Singer and actor Cha Eun-woo was notified by the National Tax Service of an additional income tax bill of about 20 billion won, and legal circles are raising various viewpoints about it.
On the 22nd, a media outlet reported that Cha Eun-woo was recently notified by the National Tax Service of an additional tax bill exceeding 20 billion won on charges including income tax evasion. This is the largest tax assessment ever levied on an entertainer in Korea, and even when expanded worldwide it ranks as high as sixth.
The National Tax Service judged that Cha Eun-woo and his mother split income with corporate entity A, which was set up by his mother, separate from his agency Fantagio, and ruled that A was a paper company that did not actually provide services, notifying them to pay that amount.
In fact, the address of company A was revealed to be an eel restaurant located on Ganghwado, making it somewhat difficult for it to handle entertainment-related work. The National Tax Service judged that Cha Eun-woo and his mother used the shell of A, which had no real substance, to apply a corporate tax rate more than 20% lower than the personal income tax rate in order to reduce an income tax that could reach 45%.
Regarding this, agency Fantagio issued an official statement saying, "The main issue in this matter is whether the company established by Cha Eun-woo's mother is subject to substantive taxation, and this is not a matter that has been finally determined and notified. We will actively explain the points of contention related to legal interpretation and application through proper procedures."
Fantagio also added, "The artist and tax representatives will faithfully cooperate so that the procedure can be concluded quickly. Cha Eun-woo promises to continue to faithfully fulfill tax reporting and legal obligations as a member of the public."
The staggering additional assessment of 20 billion won, called the "largest for a domestic entertainer," has stirred not only the public but also the legal community. In particular, attention is focusing on the possibility of applying the Act on the Aggravated Punishment of Specific Crimes. Under that act, if the evaded tax amount is 1 billion won or more in a year, a sentence of life imprisonment or five years or more can be imposed.
Lee Don-ho, managing attorney at Nova Law Office, said, "The core issue is whether the company actually conducted business," and explained, "Even if an office, staff and work existed, if a company was created to divert personal income to corporate income and expenses were used to reduce taxes, it can be judged as tax evasion under the principle of substantive taxation." He added, "If the income was generated by an individual's labor and image, it can be re-taxed as personal income even if it is in the corporation's name."
However, he said, "Using a corporation does not automatically mean tax evasion. A comprehensive judgment must be made on whether services were actually provided, the normalcy of contract structures, and the intent to evade taxes," and analyzed, "This case will be an important example distinguishing tax saving using a single-person family corporation from tax evasion."
Attorney Lee Ji-hoon, who runs the YouTube channel "The Knowing Lawyer," said that without help from agency Fantagio, the scheme would have been difficult to carry out. Lee Ji-hoon said, "We need to examine what the company established by the mother did to support Cha Eun-woo's entertainment activities," and pointed out, "The corporate address is listed as an eel restaurant on Ganghwado, so we must consider whether it has the capacity to support Cha Eun-woo. Even someone without a stake would find it hard to accept an address that is an eel restaurant."
Attorney Lee Ji-hoon said, "They must prove whether there were actual entertainment support activities such as schedule management or contract work. It is suspicious that the address was moved to Gangnam and changed to a limited liability company after the tax allegations surfaced," and added, "This is speculation, but I think Fantagio designed the tax saving structure. Fantagio gave part of the money that should have gone to Cha Eun-woo to the company. Cha Eun-woo knows, the company knows, but it could not be done without Fantagio's help."
He speculated, "This would not have happened without perfectly deceiving or assisting Fantagio. Fantagio handles settlements, so giving money to a company that did not perform work makes no sense. I suspect Fantagio played a role."
In particular, lawyer and accountant Kim Myung-kyu recently analyzed Cha Eun-woo's alleged 20 billion won tax evasion from multiple angles in a thread titled "a friendly explanatory edition for nonprofessionals." He said, "The 20 billion won headline about a famous entertainer being slapped with an additional 20 billion won is causing a stir. That 20 billion is not all the tax that should have been originally paid. The main tax is roughly 10 to 14 billion won, and the rest is penalties (additional tax). If the National Tax Service judges you deliberately underreported (unjustly underreported), it adds 40% of the originally owed tax as additional tax. Interest (late payment additional tax) is also added. In other words, of the 20 billion won, 6 to 10 billion won is the 'cost of lying.'"
Cha Eun-woo was reported to have undergone an intensive investigation on tax evasion by the Seoul Regional Tax Service's Investigation Division 4 last spring. Regarding Investigation Division 4, attorney Kim explained, "The fact that Investigation Division 4 got involved in this case is a strong signal that the National Tax Service views this not as a simple mistake but as a heavily suspected deliberate tax evasion. Actors often set up single-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 with employees and an office; instead, they put it in a family member's name and list the office as a parent's eel restaurant or the home they live in. The National Tax Service sees it and thinks, 'This is a shell. It's just individual earnings.' So it cancels the corporate tax benefits and slams them with an income tax bomb."
Kim Myung-kyu said, "Everyone wants to save taxes. But if you don't want to spend on establishing the substance of a business (hiring employees, operating an office, etc.) and only want the tax benefits, that becomes 'tax evasion.' The greed of 'I don't want to spend on expenses but want the benefits' has returned as a huge boomerang of 20 billion won. No famous entertainer is exempt from taxes. Let's do it the right way."
However, attorney Kim also said that Investigation Division 4 is not always correct. He said, "Investigation Division 4 is not 100% correct. In fact, there was a case in the first half of last year where it was deployed to an asset management firm but no tax evasion was found and the case was closed with no charges. In Cha Eun-woo's case, if the investigation does not prove intent, it could end as a simple additional assessment. For now it is still at the 'allegation' stage."
But Kim Myung-kyu, who said there is so much evidence, warned, "The traces are too clear. Nevertheless, it is hard to be optimistic; the traces of meticulous planning are too specific. Changing the sign to avoid external audits by switching to a limited liability company, laundering the address by registering the corporation at an eel restaurant on Ganghwado instead of Gangnam (to avoid acquisition tax surcharges), these look like not a simple mistake but an 'organized and planned setup' in which professionals were involved."
Finally, Kim Myung-kyu said, "The key point to watch is not how much more tax will be paid but whether the concealment was proven to be intentional," and added, "If these designs are recognized as deliberate tax evasion, it could lead not only to an unprecedented additional tax bill but also to prosecution. The line between simple tax saving and tax evasion is collapsing."
Meanwhile, Cha Eun-woo enlisted in the army's military band in July last year and is currently serving. Reports that the National Tax Service waited to deliver the results until after his enlistment have raised suspicions that his enlistment might effectively be an escape 'military run.' The agency remained silent, saying, "It is difficult to confirm beyond the official statement."
Cha Eun-woo is scheduled to have Netflix's The Wonder Fools released later this year.
[Photo] OSEN DB
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