Journalist

Han, Seok Jin
  • Kwon Hyuk’s Offshore Tax Case: Was the NTS Approach Appropriate After Acquittal?
    Kwon Hyuk’s Offshore Tax Case: Was the NTS Approach Appropriate After Acquittal? In December 2010, the passport of Sido Group Chairman Kwon Hyuk, 75, was effectively frozen. With the National Tax Service preparing to file a criminal complaint over alleged offshore tax evasion, authorities imposed a travel ban. For nearly 15 years, the head of a shipping company operating a 128-ship fleet has run the Hong Kong headquarters by phone and email. In 2016, South Korea’s Supreme Court finalized an acquittal on the central charge of corporate tax evasion. But the NTS tax assessment remained in place, and the unpaid amount grew to 393.8 billion won after 14 years of penalties were added to the principal. Even now, the dispute has not faded. What began as an offshore tax-evasion case has continued through diverging criminal and administrative tracks, prompting tax and shipping experts to question whether the case was properly framed in the first place. ◆ What “offshore tax evasion” means Offshore tax evasion refers to tax avoidance or evasion through transactions in which at least one party or the taxable subject is overseas. In plain terms, it can mean moving money earned at home abroad or using foreign transactions to conceal taxes. Common patterns include manipulating prices or costs in dealings with overseas affiliates, omitting commission income, or using foreign investments and financial transactions to build slush funds. The underlying premise is that assets formed domestically are shifted overseas. Because such schemes can park funds abroad, they can reduce domestic jobs and the tax base. That is why the term is often linked to concerns about an outflow of national wealth. ◆ What the system was designed to target South Korea created a dedicated offshore tax-evasion unit in 1986, when President Chun Doo-hwan directed the NTS to set up a specialized team. The instruction was explicit: preventing illegal overseas outflows of national wealth was described as a key national-interest priority. After the 1997 foreign exchange crisis, the unit expanded. In the wake of the IMF crisis, the team grew to 36 people and handled cases involving hundreds of billions of won in foreign-currency flight. Major cases in that period shared a similar structure: people who built assets in South Korea and then moved them abroad. Former NTS officials familiar with offshore investigations have also warned of risks, saying that creating excessive anxiety around cross-border economic activity in a global economy can harm national interests in ways that are hard to quantify. ◆ Kwon’s business followed a different path The article’s account says Kwon’s money flows did not match the typical offshore-evasion pattern. After leaving Hyundai Motor Co. in 1990 and moving to Japan, Kwon did not take domestic capital out of South Korea, it said. He started without capital, and in 1993 set up what became the predecessor of Sido Group by renting a corner of a Marubeni Corp. office. He later built ship financing around Hong Kong and expanded the fleet. The business began overseas and grew overseas, the article said. During that process, funds flowed into South Korea, it said. Orders placed with South Korean shipyards totaled about $7.15 billion. Including operations of a ship-management company in Busan, ship insurance and registration with the Korean Register, the combined amount was about $9.64 billion — nearly 13 trillion won — that flowed into the country, according to the article. ◆ SPCs: tax tool or industry practice? The NTS pointed to special purpose companies, or SPCs, as a tool for tax evasion. An SPC is a standalone entity set up for a specific project or asset. Kwon used a structure in which one SPC was established per vessel, and the NTS raised concerns that the entities were incorporated in tax havens. But the one-ship, one-SPC structure is described as a standard financing method in international shipping. It is used to contain risk within a single entity in the event of an accident and to secure international ship financing. The article says it is common for global lenders to refuse loans unless an SPC is set up in a jurisdiction offering tax advantages. The article cites examples abroad, saying Greek shipowners often manage through companies in places such as the United Kingdom, and Japanese Imabari shipowners use Panama SPCs to hold Panama-flagged vessels while operating in Japan, without typically facing tax-evasion allegations. In shipping, it said, placing SPCs where financing terms and tax regimes are favorable is widely accepted practice. ◆ Tax evasion, or a residency determination? The NTS complaint rested on a determination that Kwon was a “domestic resident.” Under the Income Tax Act, a