‘3.6 Billion Won False Tax Invoice’ Kapakorea CEO, Suspended Prison Sentence

[Asia Economy Reporter Kim Daehyun] The CEO of the clothing company Kappa Korea, who was prosecuted for exchanging false tax invoices worth tens of billions of won, was sentenced to a suspended prison term in the first trial.

According to the court on the 1st, the Criminal Division 24 of the Seoul Central District Court (Presiding Judge Jo Yongrae) sentenced the CEO of Kappa Korea, who was indicted for violating the Act on the Aggravated Punishment of Specific Crimes (issuance of false tax invoices), to one year in prison with a two-year suspension. Considering the remorse shown, the court suspended the sentence for a fine of 400 million won. The Kappa Korea corporation, which was also indicted for violating the Tax Offense Punishment Act, had its 400 million won fine suspended for the same reason.

Earlier, Kappa Korea was prosecuted on charges of issuing false tax invoices worth about 1.6 billion won, pretending to have supplied clothing products to company E, which operates an online shopping mall, in January 2019. There is also a charge of receiving false tax invoices worth about 2 billion won from company E between February and September of the same year, as if the products were returned.

The special clause in the product sales contract between the two companies stated that Kappa Korea would deliver products to company E, but after a certain period, company E would repurchase all products in cash to guarantee the sales profit. However, no traces of product sales were found on company E's shopping mall during this period, and most of the products were found to be stored in Kappa Korea's warehouse on paper. Both the CEO and the corporation of Kappa Korea admitted the charges.

The first trial court ruled guilty, stating, "It is very difficult to recognize that the two companies actually exchanged products."

The court stated, "Unlike a sales contract that assumes a complete transfer of ownership, in this case, monetary transactions occurred according to the special clause, and tax invoices were issued accordingly. Clothing prices drop significantly depending on whether the product is new and the passage of seasons, so it is very hard to accept that Kappa Korea, which has been in the clothing sales business for a long time, would buy products that are nine months old at about 27% above the cumulative total price." "This is a serious crime that severely undermines tax justice, and the total amount of false tax invoices supplied is about 3.6 billion won, so the culpability is not light," the court also pointed out.

However, the court added, "The defendant admitted all the crimes from the investigation stage and actively cooperated with the investigation and trial procedures. The defendant also fulfilled additional tax obligations and showed sincere remorse. The defendant appears to have participated in the crime under significantly disadvantaged conditions compared to company E, bearing transportation, warehouse fees, and legal interest incurred during the crime. Considering that the profits obtained from the crime were not large and other various circumstances comprehensively," the court explained.

Meanwhile, Kappa Korea, which was experiencing management difficulties, closed its doors after 12 years by giving up corporate rehabilitation procedures following the termination notice of the domestic license contract from its Italian headquarters in 2021. This was due to accumulated deficits over several years combined with the impact of COVID-19.