On the 12th, the Korea Management Union (KMU) released a statement challenging the view that personal corporations are solely for tax evasion and emphasized the need for improvements in related systems.
KMU stated, "Recently, with the issue of corporate establishment by Hallyu stars, there is a significant difference in perspective between tax authorities and the industry." They criticized the current tax administration for broadly considering these corporations as paper companies to avoid progressive income tax rates, leading to extensive post-taxation under the guise of the principle of substantial taxation.
They further argued, "These agencies are not merely shells involved in taxes. They perform various roles, functioning as companies that represent some of the rights of entertainers," urging that personal corporations should not be viewed solely as structures for tax evasion.
Finally, KMU proposed the following to the government: ▲ Establish clear tax guidelines recognizing the industrial substance of personal corporations ▲ Develop predictable tax standards reflecting the corporation's substantial role, risk burden, and business structure ▲ Improve systems to encourage transparent operations rather than focusing on crackdowns and post-taxation ▲ Implement forward-looking administrative interpretations and policy decisions that do not hinder the global competitiveness of the K-culture industry.
As K-content rises as a major player in the global market, there are concerns about the distorted structure of the Korean entertainment industry. Particularly, with the recent tax evasion allegations linked to the establishment of corporations by 'Hallyu stars,' there is a significant difference in perspective between tax authorities and the industry.
1. What is the issue with celebrities establishing corporations?
Since the 1990s, as the Hallyu wave began, existing entertainment agencies started to foresee the industrial success potential of pop culture content. They established comprehensive entertainment systems encompassing planning, production, and management to maximize the value of their artists, leading to rapid growth in the pop culture and arts industry.
This unique Korean entertainment system is essentially a one-stop system where the company manages everything from the initial stage of an entertainer's career to their debut, based on exclusive contracts between the entertainer and the company.
The issue arose as the industry grew exponentially and Hallyu gained global popularity, leading to individuals generating astronomical profits and becoming corporatized. However, no system or policy understood or supported this structure, causing a significant shift in the entertainment industry's structure. Artists began establishing and managing 'personalized corporations' to manage their careers, intellectual property (IP), and long-term brand value.
However, the current tax administration broadly considers these corporations as 'paper companies' to avoid progressive income tax rates, leading to extensive post-taxation under the guise of the principle of substantial taxation. This approach shows that the system and administration are not keeping up with the changing structure, ignoring the industry's reality.
2. How should we view entertainers' personal corporations?
These agencies are not merely shells involved in taxes. They perform various roles, functioning as companies that represent some of the rights of entertainers.
• Mental care and long-term career management for artists
• IP development and content planning
• Direct responsibility for penalties and damages arising from exclusive and appearance contracts
• Practical management activities such as office leasing, hiring full-time managers, and operating dedicated vehicles
These activities are directly conducted, and courts are increasingly recognizing corporations as substantial entities when they engage in substantial business, assume contractual responsibilities, and establish independent business models.
3. What changes are needed?
The reason for repeated post-taxation is not the 'malice' of these corporations but the 'absence of standards.' The reason why the National Tax Service's taxation decisions are repeatedly overturned in administrative lawsuits and tax trials is not because the industry uses expedients but because there are no clear and predictable standards. Therefore, there is a need for a systemic shift to recognize artists not just as 'individual entrepreneurs' but as corporate entities managing a brand and intellectual property.
4. KMU's proposals
In response, the Korea Management Union proposes the following to the government:
• Establish clear tax guidelines recognizing the industrial substance of personal corporations
• Develop predictable tax standards reflecting the corporation's substantial role, risk burden, and business structure
• Improve systems to encourage transparent operations rather than focusing on crackdowns and post-taxation
• Implement forward-looking administrative interpretations and policy decisions that do not hinder the global competitiveness of the K-culture industry
5. Conclusion
K-culture is no longer just the achievement of individual stars but a future industry and national brand of Korea. Framing its growth structure solely as tax evasion will extinguish our growth engine.
The Korea Management Union earnestly appeals to the public and the government to recognize the industry's reality and improve the system based on transparent operations.
Thank you.
Jung Se-yoon, Ten Asia Reporter yoon@tenasia.co.kr