hankyoreh

By Hwangbo Yon　
　　
It took 10 long years for “N,” the owner of “G,” a service industry outfit among South Korea’s 100 biggest companies, to pass on her assets to her son without paying tax. First, N changed shares that she had been keeping in the name of a board member at one of her company’s subsidiaries to her own name. At the time, the gift tax was not levied when borrowed-name shares were temporarily changed to be held under the shareholder’s real name.
N then devised an elaborate strategy to pursue until her son, who was then a minor, reached adulthood. In 2004, using the subsidiary board member again, she launch a fake legal action, through which she transferred title to the shares back to the executive. This sequence of moves was designed to hand the shares on the N’s son without paying the gift tax.
In 2008, when her son legally reached adulthood, N altered a stockholders’ list to make it appear that her son had been the actual owner of the shares for the previous 20 years, before reporting a transfer of title to the real name of the shareholder, in the name of her son. Using this method, N transferred shares worth around 73.5 billion won ($69 million) completely tax-free. During this process, N’s company, G, was listed on the stock market in 2006. The National Tax Service (NTS) decided to levy an additional 62 billion won in gift tax with regard to N’s tax evasion, and to report her to prosecutors.
The NTS stated on July 12 that it had levied 495.5 billion won in the first half of this year after investigating 204 owners of large corporations on suspicion of expedient management succession through wrongful gift-making practices. Company owners and extraordinarily wealthy individuals have been caught red-handed passing on their assets to their children without paying a single won in tax.
“As they reach 60 years of age, South Korea’s major corporations are passing on management rights from their owning families’ second generation to the third. ‘Middle-standing’ companies are passing on the same rights from the founding generation to the second generation,” said Im Hwan-su, head of the NTS’s investigative bureau. “But some companies have not been able to break away from the wrongful practice of opaque management succession by expedient and illegal means.”
As N’s case demonstrates, forms of tax evasion are becoming more and more intelligent. “R,” the owner of famous manufacturing company “D,” used a false name as a tool for making donations. The use of a false name, by exercising actual rights of ownership but merely borrowing the name of a third party, is common practice when it comes to tax evasion. R registered her own shares in the name of another executive at her company, then sold some of them to a company of which her children were the majority shareholders, at a price marked down by several tens of billions of won. She was charged an additional 97 billion won in gift and corporate tax.
Cases were also exposed of making asset gifts by establishing overseas paper companies and even going through with fake divorces. Chartered accountant “M” set up a paper company in his son’s name in the United States and gave 5 billion won to his son by wiring money as investment in these companies. In 2008, he filed for a sham divorce from his wife of 30 years and handed her eight billion won in bank deposits. M was taking advantage of the fact that division of property due to divorce is exempt from gift tax. M died last year, but his son fraudulently adjusted the accounts of the paper company to appear as if it had made a loss, and avoided inheritance tax by reporting the value of the company’s shares as 0 won. The NTS charged M’s son and wife an additional 14 billion won in taxes and reported them to prosecutors.
Meanwhile, the NTS held a meeting of investigation bureau chiefs from across the country on July 12 and stated that it would make the prevention of handing down wealth without paying tax the main priority of tax investigations in the second half of this year.
“In the future, we will thoroughly investigate suspected cases of tax evasion through unfair trading between subsidiaries of the same corporation and through subcontractors, and illegal diversion of corporate funds by the families of company owners,” said NTS Commissioner Lee Hyun-dong.
　　
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