Regulators Launch Tax Audit of 32 Individuals and Nine Corporations

The National Tax Service has started a tax audit of 32 investors who bought real estate properties in Los Angeles, New York, and Hawaii while allegedly evading tax.

The regulator also started an audit of nine corporations on suspicions of manipulating investment records and illegally sending funds offshore.

The NTS said on September 9 that it started the audits nationwide starting from September 8.

The individuals and corporations under audit include: 19 taxpayers who are suspected of evading tax and illegally or semi-legally sending money to the U.S. to buy real estate assets there; 13 taxpayers who paid less tax compared to the amount of money they spent buying real estate properties; and nine corporations which sent money offshore through financial shenanigans.

The NTS’s audits show that there is offshore capital flight among some affluent individuals and that their moral hazard has crossed the line.

A founder of a test prep school in the Seoul area has bought a total of seven assets or $4 million worth in total, under his name, his spouse, and children in New York since 1996. He has resold five of these properties for a total of $2.3 million.

However, he has almost three billion won in back taxes (2.2 billion won for himself on seven assets, 46 million won for his wife on five assets, and 780 million won for his children on 13 assets) on the pretext that he has no major assets in Korea.

Nevertheless, he wired about $80,000 this year alone to his son who is studying in the U.S. Another of his child owns a 101-square-meter unit at Tower Palace, Seoul’s finest condominium, and a number of real estate assets although he has no income source.

Another person used his own one-person corporation and another entity to send $6.5 million in investment funds offshore. He bought a $4 million condominium.

A Seoul branch manager of a multinational corporation embezzled 500 million won from the company and sent it to the U.S. on 62 different occasions in complicity with his wife since 1998 and bought two $790,000 condominiums.

The NTS will collect any back taxes from corporations which sent money offshore in an unauthorized way. It will bring criminal charges against any tax evasion that the audit finds.

It also will notify other regulators such as Financial Supervisory Service of any violations of the foreign currency trade law, such as the failure of reports of the acquisition of offshore real estate assets, that it finds in the audit.

The NTS plans to strengthen its monitoring of international money wiring of more than $10,000 starting next month. It will set in motion an early verification system for foreign currency trading to conduct tax audits of local real estate investors working in China and Australia.

Jae-Seong Hwang jsonhng@donga.com