If you invested in an illegal multi-level marketing company and made a profit, that money counts as interest income, not business income, a court has ruled.
The 4th Division of the Seoul Administrative Court (Presiding Judge Director General Kim Young-min) said on Mar. 6 that it rejected all claims in a lawsuit filed by three people—identified as a person surnamed Jang, a person surnamed Choi, and a person surnamed Lee—seeking to overturn comprehensive income tax assessments imposed by the heads of the Gangseo, Banpo, and Seongbuk district tax offices, respectively.
The three, including Jang, put investment funds into Company A, which was established for the purpose of selling cosmetics. Company A did not conduct cosmetics transactions and raised investment funds through a multi-level marketing pitch that said, "If you invest in a group-buying project for cosmetics, we will pay about 5% of the investment amount as profit for four months and return the principal after five months." It paid profits to existing investors with money from new investors. B, who founded Company A, received a confirmed sentence of 20 years in prison for fraud in Feb. 2023.
From 2018 to 2020, Jang and the others received money from the multi-level Company A as profits. The tax office viewed these profits as gains unrelated to business operations and notified Jang to pay 9.09 million won, Choi 24.11 million won, and Lee 40.43 million won in comprehensive income tax.
In response, Jang and the others argued that the comprehensive income tax assessment was unjust, saying, "Because the profits were earned by jointly purchasing cosmetics with Company A and entrusting them to B, they are business income, not interest income."
The Administrative Court found that the profits Jang and the others received were business income, not interest income. The panel said, "The plaintiffs did not bear the risks accompanying the consignment sales of cosmetics and merely received the agreed amount; they were nothing more than simple providers of funds," adding, "Company A did not actually conduct cosmetics transactions and only engaged in similar deposit-taking activities."