The National Tax Service, following probes into sugar and sanitary pads, has now launched tax investigations into 14 daily-necessities companies including Daehan Flour Mills over collusion in flour prices. This is seen as a comprehensive crackdown on collusion and tax evasion in line with President Lee Jae Myung’s ‘price stability’ stance. The National Tax Service said it assessed back taxes totaling 178.5 billion KRW against food-sector monopoly and oligopoly companies including OB Beer, based on tax investigations that began in September last year.

On the 9th, the National Tax Service announced that, ahead of the Lunar New Year holiday, it had launched a fourth round of tax investigations into 14 companies that triggered grocery price instability in food and daily necessities. The targets are 14 companies in total: six monopoly and oligopoly processed-food manufacturers that colluded on prices, five agricultural and livestock distributors or daily-necessities manufacturers, and three franchise headquarters. The total amount suspected of tax evasion by these firms reaches 500 billion KRW.

Notably, the targets include Daehan Flour Mills, a flour processor that prosecutors recently indicted for collusion. The amount suspected of tax evasion by Daehan Flour Mills alone is 120 billion KRW. The company colluded with other firms by using a ‘ladder game’ to determine the order of price increases, raising product prices by 44.5% over several years. It manipulated raw material purchase unit prices by exchanging false invoices with other colluding participants, and underreported about 80 billion KRW in profits gained through the collusion. It also overpaid about 7 billion KRW in wages to the owner family, and used company funds to cover the owner family funeral expenses and repair and maintenance costs for a high-end sports car owned by the owner. Diverting company funds to pay for the owner family funeral expenses or sports car upkeep may constitute breach of trust and embezzlement.

Company A, a manufacturer of soy sauce, gochujang, and fermented seasonings, used its oligopolistic position to raise the selling prices of key products by 10.8%. As a result, its operating profit last year surged by more than 300%, from several billion KRW to tens of billions of KRW, but it reduced taxes through ploys. It purchased packaging containers from a corporation owned by the owner family children at above-market prices and paid that children-owned corporation excessive rent, thereby underreporting operating profit and evading taxes.

A wet-wipe manufacturer, a snack-food franchise headquarters, and agricultural and livestock distributors were also selected for tax investigations.

From September last year through January this year, the National Tax Service launched three rounds of tax investigations into 103 companies suspected of tax evasion that had caused price instability. In the first round, which began last September, it uncovered 389.8 billion KRW in unreported income at 53 companies and assessed 178.5 billion KRW in back taxes, it announced. In particular, the combined back taxes assessed on three manufacturers with monopoly or oligopoly positions in beer, ramen, and ice cream came to 150 billion KRW, accounting for 85% of the total assessed amount.

Among them, OB Beer had the largest assessment at 100 billion KRW. OB Beer paid 110 billion KRW in rebates to retail outlets and irregularly booked them as advertising expenses, overpaid more than 45 billion KRW in service fees to a related-party corporation, and raised alcohol prices by 22.7%.

Ice cream manufacturer Binggrae also overpaid 25 billion KRW in logistics costs to a related-party corporation and increased product prices by 25%. The assessed amount is in the 20 billion KRW range. Ramen manufacturer Company C was also assessed 30 billion KRW.

In the third round of tax investigations that began in January, the National Tax Service examined collusion by sugar and sanitary pad companies.

The National Tax Service drawing a sword against collusion in key daily necessities such as sugar, flour, and sanitary pads is the result of moving in step with the price-management drive of President Lee Jae Myung. At a senior secretaries meeting on the 5th, President Lee referred to the recent discovery by prosecutors of collusion among flour and sugar companies and instructed, “Acts that use monopoly and oligopoly to force high prices on the people must be corrected by fully mobilizing the public authority of the state.”

Ahn Deok-su, the National Tax Service investigation chief, said, “Supporting price stability is also a basic task of the National Tax Service.”