Amid recent allegations of tax avoidance surrounding the establishment of personal corporations by Hallyu stars such as Cha Eun-woo and Kim Seon-ho, an entertainment industry professional organization pointed out problems in the current tax administration and demanded institutional reforms.
The Korea Management Association (hereinafter Hanmaeyeon) on the 12th released a "position statement on entertainers' establishment of corporations and tax issues" and expressed regret at the tax authorities' approach of uniformly considering entertainers' personal corporations as means of tax evasion.
Hanmaeyeon said K-content has risen to a leading role in the global market and the industry's structure has also changed dramatically. It analyzed that as the domestic entertainment industry, which grew based on a one-stop management system in the 1990s, expanded to a global scale, some artists' revenue structures have effectively reached a "corporatization" stage.
Accordingly, Hanmaeyeon explained that artists establishing personal corporations to directly manage their careers, intellectual property (IP), and long-term brand value is a natural flow accompanying industry development.
However, the current tax administration regards such single-person corporations as "do-gwan (paper company)" meant to avoid progressive tax rates on income tax and repeatedly imposes retroactive assessments, industry sources say. Hanmaeyeon said this is an example that shows institutions and administration are failing to keep pace with the changed industry structure.
It also emphasized that a personal corporation is not a mere "shell" for simple tax management. It said these corporations carry out substantive management activities such as artists' mental and long-term career care, IP development and content planning, shouldering penalties and damages arising from exclusive and appearance contracts, hiring full-time managers, and operating offices and dedicated vehicles.
Hanmaeyeon pointed to the cause of repeated retroactive assessments as a "lack of standards," not "malice." It argued the reason National Tax Service rulings are overturned in tax tribunals and administrative lawsuits is that clear and predictable taxation standards do not exist.
Accordingly, Hanmaeyeon proposed to the government: establish clear tax guidelines recognizing the industrial substance of personal corporations; set predictable standards that reflect corporations' substantive roles and risks; reform the system to induce transparent operations rather than focusing on crackdowns and retroactive assessments; and adopt progressive administrative interpretations that do not undermine K-culture competitiveness.
Finally, Hanmaeyeon said K-culture is Korea's future industry and national brand and warned that if the structures that led its growth are judged solely through the frame of tax evasion, it will extinguish its own growth engine.
Below is the full text of Hanmaeyeon's position
As K-content has risen to a leading role in the global market, reactions have emerged that Korea's entertainment industry structure is becoming distorted. In particular, recently, allegations of tax avoidance tied to the corporate establishments of "Hallyu stars" have created a significant difference in perspective between the tax authorities and the industry.
1. What is the problem with entertainers establishing corporations?
When the Hallyu wave began in the 1990s and existing entertainment agencies started to foresee the commercial potential of popular culture content, they built systems as comprehensive entertainment companies that covered planning, production and management all at once for the success of the artists affiliated with them. This more efficient approach maximized entertainers' value and spurred the rapid growth of the popular culture arts industry.
This unique Korean entertainment system is essentially a one-stop system in which an individual entertainer and a company sign an exclusive contract and the company handles everything from the first steps for each entertainer to the final management of debuted entertainers.
The problem began as the industry grew extremely large and Hallyu gained worldwide popularity. Individuals became corporatized, generating astronomical revenue. However, no institutions or policies understood or supported this structure, and that began to rapidly change the entertainment industry's structure. Artists began to establish and manage so-called "personalized corporations" to manage their careers, intellectual property (IP) and long-term brand value themselves.
However, the current tax administration uniformly regards these corporations as "do-gwan (paper company)" to avoid progressive tax rates on income tax and repeatedly carries out broad retroactive assessments under the name of the substance-over-form taxation principle. This approach clearly shows that institutions and administration are failing to follow the changing industry reality.
2. How should we view entertainers' personal corporations?
These agencies are not mere "shells" concerned only with taxes. They function as companies that perform various roles and act on behalf of some of the entertainers' authorities.
• Mental care and long-term career management for artists
• IP development and content planning
• Directly bearing penalties and damages arising from exclusive contracts and appearance contracts
• Substantial management activities such as office rental, hiring full-time managers, and operating dedicated vehicles
These activities are carried out directly, and courts have increasingly recognized corporations as substantive entities when they conduct real business, become the contractual party responsible, and establish independent business models.
3. So how should things change?
The reason retroactive assessments are repeatedly imposed is not the "malice" of the corporations but the "lack of standards." The reason National Tax Service retroactive assessments are repeatedly overturned in administrative lawsuits and tax tribunals is not because the industry is using illegal methods but because clear and predictable standards do not exist. Therefore, it is now necessary to move away from viewing artists solely as "sole proprietors" and institutionally recognize them as corporate entities that operate a brand and intellectual property.
4. Hanmaeyeon's recommendations
The Korea Management Association therefore proposes the following to the government:
• Establish clear tax guidelines recognizing the industrial substance of personal corporations
• Create predictable tax standards that reflect a corporation's substantive role, risk burden and business structure
• Reform the system to encourage transparent operations rather than focusing on crackdowns and retroactive assessments
• Make progressive administrative interpretations and policy decisions that do not undermine the global competitiveness of the K-culture industry
5. Closing remarks
K-culture is no longer the achievement of a few individual stars but Korea's future industry and national brand. The moment we judge the structures that led its growth solely by the frame of tax evasion, we will turn off our own growth engine. The Korea Management Association earnestly appeals to the public and the government to recognize the industry's reality and improve systems on the premise of transparent operations.
[Photo] OSEN DB
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