Korean National Tax Service Launches Rigorous Tax Audit on GA for CEO Insurance Rebates

The Korean National Tax Service (NTS) has initiated a high-intensity tax audit targeting major corporate insurance agencies (GAs) that allegedly provided illegal rebates related to CEO insurance policies.

The Korean National Tax Service (NTS) has initiated a high-intensity tax audit targeting major corporate insurance agencies (GAs) that allegedly provided illegal rebates related to CEO insurance policies. This audit involves 47 companies across various sectors, including construction, pharmaceuticals, and insurance brokerage.

On September 25, the NTS announced its extensive tax audit involving 17 construction firms, 16 pharmaceutical companies, and 14 insurance brokerage firms, marking a significant initiative since the appointment of NTS Commissioner Kang Min-soo in July. All targeted industries are prohibited by law from offering or receiving rebates.

The controversy centers around "CEO insurance," a product that has seen a rise in rebate transactions. CEO insurance is designed to ensure business continuity in the event of the CEO or executives' death or accidents, with insured amounts often exceeding 1 billion KRW, leading to annual premiums in the millions.

Insurance brokers allegedly exploited the fact that CEO insurance payments can be categorized as corporate expenses, facilitating rebates to company owners' families in exchange for policy enrollment. According to the NTS, brokers registered representatives, spouses, or children of corporate clients as insurance agents without any actual involvement, providing them with rebates worth millions of KRW.

This practice not only reduces corporate tax liabilities but also allows for tax-free gifts from corporate funds, enticing clients with the prospect of saving on taxes. By falsely registering related parties as insurance agents and offering substantial commissions, brokers have benefited financially from these high-value corporate policies.

The NTS plans to take legal action against those found engaged in tax evasion, issuance of false tax invoices, or other tax-related offenses during the audit.

Ensuring order in GA sales has also been a major focus of the Insurance Reform Council. The financial authorities have been strengthening supervision and inspections of GAs, particularly those with a high likelihood of recruitment irregularities, while sharing and disseminating examples of major illegal activities. Moreover, they have been working towards system improvements through the Insurance Reform Council and the introduction of concurrent inspections.

The NTS has identified a rapid growth in the CEO insurance market due to the convergence of interests among insurance brokers seeking exorbitant commissions and small business owners attempting to evade corporate income and gift taxes.

In this audit, the NTS aims not only to impose corporate taxes on the GAs but also to ensure that legitimate income tax is levied on the owners of the insured companies, upholding tax justice.

The ongoing audit by the NTS reflects a growing commitment to tackling tax evasion and ensuring compliance within the insurance sector. As the investigation unfolds, it highlights the need for greater oversight and regulatory measures to prevent the misuse of corporate insurance products and the associated financial misconduct.