[Invest&Law] Private Equity Funds Face Tax Audit as the "Grim Reaper" of the National Tax Service Steps In

MBK, Hahn & Co., and Others Face Large-Scale Probe
Seoul Regional Tax Office Investigation Bureau 4 Takes the Lead
Government Sees Need for Scrutiny
Analysis Suggests Strengthened Role for Tax Authorities

The National Tax Service is conducting a large-scale tax investigation targeting numerous foreign private equity funds, including MBK Partners (hereafter MBK), Hahn & Company (hereafter Hahn & Co.), Blackstone Korea, Anchor Equity Partners, and Affinity Equity Partners, drawing significant attention to the reasons behind this move. In particular, the investigation is being led by the Investigation Bureau 4 of the Seoul Regional Tax Office, often referred to as the "grim reaper of corporations," which has further heightened interest.

According to the legal community and related industries on September 3, among the targets of this tax investigation, Hahn & Co. is known as a domestic private equity fund. However, Hahn Sangwon, the CEO of Hahn & Co., holds U.S. citizenship and owns 100% of the company’s shares. Part of the ownership structure is reportedly held by a U.S. corporation. A representative from Hahn & Co. told Law Times, "Most major decisions in private equity funds are made by the Investment Review Committee. Although Mr. Hahn is a member of the committee, the majority of the other members are Korean." A legal expert familiar with the situation commented, "There has been a perception within the government, even before the inauguration of the Lee Jaemyung administration, that there is a need to scrutinize foreign private equity funds. MBK may have caused some controversy, but it does not appear that a specific company is being targeted."

MBK, Hahn & Co., and others have been criticized for generating significant profits in Korea while, through sophisticated legal counsel and carefully structured funds, as well as by relying on international tax treaties, they are "not paying taxes commensurate with their profits." It is analyzed that this tax investigation is aimed at foreign capital operating under such circumstances.

There is also analysis that the role of the National Tax Service is being strengthened as the prosecution system is rapidly reformed. As the prosecution is forced to relinquish its status as the leading investigative agency, there is an underlying intention to bolster the investigative functions led by the National Tax Service to increase the administration's control over state affairs. A tax attorney stated, "Due to prosecution reform, the prosecution can no longer be mobilized for such investigations. As a result, the National Tax Service and the Financial Supervisory Service have effectively taken the lead." On August 27, the Financial Services Commission and the Financial Supervisory Service launched a surprise reinvestigation into MBK. Financial authorities are reportedly reviewing the entire process of the Homeplus acquisition.

Law Times Reporter Lee Sangwoo

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