hankyoreh

#1. “A,” the owner of a South Korean entertainment planning agency, entrusted a foreign corporation to handle duties related to a concert overseas. The performance produced [an undisclosed amount] of profits, which was wired to an account in the name of a Hong Kong shell company established by A rather than being sent to South Korea.

#2. A South Korean company established a local subsidiary in a country where one of the owner’s children was studying. A falsified contract was drawn up indicating that [the company] was being commissioned by the local subsidiary to conduct market research studies, and a certain amount of money was wired each month for “survey costs.” Members of the owner’s family, who had been living overseas long-term, enjoyed a lavish lifestyle with credit cards and funds in the local subsidiary’s name.

The National Tax Service (NTS) announced on Sept. 12 that it had launched tax audits against 65 corporations and 28 individuals suspected of overseas tax evasion, including falsified transactions with overseas subsidiaries.

“While the targets selected for audits in the past have chiefly been major corporations and large asset holders facing heavy suspicions of tax evasions, this time we have expanded the scrutiny to include the owners’ families at mid-sized corporations and high-earning professionals with overseas investment and consumption funding of uncertain origin,” NTS auditing bureau chief Kim Myeong-joon explained that day.

“A number of doctors and professors have been included, along with fund managers and entertainers,” Kim said.

The NTS based its audit target selection on a comprehensive analysis of tax evasion reports, foreign exchange/trade/capital transactions, international financial information exchange data, and overseas information.

While the chief approach to tax evasion in the past has been simply to establish shell companies in tax havens and omit reporting of overseas income, methods have been evolving recently with the help of expert groups, the NTS said. New methods include falsifying transactions with overseas subsidiaries and aggressively reorganizing business structures.

“A law firm or accounting firm will work out part of the structure,” Kim explained. “They figure out which approaches are least likely to be discovered and how to respond if they are found out, and they also become involved in establishing offshore entities in exchange for a commission.”

“There’s a market for that,” he added.

The amounts involved in overseas tax evasion cases discovered by the NTS each year have not been decreasing. In 2016, the service imposed 1.3072 trillion won (US$1.17 billion) in penalties based on 228 audits; last year, the penalties amounted to 1.3192 trillion won (US$1.18 billion) based on 233 audits. In 2012, the amount of penalties stood at 825.8 billion won (US$737.4 million).

The NTS said it plans to “continue tracking [tax evasion] all the way through information exchange requests with overseas tax authorities and active local verification.”

By Lee Wan, staff reporter

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