resident is an individual with an address in South Korea or who has lived there for at least 183 days. If deemed a resident, a person owes South Korean tax on worldwide income. The NTS cited factors including Kwon’s resident registration, his family’s stay in South Korea, and records of hospital and credit-card use. Kwon repeatedly objected, according to the article. It said canceling resident registration is effectively impossible without giving up South Korean nationality, and that someone intending to evade taxes would not leave such records. It also argued that the NTS had treated him as a nonresident for the period he worked in Japan starting in 1993, but switched to treating him as a resident and taxing him after he moved his base to Hong Kong in 2006. The article also said there were records of taxes paid to Japan’s tax authorities. As a result, the central issue came to resemble a dispute over the validity of the residency determination more than proof of an evasion scheme, the article said. It added that when someone runs a business overseas for decades while keeping South Korean nationality and having family in South Korea, deciding which country should treat the person as a taxpayer remains an area without clear international standards. ◆ Courts reached a different conclusion In 2013, a trial court sentenced Kwon to four years in prison and fined him 234 billion won. On appeal, the ruling changed. The appeals court acquitted him on the key corporate tax-evasion charge, saying the creation of single-ship companies and use of overseas bases reflected common international shipping practice and were difficult to view as sham acts aimed at tax avoidance. The only conviction was for evading about 240 million won in comprehensive income tax, and the sentence was reduced to eight months in prison, suspended for two years. The Supreme Court finalized that decision in 2016. A criminal acquittal does not automatically invalidate a tax assessment because criminal trials and tax administration apply different legal standards. Still, the article said, the courts’ view of the SPC structure as industry practice highlighted a significant gap with the NTS position that it was a tax-evasion device. ◆ View from a former Seoul regional tax chief The article cites Yoon Jong-hoon, who served as Seoul Regional Tax Office chief during the Roh Moo-hyun government and was involved in shaping the concept of offshore tax evasion. Yoon has said Kwon’s case did not fit offshore tax evasion because Kwon did not take a single won out of South Korea and instead earned money overseas and brought it into the country. From the original purpose of offshore investigations — monitoring outflows of national wealth — Yoon said Kwon was closer to someone who should be commended, according to the article. Former NTS officials familiar with offshore investigations have offered similar assessments, the article said, arguing that the selection of Kwon as a target did not align with the historical purpose of such probes and that the national-interest damage from an aggressive audit is difficult to quantify but substantial. ◆ The weight of a 15-year travel restriction In global shipping, the article said, on-the-ground activity by shipowners is central to the business. Vessel purchases and sales, freight-rate negotiations, long-term contracts with cargo owners and ship financing depend on face-to-face networks. It described Japanese, Greek and Norwegian shipowners as routinely traveling among major financial centers as part of standard practice. The article said it is unclear whether orders to South Korean shipyards and foreign-currency inflows stayed at prior levels while Kwon was unable to travel for nearly 15 years. But if the nearly 13 trillion won brought into South Korea was the result of direct sales and field networks, it said, the loss from restricting that business foundation for 15 years cannot be reduced to a private tax dispute alone. With the criminal case concluded by a Supreme Court ruling nine years ago, the article said, it is time to examine what it means for the national economy that administrative and judicial proceedings over the tax assessment have continued and the travel restriction remains in place.* This article has been translated by AI. 2026-02-26 07:04:33
  • Trump gives a go-ahead to Koreas nuclear submarine project
