Irregular Donation –Inheritance Tax Investigation

National Tax Service (NTS) will start a strong tax investigation into an irregular donation and inheritance of the rich such as `Chaebol`.

NTS announced on January 9, “We will take a measure to prevent the abnormal property bequest upon the opportunity of the new government`s commencement and then will report it to the presidential transition committee on January 10.

The NTS official explained, “As such the abnormal donation and inheritance of properties have given a relative deprivation to many tax payers, we determined as above”.

For it, the NTS decided to execute the periodic investigation of change in stocks conducted for corporations each year. In particular, the NTS plans to investigate the abnormal inheritance and donation using a nominal trust or disguising a transaction intensively.

Also, it plans to expand the supervision and tax investigation for the inheritance or donation using the real property. When the corporation or individual is exposed as a non-payment of the inheritance or donation tax, the NTS will conduct the special tax investigation. If necessary, it will prosecute to the judicial authorities.

A funds misappropriation of the company owner or large shareholder will be strictly restricted. Especially, when the NTS prosecutes that they use the company`s funds for a private purpose, it will levy an income tax and corporation tax.

The NTS considered that some companies have used the funds of foreign investment for other purpose, and so it decided to strengthen a verification of the funds outflow using △unit-price manipulation at a business of exports and imports, △omission of costs collection after the export in credit, △ Closing of business or emigration after the foreign investment, and △ tax refuge.

This measure of the NTS was published just after the presidential transition committee and the ministry of finance & economy decided on a policy of `complete inclusive principle of inheritance and donation tax. So, it is forecasted that the next government will strengthen the tax for the rich.

Because this measure was taken as Samsung claimed a judgment to the national tax tribunal (NTT) in relation to the donation tax imposition of the NTS to Lee Jae-Yong, son of Lee Keon-Hee, president of Samsung Group, the analysis said that the NTS has started `taming chaebol`.

Jin-Hup Song jinhup@donga.com