National Tax Service to launch probe into Naver

Oct 20, 2022, 08:40 am

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Naver headquarters in Bundang-gu, Gyeonggi Province./ Photographed by Song Eui-joo

AsiaToday reporter Lee Kyung-wook 

The National Tax Service (NTS) is launching an intensive tax investigation against Naver, the largest platform provider in Korea. Naver has recently seen a surge in the number of affiliates and the size of its internal transactions.

According to relevant authorities on Wednesday, the Seoul Regional Tax Office will carry out a regular corporate tax investigation on Naver starting next Wednesday. Prior to this, the tax office delivered a notice to Naver to conduct a tax investigation. 

Industry observers say the tax authorities are likely to conduct intensive tax probe into large platform providers such as Naver through regular corporate tax investigations or special tax investigations aimed at verifying whether they complied properly with tax laws in the process of rapidly increasing sales and expanding affiliates.

The number of Naver’s affiliates surged to 54 this year from 45 in 2018. Its internal transactions amounted to 1.15 trillion won last year, more than doubled in just four years from 496 billion won in 2017.

These companies are in need to diversify business as their sales have increased rapidly. Tax experts say they naturally turn their attention to internal transactions with affiliates in order to consolidate the governance structure of the founders. 

Such companies would have been faithfully filing corporate tax returns while complying with tax laws and accounting rules, but as they rapidly expand in size, they are likely to expose shortcomings in accounting. 

Experts point out that there may be problems under the tax law whether intended or not.

A tax expert from the NTS’s investigation bureau said it is customary to always verify whether the transaction amount on the tax invoice in internal transactions is reasonable and appropriate, based on the company’s regular corporate tax return. In particular, since the establishment and dispersion of affiliate is closely related to the expansion or reorganization of shares of related parties such as founders, the tax return details of individuals such as founders can be subject to detailed verification apart from the verification of the company itself.

Tax experts say that a company generating huge sales through rapid growth is automatically classified as a booming industry and becomes a main inspection target by tax authorities. 

Another tax expert said there would be no problem if accounting rules were properly followed, but accounting problems are usually exposed in the process of rapid growth of a company.

He said the tax authorities have established a regular tax verification system on large platform companies that have recently grown rapidly, such as Naver and Kakao.

Prior to this, the tax authorities reportedly launched a tax investigation on Kakao back in July.

#National Tax Service #Naver 
Copyright by Asiatoday