[Invest&Law] "LG ga madawi Yoon Gwan, Korean resident American to pay 12.3 billion won comprehensive income tax"

Address in Korea During Tax Period
Does Not Qualify as Short-Term Resident Foreigner

Seoul Administrative Court.

The court reaffirmed the legal principle under tax law that if the total period of having an address or residence in Korea exceeds five years within the 10 years prior to the end of the tax period, the individual is subject to taxation.

According to the legal community on the 12th, the Seoul Administrative Court's Administrative Division 5 (Presiding Judge Kim Sun-yeol) ruled on the 6th against Yoon Kwan, CEO of BlueRun Ventures (BRV) Korea and eldest son-in-law of the LG Group owner, in a lawsuit filed against the Gangnam Tax Office challenging the imposition of comprehensive income tax amounting to 12.37 billion KRW. Following this ruling, it is anticipated that CEO Yoon may have to pay hundreds of billions of won in additional taxes in the future.

Yoon Kwan: “Stayed in Korea less than 183 days... Non-resident”

The key issue in the lawsuit was whether CEO Yoon, a U.S. national who earned over 22.1 billion KRW in dividend income through various investment businesses, qualifies as a ‘resident in Korea’ under the Income Tax Act. According to Article 2 of the Income Tax Act, domestic residents bear the same tax obligations as nationals. CEO Yoon’s side argued that since he stayed in Korea for less than 183 days per year, he qualifies as a ‘non-resident’ under the Income Tax Act and therefore is not required to pay taxes. They claimed that the dividend income subject to taxation was ‘income earned abroad’ by non-residents under the Income Tax Act, U.S.-Korea tax treaty residents, or short-term resident foreigners, and thus not subject to taxation.

Court: “Korea is the center of significant interests”

The court did not accept CEO Yoon’s argument. It judged that CEO Yoon had an address in Korea from around December 2011 through the tax period ending in 2020, qualifying him as a ‘resident’ under both the Income Tax Act and the Korea-U.S. tax treaty, and that he did not qualify as a short-term resident foreigner. The court stated, “It is reasonable to consider CEO Yoon a resident of the Republic of Korea because Korea is the center of significant personal and economic interests closely related to him.” Furthermore, the court said, “Although CEO Yoon claims that the period of ‘residence in Korea’ under Article 3, Paragraph 1 of the Income Tax Act should exclude periods of less than 183 days, even as of 2016, the total period of ‘having an address in Korea’ from 10 years before the end of the tax period already exceeds five years, so he does not qualify as a short-term resident foreigner.”

Performance fees worth 600 billion KRW, possibility of additional taxation

With the Seoul Administrative Court ruling CEO Yoon as a ‘domestic resident’ under the Income Tax Act, there is a prospect that he will have to pay additional taxes ranging from hundreds of billions to trillions of won.

Even after the Gangnam Tax Office imposed comprehensive income tax for the years 2016 to 2020, CEO Yoon continued to invest in domestic companies and earned profits worth several hundred billion won. Last year alone, he sold shares of Ecopro Materials for 250.9 billion KRW, received 575 billion KRW combining principal and interest from investments in SSG.com, and recovered investment funds through the sale of shares in Korea Zinc, earning approximately 31.4 billion KRW in profits. Notably, the performance fees CEO Yoon is expected to ultimately receive related to the Ecopro Materials investment are estimated at 610 billion KRW. CEO Yoon has been steadily investing in Ecopro Materials through the BRV Lotus Fund since 2017, with total investments reportedly amounting to 92.6 billion KRW to date.

Considering that the prosecution recently indicted CEO Yoon and his wife, Koo Yeon-kyung, CEO of the LG Welfare Foundation, without detention on charges of violating the Capital Markets Act and regarded them as an ‘economic community,’ there is a high likelihood that the court’s ruling that CEO Yoon qualifies as a domestic resident under the law will be upheld.

Hong Yoon-ji, Legal Times Reporter

※This article is based on content supplied by Law Times.