Illegal inheritance by biz groups to face heavy taxes

Tax authorities will go after conglomerate owners harder for illegally passing their wealth onto their children or relatives through unlisted affiliates.

Private entities such as debt collectors and credit information companies will also be hired by the government to help collect back taxes.

The government announced these and other anti-tax evasion plans Thursday in a meeting "to achieve a fair society" at the National Tax Service and chaired by President Lee Myung-bak.

Strategy and Finance Minister Yoon Jeung-hyun said, “A principle on tax inheritance and donations not included in tax laws was introduced in 2004, but irregular inheritance and donations still occur through affiliates of large companies.”

“To prevent tax evasion via wealth transfers, we are reviewing the imposition of taxes on the act of `channeling all work to affiliates,`" he added, referring to the practice of a conglomerate establishing affiliates, the owner family taking shares of the affiliates, and the reaping of huge profits by channeling all work to the affiliates.

The government, however, will have difficulty coming up with a final plan due to strong objection from business and difficulty in identifying profits made from the illegal practice.

On the announcement, business organizations urged the government not to curtail management activities.

Joo Young-seop, in charge of taxes at the Strategy and Finance Ministry, said, “Opinions differ among experts and there are difficulties in a legal aspect,” adding, “We will study a concrete plan by setting up working groups.”

The ministry set December this year as the deadline for the concrete plan.

A plan to gradually allow private organizations to help collect back taxes will be devised by December as well. With debt collectors and credit information companies banned from excessively chasing debtors and consumer protection devices in place, the government seeks to utilize their information and networks in collecting back taxes.

The National Tax Service will also consider allowing people to pay taxes with credit card points. In addition, tax authorities will pay more attention to investigating overseas tax evasion and audit results will be announced regularly.

National Tax Service Commissioner Lee Hyun-dong said, “We collected 500 billion won (456 million U.S. dollars) through audits of overseas tax evasion last year and 460 billion won (420 million dollars) in the first quarter this year,” adding, ”Details of the audit results will be announced soon.”

Separately, the Public Administration and Security Ministry will set up by July an information system on provincial taxes for 228 cities, counties and wards nationwide to share data on income and assets of those who default on provincial taxes.

Some 127 kinds of tax data held by 46 government organizations will also be shared to collect back provincial taxes.

President Lee urged tax authorities to tighten discipline by saying, “The National Agricultural Cooperative Federation and the National Tax Service have produced the largest number of heads who were thrown in prison,” adding, “I believe you will understand the meaning of my outspoken expressions about (corruption among former commissioners).”

Since it began electing its head in 1988, the state-run agricultural federation has had all of its presidents sentenced to prison for graft. Among seven commissioners of the National Tax Service appointed over the decade, Sohn Young-rae, Lee Ju-sung, and Jeon Goon-pyo were indicted and Han Sang-ryule is under investigation.

President Lee said, “The people cited fair and just taxation as the second most urgent task to bring about a fair society.”

cha@donga.com