Gyeonggi Province Indicts 10 Heads of Construction Firms and Builders for Submitting False Subcontracting Agreements

[Suwon Ilbo=Reporter Park No-hun] Gyeonggi Province has indicted 10 individuals, including builders and construction company heads, who were caught paying less acquisition tax by submitting dual subcontracting agreements and reporting construction costs lower than actual contract amounts.

Gyeonggi Province selected 43 cases of omitted subcontracting amounts from 520 cases of underreported acquisition tax on newly constructed buildings in the province identified through municipal and county tax audits since 2018, and conducted investigations from April to August by comparing the builders' reported documents with the construction companies' ledgers regarding subcontracting agreements.

When a builder receives a use permit for a newly constructed building, the acquisition tax obligation arises. At that time, the taxable amount is calculated based on the subcontracting fee, design and supervision fees, and construction-related loan interest that the taxpayer—the builder—self-reported.

Through this special investigation, the province detected 5 cases of false reports, including instances where subcontracting agreements were created in duplicate from the start, or where contract amounts were increased but builders intentionally submitted subcontracting agreements with the previous contract amounts.

The subcontracting amounts of the detected acquisition tax false reports totaled 16.2 billion won, with 3.3 billion won in omitted subcontracting amounts. The builders were found to have evaded acquisition tax (including local education tax and agricultural and fishing special tax) totaling 104 million won.

According to the detected cases, three co-builders including person A constructed urban residential housing and officetels in the province and created a lower contract agreement 1.5 billion won less than the actual subcontracting amount in collusion with a construction company for acquisition tax reporting purposes.

Builder B, while constructing a large commercial building in a land development district in the province, separately created a subcontracting agreement 600 million won lower than the actual contract amount and even falsely created a construction company's progress billing request (a document requesting progress payments according to construction stages) to match the lower contract amount at completion, demonstrating meticulous planning. Gyeonggi Province detected the false reports through comparison of the builder's reported documents and the construction company's ledgers.

Two co-builders including person C constructed row houses and separately created an amended subcontracting agreement with a 600 million won increase in the subcontracting amount due to extended construction periods. However, when reporting acquisition tax, they submitted the amended contract agreement with only the construction period changed along with the existing subcontracting agreement, and were caught.

Gyeonggi Province indicted 10 individuals, including the builders and construction company heads involved in the 5 detected cases, to investigative agencies on charges of local tax evasion and tax evasion facilitation.

Kim Min-kyung, Head of the Tax Justice Division at Gyeonggi Province, stated, "Since acquisition tax is based on the principle of voluntary self-reporting by the taxpayer, sincere reporting by taxpayers is crucial." He added, "Gyeonggi Province will provide maximum support for sincere reporting and respond strictly with a zero-tolerance policy toward criminal acts such as intentional tax evasion."