Singer and actor Cha Eun-woo's "200 billion won tax evasion" allegation has caused a major social stir, and attorney Kim Myung-gyu offered a "friendly explainer" for the public from an expert perspective.
Attorney and accountant Kim Myung-gyu recently posted on a personal thread titled "a friendly explainer for nonexperts," analyzing various issues related to Cha Eun-woo's "200 billion won tax evasion" allegation.
He said, "there's a racket about the famous entertainer's '200 billion won recovery' news. From the public's perspective, you might think, 'wow, how much did he earn that taxes alone are 200 billion won?' From an expert (attorney + accountant) perspective, I'll unpack what this number means," and added, "this 200 billion won is not all the original tax (principal tax) that should have been paid. The principal tax is roughly 100 to 140 billion won, and the rest is 'penalty (additional tax)'. If the National Tax Service judges 'you intentionally deceived us? (undue underreporting),' it levies an additional tax equal to 40% of the original tax due. Interest (late payment interest) is added on top of that. In other words, of the 200 billion won, 60 to 100 billion won is the 'price of lying.'"
Cha Eun-woo underwent an intensive investigation by the Seoul Regional Tax Service's Investigation Division 4 last spring on tax evasion suspicions, and Kim Myung-gyu said, "the fact that 'Investigation Division 4' appeared in this case is a strong signal that the National Tax Service views this not as a simple mistake but as a very strong suspicion of 'intentional tax evasion.'" He added, "why is it that only 'actors' seem to be targeted? There's a difference in 'IP (intellectual property).' Idols: products developed 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 company). Cha Eun-woo is a peculiar case. He started as an idol (company IP) but has grown into a top actor (personal IP). At the point where he might think, 'now I handle all the acting myself,' actors often try a tax-saving method used by actors (a one-person agency), and it appears he ran into trouble while attempting that."
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 to be recognized as a corporation, it must be a real company. There must be employees and an office, but they put it in a family member's name and list the office as a parent's home or the house they live in. The National Tax Service saw this and thought, 'isn't this just a shell? It's just the actor's personal earnings.' So they canceled the corporate tax benefits and hit them with an income tax bomb. Everyone wants to save taxes. But if you don't want to pay the costs to establish the substance of a business (hiring staff, 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 expenses but want the benefits' has come back as a massive boomerang of 200 billion won. No famous entertainer is exempt before taxes. Follow the correct procedures," he emphasized.
Later, Kim Myung-gyu released "a friendly explainer for nonexperts 2," comparing, "so how is this different from the cases of Lee Ha-nee and Yu Jun-Sang? To cut to the chase, it's a fight of different 'weights of the allegation (class).'
He said, "in previous cases (Lee Ha-nee, etc.) it's like 'the tax law interpretation is a bit different?' (there's room for dispute), but in this case (Cha Eun-woo, etc.) it's like 'you deliberately deceived us?' (suspicion of criminal charges). Why did they change to a 'limited liability company'? The most suspicious point is that they converted what was an ordinary joint-stock company into a 'limited liability company (LLC).'" He explained, "the reason is simple: 'to avoid external audits.' Joint-stock companies must undergo mandatory external audits and disclose their books when sales or assets grow. But limited liability companies have no obligation to undergo external audits no matter how much money they make. In other words, the intention to 'not show my books to others' and switch to 'dark mode' is clear, so the National Tax Service suspects 'intentional concealment.'"
However, attorney Kim Myung-gyu said the fact that Investigation Division 4 is involved does not always mean they are correct, and that we must watch until the end; he still called it an 'allegation.'
Kim said, "is there a possibility that Investigation Division 4 misstepped? Of course, Investigation Division 4 is not 100% right. In fact, last year in the first half there was a case where they were deployed to an asset management firm but no tax evasion suspicions were found and the case was closed 'without incident (no charges).' If in Cha Eun-woo's case the investigation does not prove 'intent,' it could end with a simple recovery. For now, it's still at the 'allegation' stage."
However, while mentioning many pieces of evidence, he noted, "the traces are very clear. Nevertheless, it's too detailed a 'meticulous design' to be optimistic," and pointed out, "changing the sign was to avoid external audits by switching to a limited liability company, laundering the registered address by registering the corporation at an eel restaurant in Ganghwa Island instead of Gangnam (to avoid acquisition tax heavy taxation), and it appears to be an 'organized and planned setup' involving experts rather than a simple mistake."
Finally, Kim Myung-gyu said, "the takeaways (points to watch) are that the core of this case is not 'how much more tax will be paid' but whether 'the intent to conceal will be proven,'" and added, "if these arrangements are recognized as intentional tax evasion, it could lead not only to unprecedented recovery amounts but also to prosecution. The boundary between simple tax planning and tax evasion is now collapsing."
Meanwhile, the National Tax Service judged that Company A, established by Cha Eun-woo's mother, had signed a service contract with the 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 a shell Company A with no substance and allocated income to it to reduce the 45% income tax and receive a corporate tax rate more than 20 percentage points lower than the income tax rate. The more than 200 billion won tax recovery amount is the largest amount ever levied on a domestic entertainer.
However, the 200 billion won recovery against Cha Eun-woo is not a finalized matter. Agency Fantagio said on the 22nd, "this matter concerns whether the company 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 explain the issues related to the interpretation and application of the law through proper procedures," and stated that "the artist and the tax agent will faithfully cooperate so that the procedure can be completed promptly, and Cha Eun-woo promises to continue to faithfully fulfill tax filings and legal obligations as a member of the public," announcing an official position.
It is reported that Cha Eun-woo's side is currently waiting for the result of the 'pre-assessment review of taxation' they filed in opposition to the National Tax Service's decision.
[Photo] OSEN DB, attorney Kim Myung-gyu's social media
[OSEN]