National Tax Service Administrator Lim Gwang-hyeon said regarding CJ Group's total return swap (TRS) contract, "If (tax) evasion is confirmed, we will conduct a strict investigation in accordance with the law and principles."
Lim answered this way to a question from Oh Gi-hyeong of the Democratic Party of Korea during the National Tax Service audit by the National Assembly's Strategy and Finance Committee, held at the National Tax Service building in the annex of the Government Complex Sejong on the 16th.
Oh said, "In Jul., the Fair Trade Commission judged CJ Group's TRS contract to be an improper support act and imposed a corrective order and a 6.541 billion won penalty surcharge," adding, "Since there are tax issues such as exclusion from taxable income, a tax investigation by the National Tax Service is necessary."
Oh said, "A TRS contract is not a simple derivative transaction but a structure that effectively provides credit enhancement and a guarantee for affiliates," adding, "If there had been no ordinary guarantee, the issuance rate would have been about 6%, but CJ Group lowered it to around 3.2%–3.6% through this, producing the effect that a gain equivalent to the difference accrued to CJ or CJ CGV."
Earlier, in Jul., the Fair Trade Commission determined that CJ and CJ CGV violated the Fair Trade Act by using a TRS contract, a type of derivative, to support affiliates CJ Construction and Simuline, which were in a capital impairment state, and imposed a corrective order and a penalty surcharge.
A TRS is a transaction in which the parties exchange cash flows such as trading gains or interest arising from an underlying asset for pre-agreed cash flows. According to the Fair Trade Commission, thanks to the TRS, CJ Construction and Simuline raised funds at interest rates lower than normal market rates and saved interest expenses amounting to several billion won.
Oh said, "Since the Fair Trade Commission's decision has been finalized, the National Tax Service should also examine it closely and verify whether there was evasion."
In response, Administrator Lim said, "If tax evasion is confirmed under the tax law, we will conduct a strict investigation in accordance with the law and principles."