Lotte families allegedly evade tax through shell companies

By Yoon Sung-won

Family members of Lotte Group, the country’s fifth-largest conglomerate, have allegedly engaged in tax evasion through overseas shell companies, the prosecution revealed Sunday.

Investigators said that the families of the group founder and General Chairman Shin Kyuk-ho sold Japan-based Lotte Holdings shares actually owned by Shin under a borrowed name at abnormally cheap prices to shell companies the group set up overseas in an apparent bid to evade taxes.

One of the companies is owned by Shin’s eldest daughter and Lotte Foundation Chairwoman Young-ja, Shin’s third wife Seo Mi-kyung and their daughter Yoo-mi.

The prosecution presumed that Seo and the foundation chairwoman evaded at least 300 billion won in taxes. However, the group claimed that the sum was about 101 billion won.

“We have found that founder Shin even financed the transaction of the shares,” an investigator said. “This is a crime that was designed to evade gift taxes.”

Shin has owned a 6.2 percent stake in Lotte Holdings using the names of his relatives or acquaintances to gain a firmer grip on the company in case of a managerial rights dispute.

According to the prosecution, a head of a Lotte affiliate in Korea and another person close to Seo’s elder brother came to own 3.25 percent and 2.96 percent of Lotte Holdings shares, respectively, in 2003. Then, they sold their stake to a shell company at the face value of 50 yen per share under Shin’s direction.

Seo was the largest shareholder of the company. The transaction price was less than one-tenth of the market value.

Allegations have been that Shin ordered the transaction amid concerns about a possible legal dispute over ownership.

Later in 2005, Shin ordered the group to seek ways to transfer his assets to his daughters and his third wife without paying a large gift tax. As a result, the Shin families allegedly succeeded in avoiding the gift tax by selling off the borrowed-name shares to shell companies abroad.

For Seo and her daughter Yoo-mi, Lotte founded a shell company called China Rise in Hong Kong.

China Rise financed another bogus company dubbed Kyung Yu in Singapore. At that time, the previous trade of the 6.2 percent stake by the head of Lotte’s affiliate in Korea and another person close to Seo’s elder brother was canceled. Instead, the two sold their stake to Kyung Yu.

For the Lotte Foundation chairwoman, the group established a Hong Kong-based paper company, Extra Profit Trading, and its U.S. subsidiary Clear Sky.

Later, Kyung Yu sold off the Lotte Foundation chairwoman’s three percent stake in Lotte Holdings to Clear Sky.

The prosecution said they have secured a written confirmation of the share transactions at Shin’s office. It also confirmed that Lotte Holdings have regularly paid dividends to Kyung Yu and Clear Sky.