Singer and actor Cha Eun-woo is embroiled in allegations of tax evasion amounting to around 20 billion won, raising the possibility of a prison sentence.
The Seoul Regional Tax Service Investigation Division 4 detected suspicions last year that Cha Eun-woo evaded taxes through a one-person agency established by his mother and conducted a high-intensity tax audit. Cha Eun-woo has operated under a structure in which his agency Fantagio and the one-person agency set up by his mother signed service contracts to support entertainment activities, and revenue was reportedly distributed among Fantagio, the one-person agency, and Cha Eun-woo personally.
However, the tax authority judged that the one-person agency in question was close to a so-called "paper company" that did not provide substantial services. There are suspicions that Cha Eun-woo and his mother established a corporation to reduce personal income tax of up to 45%, then distributed personal income and applied a corporate tax rate about 20 percentage points lower than the personal income tax rate through expense processing.
Regarding this, Cha Eun-woo's side said, "The main issue in this matter is whether the corporation established by my mother is subject to substantive taxation," and added, "This is not a finally confirmed or notified matter at present, and we will actively provide explanations through proper procedures regarding the interpretation and application of the law." They added, "The artist and the tax representative will cooperate faithfully so that the procedure can be completed promptly."
But the fallout is growing because the tax evasion allegations are described as the "largest involving a domestic entertainer." In particular, as the address of the management company established by Cha Eun-woo's mother became known to be an eel restaurant that operated on Ganghwa Island in Incheon, suspicions have been raised that they used a non-substantive corporation to deceive fans and the public. Fantagio said little, saying, "Cannot confirm."
In legal circles, attention is also focusing on the possibility of applying the Act on the Aggravated Punishment of Specific Crimes, as the additional tax amount calculated by the tax authority reaches around 20 billion won. Under that act, if the amount of tax evaded in a year is 1 billion won or more, a sentence of life imprisonment or imprisonment of five years or more can be imposed.
In this regard, Lee Don-ho, representative attorney of Nova Law Office, said, "The key issue is whether the corporation actually conducted business," and explained, "Even if there were office staff and work, if a corporation was created to divert personal income to corporate income and reduce taxes through expense processing, it could be judged as tax evasion under the principle of substantive taxation." He added, "If the revenue was generated by an individual's labor and image, it can be re-taxed as personal income even under the corporation's name."
However, "Using a corporation does not automatically mean tax evasion. One must comprehensively assess whether actual services were provided, the normality of the contract structure, and the intentionality of tax avoidance," and "This case will be an important example that delineates the boundary between tax planning using a one-person family corporation and tax evasion," an analysis said.
Amid talk of large additional taxes and the possibility of imprisonment, industry and public attention is focused on the conclusion of the tax evasion allegations surrounding Cha Eun-woo.
[Photo] OSEN DB
[OSEN]