    Trump gives a go-ahead to Korea's nuclear submarine project GYEONGJU, October 30 (AJP) - After concessions over upfront cash payment in the $350 billion investment package from South Korea, U.S. President Donald Trump gave a go-ahead to Korean production of nuclear-powered submarine in a show of "stronger-than-ever" bilateral relations, indicating upgrade in military ties to the highest level, given Washington's protectiveness of nuclear submarine technology. "I have given them approval to build a nuclear-powered submarine, rather than the old fashioned, and far less nimble, diesel powered submarines that they have now," Trump wrote on his Truth Social account after he accepted President Lee Jae Myung’s argument for Seoul’s need to transition from diesel to nuclear propulsion in their second face-to-face summit on the sidelines of the Asia-Pacific Economic Cooperation meetings in Gyeongju. "This decision marks a historic step in advancing our security cooperation," he added. Washington shares its nuclear submarine technology with only a select few — the United Kingdom and Australia — underscoring the sensitivity and significance of Trump’s approval. Trump, who was adorned with a gold-glittering ancient crown and awarded South Korea’s highest honor during his visit, declared the bilateral alliance “stronger than ever,” calling Lee “a great president of South Korea.” The nuclear-powered submarine will be built at Philly Shipyard, which was purchased last year by Korea’s Hanwha Group. Trump’s endorsement came shortly after Seoul and Washington finalized details of the $350 billion investment pledge, including $150 billion dedicated to shipbuilding cooperation. A separate White House fact sheet said Korean Air will purchase 103 new Boeing aircraft valued at $26.2 billion, along with GE Aerospace engines worth $13.7 billion. Trump arrived in South Korea on Wednesday for a two-day trip. He is scheduled to meet Chinese President Xi Jinping on Thursday amid an escalating U.S.-China trade war. 2025-10-30 07:56:48
  • Korean builders face $9 billion PF maturities and govt judgment in Q4
    Korean builders face $9 billion PF maturities and govt judgment in Q4 SEOUL, October 16 (AJP) — South Korean construction firms reeling from a prolonged industry slump are on edge as 13 trillion won ($9.4 billion) in real estate project financing (PF) debt comes due in the fourth quarter, with the government set to decide next month which projects to rescue or wind down. According to the National Assembly’s Land, Infrastructure and Transport Committee, PF bonds worth 13.48 trillion won mature between October and December. Of that, roughly 5 trillion won is under rollover negotiations, while more than 3 trillion won is at risk of default. Financial authorities are scheduled to unveil the second phase of their PF restructuring plan next month. Given the liberal administration’s hawkish stance on real estate, market watchers expect tighter standards for classifying distressed projects, stricter limits on bridge loan rollovers, and expanded requirements for credit enhancements. A Ministry of Land, Infrastructure and Transport official said the focus of policy “will shift from liquidity to stability,” stoking fears among industry insiders of another wave of funding freezes and liquidity crises across construction sites. Authorities plan to release the results of a nationwide PF project audit by the end of November, determining which ventures will be salvaged and which will be liquidated. Mid-sized builders have been under acute financial strain since the industry-wide crunch of 2022, when the default of a Legoland theme park developer sent funding costs for construction firms to the highest levels in more than a decade. “Negotiating maturities is now a bigger challenge than winning new orders,” said a finance official at a mid-tier builder, adding that “creditor meetings have effectively replaced management meetings.” Even large builders have not been spared. A prolonged property market downturn and project delays have eroded cash flows, while average debt ratios have climbed by more than 10 percentage points from a year earlier. PF loan-linked borrowing costs have averaged above 7 percent this year, further squeezing profitability. Government aid has also been slow to arrive. The Korea Land and Housing Corporation’s program to purchase unsold homes has reached only 40 percent execution, while the Housing and Urban Guarantee Corporation’s PF guarantees have fallen 25 percent from last year. The reduction in guarantees has worsened liquidity bottlenecks by restricting developers’ ability to raise funds. As of September, PF refinancing rates averaged 8.1 percent — up 1.8 percentage points from the end of last year. Smaller builders face borrowing costs exceeding 12 percent, with some projects unable to cover monthly interest payments. “Even high returns aren’t attracting investors to construction-linked bonds,” a commercial banker said. The Korea Construction Industry Institute projects construction starts will plunge 21 percent in the fourth quarter from a year earlier. The sharp decline in new projects threatens to further choke cash inflows and drive up PF defaults. * This article, published by Aju Business Daily, was translated by AI and edited by AJP. 2025-10-16 11:01:51