As singer and actor Cha Eun-woo's "2 billion won tax evasion" allegation has caused a major social stir, lawyer Kim Myung-gyu released a "friendly explanatory edition" for the public from an expert perspective.
Lawyer and accountant Kim Myung-gyu recently posted on a personal thread a "friendly explanatory edition for nonexperts," analyzing various issues related to Cha Eun-woo's "2 billion won tax evasion" allegation.
He said, "The news is buzzing about a famous entertainer's '2 billion won surcharge.' From an ordinary person's perspective you might think, 'Wow, how much did he earn that the tax alone is 2 billion won?' I'll break down what this number means from an expert (lawyer + accountant) perspective," and he argued, "That 2 billion won is not all the original tax that should have been paid. The base tax is roughly 1 billion to 1.4 billion won, and the rest is 'penalty (additional tax)'. If the National Tax Service judges 'you intentionally deceived us? (undue underreporting),' it imposes an additional tax equal to 40% of the tax that should have been paid. Interest (late payment interest) is added on top of that. In other words, of the 2 billion won, 600 million to 1 billion won is the 'price of lying.'"
Last spring Cha Eun-woo underwent an intensive investigation by the Seoul Regional Tax Service's investigation bureau 4 on allegations of tax evasion, and lawyer Kim Myung-gyu explained from his perspective as a lawyer and accountant, "The fact that 'investigation bureau 4' showed up in this case is a strong signal that the National Tax Service views this as a 'deliberate tax evasion' allegation rather than a simple mistake. Why does it seem to happen mainly to 'actors'? Here the difference is in 'IP (intellectual property)'. Idols: a product cultivated by the company. The IP belongs to the company (feels like a salaried worker). Actors: my body itself is the asset. The IP belongs to me (feels like a one-person business). Cha Eun-woo is a special case. He started as an idol (company IP) but has now grown into a top actor (personal IP). At the point when an actor thinks, 'Now I do all the acting myself, right?' they may try the tax-saving method actors often use (a one-person agency) and get into trouble."
He continued, "Actors often set up 'one-person agencies (corporations)' to reduce taxes. They want to pay corporate tax (10–20%) instead of income tax (45%). But for a corporation to be recognized, it must be a real company. It should have employees and an office, but they put it in a family member's name and list the office as a parent's spare room or the house they live in. The National Tax Service looks and says, 'Isn't this just a shell? It's just the individual actor's earnings.' So they cancel the corporate tax benefits and hit them with an income tax bomb," and he added, "Everyone wants to save taxes. But if you don't want to incur the costs of running a business in substance (hiring employees, operating an office, etc.) and only want to take the tax benefits, that becomes 'tax evasion.' The greed of 'I don't want to spend on costs but want the benefits' has come back as a huge boomerang of 2 billion won. No famous entertainer is exempt before taxes. Let's do it by the book."
Later lawyer Kim Myung-gyu released "friendly explanatory edition for nonexperts 2," comparing, "So how is this different from the cases of Lee Ha-nee and Yu Jun-Sang? To state the conclusion first, the 'weight (class) of the allegation' is a different fight."
He said, "In previous cases (Lee Ha-nee and others) it was 'the tax law interpretation is a bit different?' (there is room for dispute), while in this case (Cha Eun-woo and others) it's 'you deliberately deceived us?' (suspicion of criminal charges). Why did they change to a 'limited liability company (LLC)'? The most suspicious point is that they changed a perfectly normal stock company into a 'limited liability company (LLC),'" and he explained, "The reason is simple: 'to avoid external audits.' A stock company, when its sales or assets grow, is required to undergo an external audit by accountants and disclose its books. But a limited liability company has no obligation to undergo external audits no matter how much money it makes. In other words, the intention of 'I don't want to show my books to others' and the clear move to switch to 'dark mode' are obvious, leading the National Tax Service to suspect 'deliberate concealment.'"
However, lawyer Kim Myung-gyu emphasized that investigation bureau 4 is not always right and that the matter must be watched to the end, calling it still an 'allegation.'
Kim said, "Is there a possibility of an investigation bureau 4 misstep? Of course investigation bureau 4 is not 100% correct. In fact, in the first half of last year a case was concluded with 'no incident (no charges)' after an asset management company was investigated but no tax evasion evidence was found. If Cha Eun-woo's case does not prove 'intent,' it could end with a simple surcharge. For now it is at the 'allegation' stage."
But mentioning many pieces of evidence, he also argued, "The traces are too clear. Nevertheless, it is too detailed to be optimistic about because the signs of 'meticulous design' are too specific," and claimed, "Changing the sign was switching to a limited liability company to avoid external audits, laundering the address by registering the corporation at an eel restaurant in Ganghwa Island instead of Gangnam (to avoid acquisition tax heavy taxation), it looks like not a simple mistake but an 'organized and planned setup' with experts involved."
Finally lawyer Kim Myung-gyu said, "The conclusion (viewing point) is that the core of this case is not 'how much more tax will be paid' but whether 'the intentionality of concealment is proven,'" and added, "If these designs are recognized as deliberate tax evasion, it could lead not only to record-breaking surcharges but also to prosecution. The boundary between simple tax avoidance and tax evasion is now collapsing."
Meanwhile, the National Tax Service judged that company A, established by Cha Eun-woo's mother, signed a service contract with agency Fantagio but was a paper company that did not provide substantive services. It is reported that the National Tax Service believes Cha Eun-woo and his mother set up the nonexistent company A and distributed income to it to reduce income tax of up to 45% and thus apply a corporate tax rate more than 20 percentage points lower than the income tax rate. The tax surcharge exceeding 2 billion won is the largest amount imposed on a domestic entertainer to date.
However, Cha Eun-woo's 2 billion won surcharge has not been finalized. Agency Fantagio said on the 22nd, "This matter hinges on whether the corporation established by Cha Eun-woo's mother is subject to substantive taxation, and it is not a matter that has been finally determined or notified. We will actively clarify the issues related to tax interpretation and application through proper procedures," and announced its official position, saying "The artist and tax representatives will cooperate faithfully so that the procedures can be completed promptly, and Cha Eun-woo pledges to continue to faithfully fulfill tax filings and legal obligations as one member of the public."
Cha Eun-woo's side is reportedly awaiting the result of the 'pre-taxation review' they requested in objection to the National Tax Service's decision. <
[Photo] OSEN DB, lawyer Kim Myung-gyu SNS
[OSEN]