Famous celebrities are tense due to reports that they have been ordered to pay back taxes amounting to hundreds of millions of won. The tax authorities have included a tax rate increase targeting family corporations in the tax law revision plan announced last year, and have strengthened the trend of examining the essence of corporations.
According to the real estate industry on the 1st, the National Tax Service has recently conducted tax investigations on famous celebrities, leading to reports that they have been ordered to pay back taxes amounting to several hundred million to tens of hundreds of millions of won. Actor Lee Joon-gi has been informed he owes 900 million won, Jo Jin-woong 1.1 billion won, Lee Ha-nee 6 billion won, and Yoo Yeon-seok 7 billion won. They explained the differences as 'interpretation of tax law.'
What the National Tax Service has noted is that despite having a management agency, these celebrities established 'one-person management companies' under the guise of tax reduction. They believe there is a possibility of tax evasion by paying corporate tax instead of income tax, which can reach a maximum rate of 45%. The top corporate tax rate is 24%, allowing for nearly a 50% tax savings when processed as corporate tax instead of income tax. They are also looking into issues such as expense processing through corporate cards and members of the celebrities’ families receiving salaries as part of the corporation.
An official from the National Tax Service said, 'There have been intensive tax investigations on celebrities in the past, but this time we are focusing on the rapidly increasing number of 'one-person management companies' over the last five years.' They added, 'Some celebrities have filed for judgment to the Tax Tribunal, and we must wait for the results of the hearings to unfold.'
The real estate industry is concerned that the National Tax Service will expand its scrutiny of 'corporate substance.' In reality, they are closely examining whether these corporations meet the necessary criteria. This is particularly relevant as there has been a rapid increase in the establishment of 'family corporations' for real estate investment in commercial properties.
For example, a 40-year-old office worker, Mr. A, has established a family corporation with his brother, wife, and two children, owning one building each in Seoul's Gangnam and Yongsan. Commercial building collateral loans can cover up to 70-80% of the collateral value. They are also using the family corporation for expense processing, such as handling living expenses with a corporate card and leasing vehicles under the corporation's name.
The tax law revision plan announced by the government last year includes a tax rate increase aimed at family corporations. The government has significantly raised the rate from a minimum of 9% to 19% for small corporations subject to 'accurate reporting confirmation' based on corporate tax income levels under 2 billion won.
Establishing a family corporation also allows for an increase in the amount of money that can be lent to children without interest by about tenfold. Under current law, interest exceeding 10 million won incurs a gift tax, which, when reversed, means that parents can lend approximately 210 million won interest-free. However, the amount parents can lend to the family corporation free of charge is 2.1 billion won. This creates a foundation for the children to invest in real estate.
A tax accountant who requested anonymity said, 'The National Tax Service's willingness to examine 'corporate substance' is becoming stronger.' They noted, 'In principle, the establishment of a corporation that does not have substantial elements such as an office, employees, and equipment may be seen as tax avoidance.'