Cha Eun-woo Faces $13.63 Million Tax Evasion Allegations Amidst Comparisons to Yu Jae-seok's Clean Record

K-pop star and actor Cha Eun-woo is embroiled in a massive tax evasion scandal, with allegations of over $13.63 million in unpaid taxes. This has sparked renewed interest in the income structures and reporting methods of celebrities, drawing comparisons to Yu Jae-seok, who has maintained a spotless tax record.

According to reports on the 22nd, Cha Eun-woo was notified by the National Tax Service of a tax levy exceeding $13.63 million. This follows an investigation by the Seoul Regional Tax Office's Investigation Bureau 4 last year, which found that Cha allegedly used a specific corporation to disperse his income. The amount levied is considered unprecedented for an individual celebrity.

The corporation in question was established by Cha's mother and had a contract with his agency, Fantagio, to support his entertainment activities. The tax authorities suspect that the corporation was used as a means to distribute income without providing actual services, aiming to reduce high-income tax burdens.

Cha Eun-woo's representatives have countered these claims, stating that the corporation is a legitimate entity registered for cultural and artistic planning. They argue it was set up by the family to ensure stability in his career amidst management changes at Fantagio. They are currently contesting the tax authority's decision through an appeal.

Additionally, the National Tax Service has imposed a separate $80 million levy on Fantagio for allegedly issuing false tax invoices to the corporation. Fantagio has stated that the core issue is whether the taxes are applicable and that they will clarify the matter through due process.

The tax amount levied on Cha Eun-woo is considered highly unusual for an individual celebrity, bringing the practice of tax avoidance through corporate structures back into the spotlight. Previously, celebrities like Lee Ha-nee and Yu Jae-seok faced similar tax issues but attributed them to differences in tax law interpretation.

In contrast, Yu Jae-seok is often cited as a model case. Since his debut, he has never been involved in tax controversies, and even a rigorous tax audit in 2024 found no issues.

Tax accountant Yoon Na-gyeom explains that entertainers classified as sole proprietors can choose between bookkeeping and estimated reporting. While bookkeeping offers tax-saving benefits, it also comes with management burdens and audit risks.

According to Yoon, Yu Jae-seok has consistently opted for estimated reporting, which, despite resulting in higher tax payments compared to bookkeeping, eliminates potential tax controversies. For instance, with an income of 10 billion won and expenses of 4 billion won, the taxable income would be 6 billion won, resulting in a tax payment of approximately 2.7 billion won under bookkeeping. However, Yu's method results in a taxable income of 9.12 billion won, leading to a tax payment of 4.1 billion won, a substantial figure.

Yoon emphasizes that Yu's approach reflects a long-term strategy where trust outweighs monetary savings, highlighting the importance of tax risk management for public figures with significant influence.

As Cha Eun-woo continues to dispute the legality of his corporate structure with the tax authorities, Yu Jae-seok's approach serves as an alternative benchmark for handling tax issues in the entertainment industry. This controversy prompts a reevaluation of tax practices across the entertainment sector.

Kim Se-ah, TenAsia Reporter haesmik@tenasia.co.kr