Tax push leads to legal disputes

By Choi Kyong-ae

The National Tax Service (NTS) has lost a case to KB Kookmin Bank amid worries that the tax authorities’ strong push to meet its revenue target often prompted lawsuits filed by companies.

The tax authorities should have made a more thorough review of a company’s accounting figures in order not to make the wrong decisions regarding taxation, industry people said Friday.

On Jan. 15, the Supreme Court gave a final ruling in favor of KB Kookmin Bank, ending a years-long legal dispute between the NTS and the bank, according to both.

In the latest case, the NTS imposed 441.9 billion won ($499 million) in corporate taxes in July 2007 on KB Kookmin Bank as it judged the bank violated the country’s accounting rules by putting aside an excessive provision worth more than 1 trillion won to pay less in corporate tax.

The tax agency and the country’s largest retail bank confirmed the figures.

In 2004, the Financial Services Commission notified the NTS that KB Kookmin Bank sharply increased its loan-loss provisions when it merged with KB Kookmin Card in September 2003 to avoid paying hefty corporate taxes, a KB Kookmin official said.

“Thus, the financial authorities are liable for the NTS’ failure to win the case against KB Kookmin. The tax and financial authorities went too far in the case to help finance the Park Geun-hye government’s costly welfare policies since 2013,” an official at a commercial bank said.

An NTS spokesman said Friday, “In principle, we impose taxes on companies if they are believed to have made any attempt to evade or underreport taxes. In case of legal suits, it is worth it to bring the case to the Supreme Court for a final decision.”

In August 2007, KB Kookmin Bank filed a revocation suit against the tax agency to overturn the imposition. The bank reportedly got back more than 200 billion won in corporate tax from the NTS, the KB Kookmin official said.

Kim & Chang law firm managed the lawsuit on the side of KB Kookmin Bank.

In 2013, the NTS lost 46 percent of lawsuits worth more than 5 billion won per case filed by companies, and lost 30 percent of suits worth 3 billion to 5 billion won per case. On average, the NTS failed to win 14 percent of the overall suits filed last year, according to NTS data.

As a result, the NTS returned a total 810 billion won to companies as courts came up with rulings against the NTS, according to Tax Tribunal data.

As of the end of October, the NTS achieved 170.1 trillion won, or 83 percent, of its tax revenue plan of 204.9 trillion won for the year of 2014.