The A shipyard located in the Daebul Industrial Complex in Yeongam, Jeollanam-do, applied for 'employment crisis area startup tax reduction' while filing its corporate tax declaration last year. This system is a tax support program that provides a 100% tax reduction on corporate income tax for 5 years from the year income is generated for corporations that start up in crisis areas with poor employment conditions, and then 50% for an additional 2 years.
However, according to the findings from the National Tax Service, it was revealed that A shipyard disguised itself as having newly established its business only by changing the representative's name.
The National Tax Service instructed the A shipyard to amend its tax return for the full amount of the tax reduction received, noting that it was difficult to see this as a substantial startup. The shipyard had to pay not only the total amount of the tax reduction but also the additional tax.
With the corporate tax filing deadline for December settlement of accounts (March 31) approaching, the National Tax Service is strengthening its verification of corporations' tax filings. Officials from the National Tax Service explained that both simple errors presumed to be mistakes and intentional acts of tax evasion are becoming more sophisticated.
According to the National Tax Service on 7th, it identified typical corporate tax evasion activities to focus on this year, including ▲ misuse of employment crisis area startup tax reduction ▲ improper outflow of corporate funds disguised as patent acquisitions ▲ free rental of dwellings owned by the corporation to related parties.
Misuse of employment crisis area startup tax reduction refers to a new type of tax evasion in which the actual corporation remains intact while simply changing the representative's name to disguise it as having started a new business, as seen in the case of A shipyard. An official from the National Tax Service stated, "There have been numerous cases confirmed where companies utilized the characteristics of industries that do not require separate physical facilities to falsely start a business by merely changing the representative's name and received tax cut benefits."
Numerous cases have also been found involving the improper outflow of corporate funds disguised as patent acquisitions. This refers to instances where a corporate-owned patent is registered under the name of the representative director and then the corporation purchases it at a high price in a short period, leading to the improper outflow of corporate funds to the representative director.
An official from the National Tax Service noted, "There are many false transactions in patent sales aimed at eliminating advances to the representative director," adding, "The depreciation expenses of the patents purchased at a high price are made non-deductible and amendments to the corporate tax are requested, while the advances to the representative director offset against the purchase price are treated as income to the representative director."
It is also important to be cautious about providing dwellings owned by the corporation for free rental to related parties. The National Tax Service explained that offering dwellings acquired or leased for employee housing and other welfare purposes to the family members of the representative director or major shareholders for free is subject to 'rejection of the calculation of improper acts.' "In such cases, the costs for maintaining the dwellings are to be classified as non-deductible expenses for tax purposes in the amended filing of corporate tax, and the appropriate market value of the rent for the dwellings is treated as income to the representative director," the official from the National Tax Service reported.