Hundreds of Billions Embezzled for Land Shopping and Luxury Living... Tax Audit on 289 People for Real Estate Tax Evasion

National Tax Service's 'Special Investigation Team for Real Estate Tax Evasion in Development Areas' Second Tax Audit

[Sejong=Asia Economy Reporter Kim Hyun-jung] As the sales of the company operated by Mr. A surged, he began systematically evading income tax by establishing purchasing, production, and sales companies under the names of family members with the help of tax experts. Whenever the tax burden increased, he set up shell companies and hid money in nominee accounts under his children's names. He also created fake transactions among family members or embezzled income by recording false labor costs. With the evaded money, he focused on purchasing real estate worth hundreds of billions of won in new town development areas, and led a luxurious and extravagant lifestyle by buying dozens of high-end cars and expensive memberships.

Mr. B operated a planned real estate business, selling land in new town planned areas to multiple people by splitting shares and omitted income. Besides his own company, he operated multiple planned real estate businesses under the names of his spouse and employees, paid tens of billions of won in fictitious commissions, then received the money back in cash to embezzle funds, and also spent large sums on gambling sports.

On the 13th, the National Tax Service (NTS) announced that it had launched tax investigations after identifying 289 suspects of real estate tax evasion by investigating 44 large-scale land and industrial complex development areas. The cases include those suspected of receiving illicit gifts of acquisition funds during land acquisition or omitting income from related businesses.

Kim Tae-ho, Director of the Asset Taxation Bureau at the NTS, explained, "During the analysis of real estate transaction details, cases were found where family members acquired development area land as if shopping for each household member. We will conduct an in-depth analysis of the source of funds for family-unit acquirers to verify whether there was illicit gifting of acquisition funds or nominee ownership."

This investigation is the second phase following the first investigation on the 3rd phase new town planned districts conducted by the NTS's 'Special Investigation Team on Real Estate Tax Evasion in Development Areas' starting from the 1st of last month. The scope of the investigation has been expanded to include 44 large-scale land and industrial complex development areas, including six 3rd phase new town planned districts, with no overlap of subjects from the previous first investigation (165 people).

The investigation found that 206 people acquired multiple lands but lacked sufficient sources of funds, raising suspicions of illicit gifting or income omission. There are 28 corporations suspected of tax evasion related to acquiring development area land. Among them are construction corporations that acquired land in new town development areas under corporate names while engaging in tax evasion by receiving false tax invoices and recording fictitious labor costs to conceal income.

Thirty-one individuals, including family owners like Mr. A who established companies under family and employee names to disperse income, embezzled corporate funds to lead a luxurious lifestyle, and acquired dozens of parcels of development area land, are also under investigation. Additionally, 19 companies, including false agricultural corporations and planned real estate businesses that divided and sold farmland while omitting income, and five brokers who omitted income by mediating land in rapidly rising price areas, will also be subject to tax investigations.

Director Kim stated, "Although high-value secured loans are possible for land, many cases were confirmed where the source of acquisition funds was insufficient even including loans, so they were selected for investigation. We will thoroughly track the flow and source of funds through verification of transaction details between financial accounts and information from the Financial Intelligence Unit (FIU) to verify whether the acquisition funds were appropriately sourced from declared income or were gifted funds." He added, "If there are suspicions of omitted business income or improper corporate fund outflows, or if loans are suspected to be disguised borrowings from relatives, we will expand the investigation scope to related businesses, corporations, and even relatives who lent the funds as necessary."

Furthermore, regarding tax evasion suspicions, the NTS plans to conduct a detailed verification of corporate and income tax filings, including whether income was omitted, fictitious expenses recorded, and the appropriateness of accounting treatment related to corporate funds. If fraudulent acts such as false bookkeeping, fabrication or receipt of false evidence or documents, or other fraudulent acts to evade taxes are confirmed during the investigation, the case will be reported under the 'Tax Crime Punishment Act.' If violations of real estate transaction laws such as nominee ownership of land are confirmed, the relevant authorities will be notified.