[Exclusive] NTS Launches Tax Audits on Hahn & Company and Others in Move to Restore Discipline in Private Equity Sector

Tax Audit Conducted on Hahn & Company on August 12
Foreign Firms Including Blackstone and Anchor EP Also Targeted
Comprehensive Review of Private Equity Industry Under New Administration

The National Tax Service conducted a tax audit last week on major private equity fund (PEF) managers, including Hahn & Company. This move is interpreted as an attempt to tighten discipline across the industry following the Homeplus incident involving MBK Partners.

According to the investment banking (IB) industry on the 19th, the Fourth Bureau of Investigation of the Seoul Regional Tax Office conducted a tax audit on Hahn & Company on August 12. It is known that this was not a special tax audit with a specific purpose. However, since the Fourth Bureau of Investigation-often referred to as the "Grim Reaper" of the business world-was in charge, the audit carries significance beyond a routine investigation.

Hahn & Company, alongside MBK, is considered a leading player in Korea's PEF industry. As of the end of last year, its committed capital (the amount investors have pledged) stood at 16.4741 trillion won, ranking second among domestic institution-only PEFs after MBK. The size of its fourth fund, established in July last year, was $3.4 billion (about 4.7 trillion won), making it the largest Korea-focused fund ever.

After auditing Hahn & Company last week, the Fourth Bureau of Investigation also conducted audits on foreign managers operating in Korea, such as Blackstone and Anchor Equity Partners (EP).

As a result, there are voices suggesting that the National Tax Service has begun to tighten discipline in the PEF industry. Since the Homeplus incident involving MBK Partners, there has been growing negative public sentiment toward PEFs, and the tax authorities' scrutiny is now seen as targeting the industry as a whole.

The National Tax Service has already been conducting a special tax audit on MBK since March. In the same month, KCGI was audited, and in April, Affinity Equity Partners was also subject to a tax audit. For Affinity, this was the first audit in ten years since 2015.

After the launch of the new administration and the appointment of Lim Kwanghyun as the new Commissioner of the National Tax Service, the pace of investigations appears to have picked up again. The decision by the National Tax Service to impose an additional tax of 40 billion won on MBK immediately after the change of government is interpreted in the same context.

However, it is reported that this is separate from the first tax audit conducted under Commissioner Lim, which targeted so-called "eat-and-run" corporate raiders. On July 30, the National Tax Service announced the results of a tax audit targeting unfair traders who disrupted the stock market for illicit gains. At that time, the audit covered a total of 27 companies and related individuals: nine companies that made false disclosures for stock price manipulation, eight companies related to "eat-and-run" corporate raiders, and ten cases involving controlling shareholders who abused their authority for personal gain.

An IB industry official explained, "Given the Homeplus incident earlier this year, it seems the authorities wanted to take a comprehensive look at the industry after the change in administration." The National Tax Service stated, "It is inappropriate to comment on individual companies subject to tax audits."