A, who owned both an apartment and a detached house, recently sold the detached house for 1.5 billion won and filed for a tax exemption by pretending to be a single-home household. Before selling the detached house, A transferred the apartment to a friend of A's husband and, to make it appear as a genuine transaction, routed the sale proceeds indirectly through company colleagues. The National Tax Service (NTS) detected this scheme, denied A the one-home household exemption, and collected 600 million won in capital gains tax. The NTS also filed a criminal complaint with prosecutors against the husband's friend, who cooperated in the evasion, as a tax evader.
The NTS said Friday that it conducted tax audits on 104 people suspected of property tax evasion involving ultra-high-end housing and other properties, starting Oct. 1 last year, confirming a total of 73.1 billion won in tax evasion and recouping 31.8 billion won of that amount. Of the 104 people investigated, about 80 were found to have evaded property-related taxes, with the largest single evasion reaching about 3 billion won.
The audits found that the most common cases involved acquiring expensive apartments using funds secretly gifted by parents without paying gift tax. Numerous cases of so-called "sham sales" were also detected, in which multiple-home owners falsely transferred low-priced homes under the names of relatives or acquaintances while actually transferring high-priced homes themselves, improperly applying the one-home household tax exemption or avoiding heavy tax rates. Oh Se-hoon, director general of the NTS's Property Taxation Bureau, said, "By type, gift tax evasion accounts for about 60 percent and sham sales about 40 percent."
The NTS explained that, in addition to capital gains and gift tax evasion, when the source of funds was related to unreported business income or the diversion of corporate funds, it expanded the scope of the audit to the businesses involved and additionally collected omitted taxes such as corporate tax and income tax. For cases in which tax evasion through fraud or other improper means was confirmed during the audit, it imposed a 40 percent penalty tax for improper under-reporting, higher than the rate for ordinary under-reporting.
Under the Punishment of Tax Evaders Act, the NTS took stern measures, including filing criminal complaints against six people and issuing notification dispositions requiring four people to pay 700 million won in fine-equivalent amounts. It filed complaints without exception not only against those under investigation but also against related parties who participated in the misconduct. It also notified the relevant local governments regarding 20 people confirmed to have violated the Real Estate Real Name Act, such as through title trusts, so that they could face penalty charges and criminal punishment.
The NTS said that, given the strong likelihood of gift transactions increasing again following the resumption of heavier taxation on multiple-home owners, it plans to intensively inspect illicit gifting, such as undervaluation of gifted assets or payment of gift tax on another's behalf, focusing on gift transactions by multiple-home owners going forward. It also plans to closely examine illicit transactions among family members, such as parents transferring apartments to their children at prices significantly below market value or effectively making gifts under the guise of sales. Oh said, "We will respond strongly by detecting early the tax evasion risk factors that arise throughout the entire transaction process of property acquisition, holding, and transfer, and immediately conducting tax audits when evasion is confirmed."
