[Exclusive] NTS Concludes MBK Probe... Imposes 40 Billion KRW in Additional Taxes

Three-Month Investigation Concludes...
Further Probes into Management Possible

The National Tax Service (NTS) has concluded its tax investigation into MBK Partners, Asia's largest private equity fund (PEF) manager, and decided to collect approximately 40 billion KRW in additional taxes. Following the Homeplus incident, criticism of private equity funds has intensified, and with the change in administration, there are expectations that pressure on private equity funds will grow even stronger.

According to the investment banking (IB) industry on June 20, the Fourth Investigation Bureau of the Seoul Regional Tax Office completed its ad hoc tax investigation into MBK on June 18 and decided to impose an additional tax of approximately 40 billion KRW. This decision comes after a rigorous investigation that lasted about three months, beginning on March 11, right after Homeplus filed for corporate rehabilitation.

The NTS reportedly found suspicious elements in a 2022 transaction in which MBK sold part of its stake to global asset manager Dial Capital. According to the NTS, Dial Capital acquired the old shares through a tax haven and received cash distributions in Korea via a capital reduction, thereby avoiding capital gains tax and dividend income tax.

MBK, however, argued that it had devised a transaction structure to minimize taxes by reviewing regulations in each country, and that the party selling the stake fulfilled its tax obligations by paying comprehensive income tax. Nevertheless, the NTS reportedly examined other MBK transactions and raised additional suspicions. Ultimately, after a standoff, both parties appear to have reached a settlement. An NTS official declined to comment, saying, "We cannot confirm anything regarding the tax investigation."

Some observers believe this case may represent not just a simple tax probe but also administrative pressure on private equity funds at the government level. Given the bipartisan criticism of MBK and private equity funds following the Homeplus incident, some interpret this as a move to set an example. From the NTS's perspective, it also needed an 'achievement' to showcase early in the new administration, which led to a high-intensity investigation. There is also speculation that MBK's management, such as Chairman Kim Byungjoo and Vice Chairman Kim Kwangil, who were pressured to make private contributions in relation to Homeplus, could face additional separate tax assessments.

As negative sentiment toward private equity funds spreads, there are concerns about a broader crackdown on the industry as a whole. The NTS also conducted tax investigations into KCGI and Affinity Equity Partners in March and April, respectively. For Affinity, this was the first investigation in a decade since 2015. There is talk that other large private equity funds, such as Hahn & Company and IMM Private Equity, could be next in line for investigations.

An industry insider commented, "A tax investigation itself does not necessarily mean there is a problem with the private equity fund manager, but it inevitably puts pressure on the industry. The fact that the Fourth Investigation Bureau, known as the 'grim reaper of the business world,' has stepped in suggests they are determined to produce tangible results. However, there has been a lot of negative news about the private equity fund industry since the beginning of the year, and it's unfortunate that public opinion is becoming so one-sidedly critical."