South Korea's tax authority failed to treat 22 suspicious asset transactions between relatives as gifts due to lax reviews, allowing nearly 82 billion won in possible disguised gifts to slip through, an audit found.
The Board of Audit and Inspection released the findings of its regular audit of the National Tax Service on the 27th. The Inheritance and Gift Tax Act stipulates that when assets are transferred between spouses or lineal ascendants and descendants without clear compensation, the transaction is presumed to be a gift. The board identified 25 cases in which the NTS failed to presume a gift even though stock or real estate transfers between related parties were substituted with monetary loans (of 1 billion won or more) without clear compensation.
After reviewing the appropriateness of these cases, the board found 22 that could not be regarded as normal transactions, including one in which the seller received only a 10% down payment on a sales price of several tens of billions of won while lending the balance interest-free for four years without setting up collateral. The total transaction value reached 81.7 billion won.
The NTS was also found to have neglected its "post-transaction debt management" duties, missing out on more than 7 billion won in taxes. To prevent evasion of inheritance and gift taxes, the NTS designates debts arising from private transactions as subject to post-transaction management. The audit found that the NTS failed to properly check whether creditors reported interest income or whether debtors filed gift taxes on unpaid interest, resulting in 7.2 billion won in uncollected income, gift, and inheritance taxes.
The board also pointed out that the NTS took no action despite receiving a list of individuals who had improperly received value-added tax exemptions by lending their names to so-called "administrator-run hospitals," raising concerns that 31 billion won may go uncollected, with 26.7 billion won already past the assessment deadline.