South Korea's tax authority has launched audits of 50 companies suspected of serious tax evasion by allegedly using corporate-owned luxury homes for the private benefit of controlling shareholders and their families. The firms are accused of providing high-end homes in prime Seoul districts, such as the three Gangnam districts, rent-free to owner families, or of letting them exclusively use luxury condominiums and villas bought under the guise of employee welfare. The alleged tax evasion by these firms totals 1.9 trillion won ($1.4 billion).
The National Tax Service (NTS) announced the plan, titled the "First-Phase Tax Audit of Evaders Who Privately Used Corporate Luxury Homes," on the 25th. The NTS conducted a full review of 2,639 high-priced corporate-owned homes. Excluding 1,157 homes used for rental by leasing companies and 385 used for business purposes such as employee dormitories, it confirmed that controlling shareholders and their families lived in or privately used 1,097 homes, or 42%. Of these, the first-phase targets are 28 cases of owner-family residence, five of real estate speculation, and 17 of villa use.
One controlling shareholder became a two-home owner after purchasing an apartment slated for redevelopment in Banpo-dong, Seocho-gu, Seoul, and then transferred an existing apartment worth about 4 billion won to a company under his or her control. After selling the home within the temporary two-home period to claim a tax exemption for a single-home household, the owner continued to live in the apartment rent-free. The company is suspected of also treating expenses on the home as deductible costs.
Another company purchased a high-priced apartment in Hannam-dong worth about 10 billion won, provided it to the owner family, and treated the interior decoration costs as corporate expenses. The NTS believes the owner family held two high-priced apartments in the Gangnam area under personal names for capital gains while living in the corporate-owned home, thereby avoiding regulations on multiple-home owners, such as heavier comprehensive real estate taxes.
Numerous cases were also found in which corporate funds were used for owners' housing and living expenses. One company acquired a high-priced home worth about 20 billion won in Hannam-dong and covered about 10 billion won in expansion and interior costs. It is also suspected of overpaying the owner a salary of about 15 billion won, roughly 10 times the average of the top earners in the same industry, and paying about 5 billion won in fictitious wages to owner-family members who did not actually work.
Companies that set up villas for exclusive use by owners under the guise of employee welfare are also under investigation. Cases confirmed include acquiring an ultra-luxury villa worth about 10 billion won through an affiliate, or using a high-end condominium worth about 6 billion won — costing up to 3 million won per night — exclusively for the owner family.
The tax authority is launching audits of 50 companies with serious evasion suspicions among those where owner families privately used corporate-owned luxury homes. These firms are accused of buying high-priced homes in prime areas — the three Gangnam districts and Mapo, Yongsan and Seongdong — and providing them rent-free to owner families, or of letting owner families exclusively use high-priced condominiums and villas purchased under the name of employee welfare.
The NTS plans to use account inquiries and digital forensics to examine whether funds that flowed out of the companies were used to build the wealth of owner families. It will also conduct audits in stages of firms with serious evasion suspicions that were not included in the first phase, and plans to expand the scope of its review to matters such as free provision of overseas company housing and support for owners' children's overseas study.
Lee Sung-geul, head of the NTS investigation bureau, said the agency will "clearly identify the attribution of profits gained privately by owners who improperly siphoned off corporate funds, tax those profits, and ensure that tax offenses are punished in accordance with the law."
