Special Tax Probe by the End of September at the Earliest

A special tax probe will begin in September at the earliest on those who have traded apartments to be reconstructed or apartments to be used for residential and commercial purpose which are located in Gangnam, Seoul.

Osan, Gyonggi Province and Asan, Chungnam Province have been designated as housing speculative regions along with Seogu, Yusung-gu, Daejeon, Chungbuk Province and Gimpo, Gyonggi Province, meaning the selling of real estate in these regions will be subject to tax on transfer income, based upon market prices.

The National Tax Service (NTS) and the Ministry of Finance and Economy (MOFE) announced a real estate market-stabilizing measure yesterday.

In a report titled “tax probe results and measures for the second half of this year to stabilize realty markets”, the NTS announced that it was planning tax probes on those who sold apartments which were approved for reconstruction in four areas, including Gangnam, Seocho, Songpa, and Gangdong-gu, apartments designed for residential and commercial purpose and apartments whose marker price was recently raised.

In the run-up to the tax probe, the NTS said it was studying the apartment transaction data for January through July this year in the speculation-prone areas to see whether those who sold or bought apartments in the region dodged taxes.

“Would-be reconstructed” apartments, lying at the core of the tax probe, include Eunma Apartments in Daechi-dong, Jugong Apt. in Gaepo-dong, Dogok-dong and Gangnam-gu, Banpo Jugong Apt., Samho Garden Apt. in Seocho-gu, Jamsil Jugong Apt., Garak Shiyoung Apt. in Songpa-gu, and Dunchon Jugong Apt. along with Goduk Jugong Apt. in Gangdong-gu.

Targeted apartments for residential and commercial purposes include Tower Palace in Dogok-dong, Gangnam-gu while apartments whose prices dramatically soared recently include Usung, Sungyung, and Mido Apartments in Daechi-dong, Gangnam-gu.

The NTS said that after considering market trends it would expand both the target for tax probes, to include the entire Seoul Metropolitan area, and the period, so that it includes transactions carried out after August.

At the same time, tax probes will be carried out on some of the apartment contractors, who are suspected of provoking apartment price hikes by raising prices for newly-built apartments, while ignoring the City of Seoul`s guidelines to reduce prices. The tax probe will confirm whether the contractors evaded corporate taxes by manipulating their revenues from the apartment sales.

The MOFE, in the meantime, called a deliberation committee on stabilizing realty prices yesterday and designated five areas, including Osan, Gyonggi province, as land-speculative zones. Accordingly, the number of areas designated as housing speculative zone and area designated as land speculative zone increased to 41 and 4 respectively.

Besides this, the NTS revealed that after the recent two and half month long probe, a record 111.5 billion won of evaded taxes was imposed on 1,856 people who were suspected of realty speculation.

It also went on to say that nine companies in the real estate business whose amount of tax evasion was among the biggest were reported to the prosecution. They also uncovered 828 real estate brokers who violated realty transaction laws.

Heon-Jin Lee Jin-Hup Song mungchii@donga.com jinhup@donga.com