Gangnam District Recovers 15.5 Billion Won Through Corporate Tax Audits on False Headquarters

Proposal to Improve Exemption Criteria for Value-Added Telecommunications Operators
Recipient of Seoul First Prize, Driving Public Discussion on Law Revision

On July 28, Gangnam District in Seoul (District Mayor Kim Hyunki) announced that it had levied an additional 15.5 billion won in taxes in the first half of this year through corporate tax audits targeting companies with false registered addresses and similar issues. This figure is approximately 204% of the district’s annual goal for securing new tax sources, 7.6 billion won, reached in just six months.

The exterior view of Gangnam-gu Office. Provided by Gangnam-gu.

The district directly checked the actual operations of corporations and the real use of real estate on site, verifying tax grounds by cross-referencing lease agreements, sales figures, and executive compositions. Although some corporations appealed through pre-assessment reviews, objections, or tax tribunal processes, the district’s determinations were upheld in major cases.

For example, Corporation A acquired a dormant company with no sales for over five years before purchasing real estate in Yeoksam-dong. The district found that more than half the executives were replaced during the acquisition, interpreted the acquisition date as the effective establishment date, and applied heavy taxation for large cities, ultimately imposing an additional 2.6 billion won in acquisition and related taxes. The Tax Tribunal upheld the district’s taxation decision.

Corporation B in Nonhyeon-dong reported the actual location of its headquarters work as a simple rented office. However, the district’s on-site investigation and contract review confirmed the actual headquarters operation, resulting in an additional 220 million won in acquisition and other taxes. Both Seoul’s pre-assessment review and the Tax Tribunal upheld this taxation.

Corporation C claimed an exemption from heavy employee housing taxation for a residence in Cheongdam-dong, arguing it was used as an accommodation for affiliated artists and trainees. The district determined these artists, bound by exclusive contracts, could not be considered employees receiving wages, and imposed an additional 550 million won in acquisition taxes. The Seoul Objection Review Committee also supported the district’s stance.

Corporation D declared exemption from heavy acquisition taxes, citing the use of land in Yeoksam-dong for youth housing. However, a tax audit found that 15.68% of the total area was used as commercial space. The district issued a preliminary notice of 1.02 billion won in taxes for the portion not used directly for residential leasing, and despite claims by the company that the commercial area was an ancillary business facility, the pre-assessment review upheld the district’s decision.

Meanwhile, during the review of high-value corporate tax adjustment claims, the district discovered a loophole where companies using telecommunications networks simply as business tools could still be recognized as ‘value-added telecommunications operators’ and thereby qualify for exemption from heavy acquisition taxes in large cities. To address this, an amendment to the Local Tax Act Enforcement Decree was proposed to grant the exemption only to businesses providing telecommunications services directly to external clients. This proposal won first prize at the Seoul Taxation Reform Joint Seminar this past May and will be presented by the district as Seoul’s representative at the Ministry of the Interior and Safety’s National Local Tax Development Forum in November with the goal of advancing legislative changes.

Building on these achievements, the district plans to hold tax briefings for small, start-up, and venture companies in October, strengthening administrative efforts to prevent erroneous reports in addition to post-investigation taxation.

District Mayor Kim Hyunki said, "We will respond firmly to sophisticated corporate tax avoidance schemes and uphold the legitimacy of tax impositions throughout the appeals process as a realization of tax justice. Beyond just additional collection, we will address even the loopholes of outdated systems, striving for a fair tax administration that respects honest taxpayers."

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