Public Interest Corporations Buying Gift Card 'Kkang' and Luxury Apartments with Donations

Head of a Public Interest Corporation Caught for "Gift Certificate Fraud"
Luxury Apartments Bought with Donation Funds Also Detected

The head of a public interest corporation was caught by the National Tax Service (NTS) for so-called 'gift certificate fraud,' where tens of billions of won worth of gift certificates were purchased with donations and then cashed. There was also a public interest corporation that purchased a luxury residential-commercial complex apartment with donation funds.

The NTS announced on the 10th that it identified 324 corporations last year for violations of public interest corporation obligations and collected additional gift taxes totaling 25 billion won.

According to the NTS, the head of a public interest corporation was subject to additional gift tax for misappropriating donation and public interest funds for private use instead of public purposes. The chairman was caught shopping for precious metals with the corporate card and additionally purchasing tens of billions of won worth of gift certificates, which were then cashed and deposited into his personal account. There were also cases where public interest corporation employees were used as domestic helpers for donors and company vehicles were used for private purposes.

Cases of indirect gifting of public interest funds through unfair internal transactions were also detected by the NTS, resulting in an additional collection of 980 million won. The NTS imposes gift tax when a public interest corporation leases donated property to a donor’s related parties free of charge or at a low price, considering such use as outside the public interest purpose. For example, hundreds of billions of won worth of donated land leased virtually free of charge to related corporations, scholarships paid only to schools with special relationships, or luxury residential-commercial complex apartments purchased with public interest funds where donors and their families reside rent-free are subject to gift tax.

Additionally, the NTS collected 23.69 billion won for violations of the Inheritance and Gift Tax Act. Under this law, public interest corporations are obligated to use tax benefits received for public purposes, and violations result in additional gift tax (penalties). To ensure the independence of public interest corporations, related parties of donors are prohibited from working as executives or employees of the corporation and cannot serve as directors exceeding one-fifth of the board members. Violations result in a 100% penalty tax on expenses paid to such executives or directors.

An NTS official stated, "Going forward, the NTS will strictly respond to insincere public interest corporations that privatize public funds or use them to support affiliated companies through illegal means. In particular, for public interest corporations confirmed to have accounting fraud or private misuse, we will conduct continuous post-management over three years to thoroughly supervise compliance with obligations."