The Incheon Regional Tax Office committed a total of 52.1 billion won ($37.7 million) in national tax administration failures — allowing improper tax reductions to go unchallenged while also over-collecting taxes without legal basis — according to an audit by the Board of Audit and Inspection.
The board released the findings Tuesday in its regular audit report on the Incheon Regional Tax Office, identifying 30 violations and irregularities across tax investigations, tax base management and amended return processing. It issued 11 Caution notices and 19 notifications. About 50 billion won in additional taxes is to be collected and 2.1 billion won refunded as a result of the measures.
The Incheon office was aware of allegations that majority shareholders of unlisted corporations were evading the progressive capital gains tax rate but took no action for an extended period, resulting in 24.9 billion won in undercollected national taxes, the audit found.
Under current law, when a majority shareholder holding 50 percent or more of a corporation whose real estate assets account for at least 50 percent of total assets transfers that stake, a progressive tax rate of up to 45 percent applies. Seven majority shareholders of Companies A and B, both ready-mixed concrete manufacturers, sold their combined 100 percent stake in 2023. Although the companies' real estate asset ratios had been 56.8 percent and 67.1 percent respectively in the prior year, the shareholders reported ratios of 49.7 percent and 49.1 percent at the time of sale, allowing them to file under the flat 25 percent rate.
The Incheon office requested explanatory materials in August 2024 but left the case unaddressed without further review or a tax investigation until November 2025, even after the shareholders failed to submit adequate supporting documents. The audit found that the shareholders had inflated total assets by overstating accounts receivable, manipulating the ratio to underpay 24.9 billion won in capital gains tax. The board notified the office to investigate the appropriate valuation and collect the 24.9 billion won, and to pursue criminal tax charges if evasion is confirmed.
The audit also uncovered widespread failures to tax improper transactions between related parties. During tax investigations, the Incheon office identified overpriced purchases and other irregular transactions involving corporations affiliated with controlling shareholders but neglected to review the deemed-gift provisions under the Inheritance Tax and Gift Tax Act. That oversight left 4.5 billion won in gift taxes unassessed against 25 controlling shareholders across 17 specific corporations.
The Bupyeong Tax Office, which falls under the Incheon office's jurisdiction, improperly refunded 1.07 billion won in corporate tax to Company D, which did not meet the requirements for a tax credit on technology-innovation share acquisitions. The office relied solely on the taxpayer's representative's claims despite existing Ministry of Economy and Finance guidelines and Tax Tribunal precedents on identical or similar cases. The error was corrected through this audit.
The audit also found cases in which aggressive or sloppy tax assessments infringed on taxpayers' rights. In processing the inheritance tax on unlisted shares of Company K, the Incheon office arbitrarily applied an appraisal value without legal basis — contrary to applicable regulations — overstating the real estate asset ratio from 77.3 percent to 84.4 percent and improperly collecting an additional 690 million won in inheritance tax. The office also inadequately reviewed Company L's application for a tax credit on a dedicated recycled-waste account, resulting in 1.43 billion won in corporate tax being under-refunded.
Six tax offices under the Incheon office's jurisdiction, including the Paju Tax Office, launched tax investigations into businesses suspected of issuing and receiving fictitious tax invoices only after the seven-year statute of limitations had expired, or misapplied the criteria for selecting criminal investigations, forfeiting 1.35 billion won in potential penalty disposition opportunities.
sunpine@heraldcorp.com
