A nonprofit foundation that runs scholarship programs was found to have paid less value-added taxes while building officetels and running a dwelling rental business. The person who reported it did not receive a reward, and a court ruled that decision was reasonable.
The 6th Division of the Seoul Administrative Court (Presiding Judge Na Jin-i, Director General) said on the 20th that it dismissed the plaintiff's claim in a lawsuit filed by a person surnamed A to cancel the disposition refusing to pay a reward against the head of the Guro Tax Office on May 22.
Earlier, the Kwanjeong Lee Jong-hwan Education Foundation (hereinafter "Kwanjeong Foundation") completed a residential-commercial complex in Sindorim-dong, Guro-gu, Seoul, in 2021 with four basement levels and 20 above-ground floors. Floors 3–20 above ground consist of officetels and one-room urban-style lifestyle dwellings.
In 2023, a person surnamed A reported to the Seoul Regional Tax Service that the Kwanjeong Foundation was conducting a for-profit business earning rental revenue from the building, but had fraudulently received an 8 billion won refund of construction value-added taxes by invoking the fact that the owner is a nonprofit corporation.
The Kwanjeong Foundation is a scholarship foundation established in 2000 with personal funds donated by the late former Chairman Lee Jong-hwan of Samyoung Chemical Group. The foundation says its contributed asset is valued at 1.7 trillion won, making it the largest scholarship foundation in Asia.
The Guro Tax Office, having received the tax evasion report from the Seoul Regional Tax Service, conducted a tax audit in Oct.–Nov. 2023. It found that many officetels designated as business facilities were used for dwelling purposes, and notified the Kwanjeong Foundation to pay an additional 7.9 billion won in value-added taxes.
If a scholarship foundation engages in a dwelling rental business and the rental revenue is used to pay scholarships, value-added taxes are exempt. Input taxes such as construction costs incurred for running an exempt business cannot be credited against value-added taxes. The Guro Tax Office determined that the Kwanjeong Foundation received an excessive refund of value-added taxes in the process of increasing the area used for its exempt business.
Afterward, the whistleblower, a person surnamed A, applied to the Guro Tax Office for payment of a tax evasion reporting reward. Under the Framework Act on National Taxes, the National Tax Service pays a reward if one reports "important materials," such as specific details or evidence that can support the fact that a particular individual or corporation committed tax evasion. However, the Guro Tax Office did not pay the reward, saying A's report did not constitute "important materials." A then filed a lawsuit.
The Seoul Administrative Court found that the decision not to pay a tax evasion reporting reward to a person surnamed A was reasonable. The court said, "If the (reported) materials amount only to pointing out the possibility of tax evasion, speculative suspicions, or mere rumors, it is difficult for the tax authorities to readily verify the facts of tax evasion," and added, "Such materials do not constitute 'important materials' eligible for rewards."
It added, "The Guro Tax Office checked whether refrigerators, washing machines, microwave ovens, and other items were installed in the officetels to identify those used for permanent residential purposes and conducted a tax audit," and found, "Through this process, it verified specific facts of tax evasion." It also pointed out that the contents of A's report differed from the grounds on which the Guro Tax Office determined additional value-added taxes were due.