Various Real Estate Tax Evasion Schemes... From "Parental Assistance" to Sham Transactions to Avoid Higher Capital Gains Tax

National Tax Service Investigates 104 Individuals Since Last October
Collects 31.8 Billion Won in Back Taxes; Total Tax Evasion Reaches 73.1 Billion Won
Six Referred to Prosecution for Tax Evasion, Four Penalized with Fines

C, an unemployed individual in his 40s, lived in a high-end apartment along the Han River in Gangnam with a monthly rent exceeding 7 million won. He received approximately 2 billion won from his parents to cover the rent, stock investments, and living expenses, but failed to report these gifts. As a result, the National Tax Service imposed an additional gift tax of 1.3 billion won. There was also a case where a spouse purchased a luxury apartment using corporate funds and was caught. D, an individual in his 50s, acquired several real estate properties, including a planned redevelopment ultra-luxury apartment in Gangnam worth about 4 billion won. The National Tax Service, after tracking the flow of funds, confirmed that D received a gift of 2 billion won from his spouse, who is the CEO of a livestock company. The spouse had secretly gifted 2 billion won to D out of a slush fund of approximately 3 billion won, which had been created through unrecorded sales to business partners. As a result, the National Tax Service imposed 3.1 billion won in taxes, including corporate tax for the livestock wholesaler’s unreported sales and gift tax for D’s real estate acquisition funds.

Recently, the National Tax Service announced that it launched a simultaneous investigation last October into 104 individuals suspected of real estate tax evasion, including luxury home cases, and has since collected a total of 3.18 billion won in taxes. The total amount of tax evasion by these individuals amounts to 7.31 billion won.

A panoramic view of apartment complexes in downtown Seoul as seen from Namsan, Seoul. Photo by Dongjoo Yoon

The investigation found cases where individuals acquired expensive apartments with funds secretly gifted by their parents, thus evading gift tax. There were also numerous instances in which owners of multiple properties falsely transferred the ownership of low-priced homes to relatives or acquaintances, then sold high-priced properties with significant capital gains, illicitly applying the single-home capital gains tax exemption or avoiding the higher tax rate through sham transactions.

According to the National Tax Service, “Gap,” who owns Apartment A in a metropolitan city valued at about 300 million won and Single-Family Home B valued at about 1.5 billion won, transferred Apartment A under false pretense to “Eul,” a friend of her husband, before selling the high-capital-gain Home B. The purpose of this sham transaction was to reduce the capital gains tax by applying the single-home exemption when selling Home B for 1.5 billion won. At the time, Gap paid 60 million won in capital gains tax.

The National Tax Service, after reviewing the flow of funds related to the transaction, found that Gap manipulated financial evidence by secretly transferring the necessary transaction funds to her husband’s friend through other friends and colleagues in order to make it appear as if Eul had actually acquired Apartment A. The agency confirmed that Gap, a multiple-home owner, used a sham transaction for Apartment A to make it seem she was a single-home owner at the time of selling Home B, thereby illicitly applying the tax exemption. Consequently, the National Tax Service imposed an additional 600 million won in capital gains tax—a tenfold increase. Furthermore, both Gap and her husband’s friend, who cooperated in the tax evasion, were reported to the prosecution as tax evaders. The nominal trust in Apartment A was also reported to the relevant local government as a violation of the Real Name Real Estate Act.

An official from the National Tax Service stated, “The National Tax Service not only pursued cases of capital gains and gift tax evasion revealed during real estate transactions, but also expanded the investigation to businesses when the source of funds was found to be unreported business income or corporate fund diversion, ensuring that all missing taxes such as corporate tax and income tax were collected. In cases where fraud or other illegal methods of tax evasion were confirmed during the investigation, a penalty for underreporting, amounting to 40%, was imposed.”

In addition, under the Punishment of Tax Offenses Act, beyond collecting back taxes, six individuals were referred to the prosecution and four individuals were issued penalty notices totaling 700 million won. Not only the primary investigation subjects but also those found to have participated in fraudulent acts were subject to these measures. Individuals who evade taxes through fraudulent means such as deception may face up to two years in prison or a fine of up to twice the evaded tax amount. In addition, 20 individuals identified as having violated the Real Name Real Estate Act through nominal trusts were reported to the relevant local governments for possible imposition of fines and criminal penalties.

An official from the National Tax Service commented, “As there are concerns that gift transactions among multiple-home owners may increase following the reinstatement of heavy taxation, we plan to closely examine whether there are any illicit gifting practices, such as undervaluing gifted assets or paying gift taxes on behalf of others. Additionally, we will carefully review family transactions aimed at tax avoidance, such as parents transferring apartments to their children at prices significantly below market value, or disguising sales that in reality constitute gifts.”

This content was produced with the assistance of AI translation services.