Unjust Labor Cost Accounting and Price Hikes to Evade Taxes... 319.5 Billion Won Collected from Tax Evasion Fueling Price Instability

National Tax Service Completes Investigation of 114 Companies from September Last Year to June This Year
Assessed Amount Reaches 769.8 Billion Won, 33 Cases of Criminal Tax Penalties

Food manufacturer A enjoyed a boom by taking advantage of its oligopolistic status to raise product prices, despite a decline in international prices of key raw materials. According to the National Tax Service, the company was found to have improperly recorded as expenses approximately KRW 30 billion in personnel costs for dispatched employees—which should have been borne by its trading partners—as well as about KRW 1 billion in inflated raw material purchases from related-party companies. As a result, approximately KRW 9 billion was additionally collected in taxes.

Comprehensive food manufacturer B raised product prices by around 5% by leveraging its dominant position in the oligopolistic market. The investigation revealed that the company paid about KRW 20 billion in entertainment-type sales incentives to retailers to maintain its shelf presence and trading relationships, disguising these as logistics expenses in its accounting. The National Tax Service also confirmed that the company allocated about KRW 15 billion in profits to related-party companies by overpaying for outsourced services, and collected approximately KRW 20 billion in additional taxes.

On July 12, the National Tax Service announced that, as a result of a tax investigation conducted from September last year through June this year, it had collected KRW 319.5 billion in additional taxes from 114 entities in monopolistic, oligopolistic, collusive, processed food, agrifood, fisheries, daily necessities, and foodservice franchise sectors that profited excessively from sharp price hikes without properly reporting their income. The top 10 companies with the highest additional tax accounted for a combined KRW 248 billion, or about 78% of the total amount collected.

According to the National Tax Service, one food and beverage manufacturer was found to have circumvented quota limits to exploit tariff benefits by importing raw materials through conduit companies registered under the names of former employees, and received fraudulent tax invoices. Consequently, KRW 7 billion was collected in disallowed input VAT deductions. The persons involved in these acts, which included violations of tax invoice issuance obligations and other tax offenses, were subject to criminal tax penalties.

One company that had participated in public sector bid rigging was found to have engaged in illegal collusion fee payouts amounting to several hundred million won, and to have wrongly claimed around KRW 8 billion in payroll for non-dedicated research personnel for R&D tax credits. As a result, approximately KRW 4 billion in additional taxes was collected.

A major F&B franchise among the companies investigated benefited from so-called "shrinkflation," effectively increasing prices by reducing product sizes rather than raising listed prices. The investigation confirmed that the company funneled profits to related-party companies by involving them in high-priced raw material purchases. The National Tax Service also identified about KRW 2 billion in promotional expenses unfairly paid on behalf of an affiliate, among other practices that led to the concealment of approximately KRW 70 billion in corporate income. Approximately KRW 20 billion in additional taxes was recovered.

The National Tax Service stated that, in line with the government policy of prioritizing price stability for public livelihood, it will continue to respond strictly to tax evaders who unfairly amass excessive profits and increase the economic burden on ordinary citizens.

An official at the National Tax Service said, "We will continue intensive monitoring of industries dominated by a few powerful firms, those with frequent collusive practices, and sectors closely linked to public livelihood. Any company found to have raised prices excessively and evaded due taxes using economic conditions as an excuse will be promptly selected for investigation. During audits, all available methods—including provisional seizure and financial account tracking—will be mobilized for thorough verification. Additionally, when tax offenses such as tax evasion and issuance of false tax invoices are discovered, we will take decisive action to ensure punishment under the Tax Offenders Punishment Act."

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