and lineal ascendants or descendants, without clear compensation are to be presumed as gifts. However, the Board of Audit and Inspection identified 22 cases in which the NTS recognized property transfers among related parties as legitimate transfers without a review of economic rationality. The amounts processed as monetary loans and similar arrangements in these transactions totaled 81.7 billion won.

The management of VAT imposition data for so-called "paper hospitals" was also found to be neglected. Since 2020, the NTS has received lists of violators of the Medical Service Act and the Pharmaceutical Affairs Act from the National Health Insurance Service and accumulated them as tax data. However, it failed to verify convictions and properly generate and distribute the data to regional offices for tax purposes.

As a result, 105 violator institutions with confirmed convictions were found to have exceeded the seven-year statute of limitations for VAT assessments, resulting in a failure to collect 26.7 billion won in VAT. In addition, 64 violator institutions with confirmed convictions still within the statute of limitations were at risk of losing 31 billion won in VAT due to the data not being properly utilized. Furthermore, 3.6 billion won in VAT was lost from 24 institutions that exceeded the statute of limitations before conviction was confirmed. The total amount of VAT lost or at risk of loss amounts to 61.3 billion won.

The Board of Audit and Inspection notified the Commissioner of the NTS to conduct the selection of corporate and individual regular tax audit targets thoroughly and to develop appropriate measures based on the results of compliance assessment error corrections. It also called for the rational improvement of audit target selection criteria and for measures to collect taxes omitted during the post-management of debts.

The Board further instructed the NTS to review the appropriateness of deemed gift assessments in the 22 related-party transfer cases and to consider measures for additional VAT collection from violators of the Medical Service Act, including paper hospitals.

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