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Large corporations on high alert over tax audits

Posted November. 19, 2010 11:19,   


Fears are rising over the government’s full-fledged inspections into big business in the wake of a tax audit on SK Telecom.

The National Tax Service and the SK Group claim the audit is a regularly scheduled procedure but many say this is no ordinary audit.

Given the unusual timing, selection of the company, and content of the audit, experts say the government has apparently begun a full-scale inspection into large corporations.

○ Start of probes into large companies?

The timing of the audit on SK Telecom is the first factor to raise attention from business. In the first half of this year, rumors spread that companies would be audited but most that were targeted were mid-size companies such as Taekwang Industry and C& Group.

Business sources, however, said the government just delayed audits on large corporations because of the inaugural G-20 business summit in Seoul last week.

Sure enough, tax audits on large companies began shortly after the close of the summit.

Another jolt to the business community was the selection of SK Telecom as the first to be audited. The company was on the rumored list of tax audit targets even before the G-20 summit.

Another company on the list recently underwent an audit, and prosecutors are reportedly reviewing the results of prior investigations into other companies on the list.

All this attests to the probable existence of the list.

What the National Tax Service is investigating is nothing ordinary either, according to business sources. The audit on SK Telecom might be regular but is being expanded to SK Telesys, a partner company SK Telecom.

In addition, a powerful investigative division in the tax office has audited SK Corp.’s departments related to the telecom company’s business, fueling suspicion that tax authorities smell something fishy.

This has put the business community on high alert over the possibility of the audit spreading to the entire SK Group.

Worry is also rising over more rigorous audit standards by considering large corporations customarily left in the hands of retired executives as de facto affiliates.

○ Businesses on high alert

Companies allegedly included on the list seem tense though they claim to have no problems. An executive at a large company rumored to be on the list said, “The rumor began spreading that prosecutors were conducting an internal investigation into our company, but no circumstantial evidence backs this rumor.”

A source at a business organization said, “Given that the alleged inspection list is getting longer and that SK is under investigation, the implications for businesses will be huge,” adding, “There is criticism that the investigations are indiscriminate.”

Also fueling suspicion is the focus of prosecutors on mid-size companies and the targeting of large companies by tax authorities. Samsung Everland, LG U Plus and GS Retail have recently been hit with tax audits.

A business pundit said, “It seems that the National Tax Service is conducting audits to pick up the slack as no elections are scheduled next year and the term of the incumbent administration ends in February 2013. Considering the prosecutors’ investigations are followed by tax audits, the government is apparently issuing a warning to companies.”

Other business sources predicted multifaceted investigations since the presidential office is disgruntled over the timid response of business to the government request to create jobs and increase investment.

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