National Tax Service Conducts Tax Audit on Samsung Securities

[Asia Economy Reporter Koh Hyung-kwang] Samsung Securities, a financial affiliate of Samsung Group, has been confirmed to be under tax investigation by the National Tax Service (NTS). The investigation is reportedly related to suspicions surrounding the merger of Samsung C&T and Cheil Industries.

According to industry sources on the 4th, the Seoul Regional Tax Office has been conducting a tax audit at Samsung Securities' headquarters in Seocho-gu since the end of last month. Several NTS investigators are stationed at Samsung Securities' headquarters, conducting a thorough investigation by reviewing accounting-related documents. This is the first tax audit of Samsung Securities in six years, since 2014.

The current tax investigation of Samsung Securities is known to be connected to suspicions regarding the merger of Samsung C&T and Cheil Industries, both affiliates of the group. The prosecution is currently summoning and investigating numerous current and former executives of Samsung affiliates over allegations related to the merger and succession of management rights. More than ten former and current president-level executives of Samsung have been summoned for questioning by the prosecution.

During this process, evidence of Samsung Securities' involvement has emerged, with former Samsung Securities CEO Yoon Yong-am being questioned by the prosecution as a suspect. NTS investigators are also reportedly focusing intensively on the flow of funds related to this matter. Prior to the merger of Samsung C&T and Cheil Industries, former CEO Yoon was responsible for explaining the merger's effects and justification to ISS, a global proxy advisory firm. When ISS issued a recommendation opposing the merger, Yoon criticized it as a "decision lacking rationality and objectivity."

Additionally, the investigation reportedly includes the flow of funds related to the so-called "phantom stock sale" incident that shocked the securities industry in 2018. In April 2018, Samsung Securities mistakenly issued dividends of 2.83 billion phantom shares to employees after a responsible staff member incorrectly entered 1,000 shares instead of the 1,000 won per share dividend owed to employee stock ownership association members.

Despite this unprecedented incident, Samsung Securities' internal systems took a long time to prevent abnormal sales by employees. Meanwhile, 16 Samsung Securities employees, aware of the abnormal situation, quickly sold 5.01 million phantom shares, revealing moral hazard and drawing criticism. This incident led to investor distrust, raising concerns that "securities firms could create phantom shares at will and exploit them for short selling."

Regarding the current tax investigation, a Samsung Securities official stated, "It is true that we are currently undergoing a tax audit, but as the audited party, we cannot confirm detailed information."