Three Sectors: Construction, Pharmaceutical, and Insurance
Pharmaceutical company A provided illegal rebates worth hundreds of billions of won to medical professionals in exchange for prescribing its drugs. They covered extravagant wedding expenses, honeymoon costs, and luxury gift expenses amounting to tens of millions of won for the hospital director and spouse, and also provided high-priced items such as delivering luxury sofas worth tens of millions of won to a doctor's residence. Company A purchased gift certificates using its corporate card and delivered them to hospital directors and private practitioners, and raised cash by using a card cashing scheme at supermarkets to pay medical professionals. Company A also evaded corporate taxes by irregularly accounting for the hundreds of billions of won spent on illegal rebates as company expenses.
On the 25th, the National Tax Service (NTS) announced that it is conducting tax investigations on a total of 47 entities, including 17 construction companies, 16 pharmaceutical companies, and 14 insurance brokerage firms that have enjoyed unfair profits through rebates. The NTS stated, "The practice of receiving rebates not only causes unfairness and unjust enrichment but also leads to fatal side effects threatening public safety, such as poor apartment construction and drug misuse," adding, "Since the issue is spreading beyond chronic sectors like construction and pharmaceuticals to other fields such as insurance, and the methods are evolving, strong countermeasures are necessary."
The investigation targets include 17 construction companies that provided rebates to reconstruction associations and developers. These construction companies paid fabricated salaries worth hundreds of millions of won to the children of association heads as a reward for being selected as contractors for reconstruction projects, or paid tens of billions of won in financial costs such as loan guarantee fees that the developers should have borne. They also inflated service fees to demolition companies by tens of billions of won and then recovered part of the amount under the name of rebates.
The NTS stated, "In this investigation, we will thoroughly track the recipients of rebates such as association heads and developers to impose income tax and take strict measures such as filing charges under the Tax Crime Punishment Act for violations of tax laws, including receiving false service tax invoices."
The 16 pharmaceutical companies are suspected of providing rebates to medical professionals who monopolize the authority to prescribe drugs through various means. There were cases where they covered wedding expenses amounting to tens of millions of won, including wedding ceremony costs, honeymoon expenses, and gift costs for clinic directors and their spouses, as well as paying hundreds of thousands of won for luxury hotel accommodations. They also delivered high-end furniture and premium home appliances worth tens of millions of won to doctors' homes or hospitals. Another method involved registering the hospital director's spouse and children as shareholders of the pharmaceutical company and paying dividends worth tens of billions of won.
There were also cases of indirect rebate provision through sales agencies (CSOs). They created funds by paying false service fees to CSOs disguised under employees' family names and then provided rebates to medical professionals, or the CSO representatives received high salaries and withdrew cash to entertain medical professionals at nightlife establishments.
The 14 insurance brokerage firms are cases where rebates were paid to the owners and their families of corporations insured under CEO insurance. Recently, the CEO insurance market has rapidly grown due to the convergence of interests between insurance brokerage firms seeking ultra-high brokerage fees and small and medium-sized corporate owners trying to evade corporate and gift taxes. There were also reports that some insured corporate owners only received rebates and canceled the insurance prematurely.
The CEO insurance rebate investigation targets sold high-value corporate insurance and falsely registered the corporation's related parties, such as the representative and spouse, as insurance planners, paying rebates worth up to hundreds of millions of won. During sales, they induced clients by claiming, "Since the corporation pays high insurance premiums as expenses, corporate tax is reduced, and since children receive high planner commissions, it is effectively a gift from corporate funds without gift tax burden."
In this investigation, the NTS reported success not only in denying rebate expenses and imposing corporate tax on insurance brokerage firms but also in imposing income tax on owners and their families. The NTS added, "We will continuously monitor rebate practices in other sectors and thoroughly investigate socially harmful cases to eradicate antisocial rebate tax evasion."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
