Shincheonji Church’s ‘unusual tax investigation’ during the coronavirus pandemic was overturned in court

[비즈한국] It has been confirmed that the Shincheonji Church of Jesus, the Propaganda Curtain of Evidence (Shincheonji), has won one after another in legal battles with the tax authorities. In 2020, the National Tax Service conducted a high-intensity tax investigation against Shincheonji and imposed gift tax and corporate tax on Shincheonji and Shincheonji Chairman Lee Man-hee, and Shincheonji won most of the recent cancellation lawsuits. This is a point where criticism can be raised that the National Tax Service conducted an unreasonable tax investigation targeting certain religious groups.

#Cancel all gift taxes imposed on Lee Man-hee and Shincheonji?

In April 2020, the National Tax Service conducted a special tax investigation targeting Shincheonji. It was a high-intensity investigation involving about 200 employees. The purpose was to confirm suspicions of tax evasion against Shincheonji, which was designated as the epicenter of COVID-19 at the time. However, it was confirmed that the National Tax Service at the time lost the suit to cancel the gift tax imposed on Shincheonji and its president Man-hee Lee.

In October 2022, Chairman Man-hee Lee filed a lawsuit to cancel the disposition of gift tax of 1,043,618,730 won imposed by the Donganyang Tax Office. This gift tax was imposed as a result of the Seoul Regional Tax Office’s investigation of Shincheonji and Chairman Man-hee Lee from April to August 2020.

The incident began in 2013 when President Lee Man-hee and Kim Nam-hee, former head of the World Women’s Peace Group, jointly purchased the land and building of the Peace Palace located in Gapyeong-gun, Gyeonggi-do. The National Tax Service determined that former CEO Kim paid the 1,856,744,367 won that Chairman Man-hee Lee was responsible for among the purchase and construction costs of the Peace Palace. Considering that this amount was a gift to Chairman Man-hee Lee, a gift tax of 1,043,618,730 won, including additional tax, was imposed.

However, the court sided with Chairman Lee Man-hee. The 1st Administrative Department of Suwon District Court (Presiding Judge Kwak Hyeong-seop) determined that the tax authorities failed to present specific evidence to prove the gift. The court ruled that it was not a gift, citing the circumstances that Chairman Man-hee Lee borrowed funds from Shincheonji by writing a loan agreement and registered real estate in joint names with former CEO Kim. Ultimately, on February 8th of this year, the imposition of gift tax amounting to over 1 billion won was cancelled.

The National Tax Service also lost a lawsuit filed by the Shincheonji church to cancel the gift tax assessment. From 2012 to 2017, Shincheonji transferred approximately 8.5 billion won to a church in Los Angeles and 2.3 billion won to a church in South Africa, and the Seoul Regional Tax Office determined that these actions constituted a gift. Accordingly, a gift tax of 5,235,574,860 won was imposed, and in July 2022, Shincheonji filed a lawsuit to cancel the gift tax imposition.

The 3rd Administrative Division of the Suwon District Court (Presiding Judge Eom Sang-moon) ruled that the LA Church and the South African Church were recognized as public interest corporations that carry out ‘projects that significantly contribute to the spread and edification of religion.’ The court ruled that if it is a public interest corporation under tax law, it is excluded from gift taxation regardless of whether it is domestic or foreign. In addition, it was judged that the purpose of establishment of the two churches, their articles of incorporation, operating method, and details of use of remitted funds supported religious public interest. In September 2023, the court canceled the imposition of gift tax worth 5.2 billion won, saying that the tax authorities’ imposition of gift tax violated the principle of protecting taxpayers’ trust.

The defendant, Donganyang Tax Office, appealed, and the appeal trial is currently in progress. The sentencing date is December 6.

#The imposition of corporate tax of KRW 3.1 billion is acknowledged.

However, the imposition of corporate tax excluding gift tax was recognized. In May 2022, Shincheonji filed a lawsuit to cancel the corporate tax imposition against 66 tax office heads, including Donganyang Tax Office Chief. The Seoul Regional Tax Office imposed corporate tax and value-added tax of approximately 3.1 billion won after conducting a tax investigation on Shincheonji from April to October 2020. It was determined that Shincheonji had omitted sales and profits while operating a store at its branch church and producing and selling event DVDs. It is said that Shincheonji evaded taxes by operating a store under a different name from 2012 to 2019, and did not report it even though it made profits through DVD sales. Shincheonji claimed that the store was not operated under a personal name for the purpose of tax evasion and that DVDs were distributed free of charge to believers.

On June 26, the 4th Administrative Division of the Suwon District Court (Presiding Judge Soo-yeon Lim) upheld the Seoul Regional Tax Office’s corporate tax and value-added tax disposition, saying that Shincheonji’s purpose of tax evasion and DVD sales profits were confirmed, and dismissed all of Shincheonji’s claims. Shincheonji appealed this, and the appeal trial is currently in progress.

Meanwhile, as the imposition of gift tax by tax authorities was canceled one after another, some pointed out that the National Tax Service conducted an unreasonable tax investigation. Kim Sang-gyeom, a professor at Dongguk University Law School, said, “There were things that were difficult to understand during the tax investigation. Not only is the tax investigation of religious organizations itself unusual, but this is the first time that a high-intensity tax investigation is being conducted only on a specific religion. He pointed out, “The tax investigation involving about 200 people was a strange investigation that was not conducted even by large corporations.”

The National Tax Service did not reveal any particular position regarding the loss of the lawsuit to cancel the gift tax assessment.

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