In a story that’s gripping South Korea’s business and regulatory circles, Donghwa Group Chairman Seung Myung-ho finds himself at the center of a controversy over a massive transfer of company shares to his family. What began as a seemingly routine succession move has now drawn the scrutiny of national tax authorities and the Audit Board, raising pointed questions about tax avoidance and the ethics of corporate inheritance practices.
According to Hankyoreh, between April and June 2016, Chairman Seung arranged to transfer 20% of Donghwa International’s shares—worth a staggering 56.68 billion KRW (about $41 million USD at contemporary rates)—to his spouse and three children. On paper, this was structured as a sale: the family paid a 6 billion KRW (roughly 10% of the total) deposit, with the remainder covered by a loan contract at 4.6% annual interest, set for one year. But that’s where things start to look murky.
When the loan matured in May 2017, rather than collecting the balance, Seung renewed the agreement as interest-free for another year. This arrangement was repeated annually until at least 2020, and, as the Audit Board pointed out, the family had still failed to repay the vast majority of the principal, even nine years after the initial deal. The Audit Board’s investigation concluded that the transaction was, in effect, a disguised gift rather than a bona fide sale.
“Ownership was transferred to the family before the price was paid and the transaction was processed interest-free, with no real exchange of value,” the Audit Board stated, according to Hankyoreh. “This cannot be considered an ordinary deal between third parties.” That’s a damning assessment in a country where inheritance and gift taxes are strictly enforced, and where public sentiment is often suspicious of the ways in which wealthy families pass on control of major conglomerates.
Donghwa Group, for its part, has pushed back hard against these allegations. The company claims the share transfer was simply part of a broader management succession plan, not an attempt to dodge taxes. “The transfer of ownership was part of management succession,” a Donghwa Group spokesperson told Hankyoreh. “Whether the loan contract constitutes a gift must be judged comprehensively, considering the contract terms and actual interest payments. Most of the borrowed funds have now been repaid, and there was no intent to avoid taxes.”
But the Audit Board remains unconvinced. It noted that the family’s partial repayments were funded by selling off some of the very shares they had received from Seung, undermining the argument that they independently raised the money to pay for the shares. In the Board’s view, this arrangement fails to meet the criteria that would exempt such a transfer from being treated as a gift. “The claim of no tax avoidance is nothing more than an excuse for a tax-free management succession,” the Audit Board said, as reported by Hankyoreh.
Donghwa Group is no small player in the Korean economy. With core businesses in timber and chemicals, and a significant foray into media through its 2015 acquisition of Korea Times, the company is well known. That’s part of why this case is attracting so much attention. The notion that a major conglomerate could skirt gift tax laws through creative accounting and family deals strikes a nerve in a country where chaebol—family-run conglomerates—are often seen as both economic engines and sources of inequality.
The National Tax Service (NTS) has admitted shortcomings in its initial investigation. Back in 2020, the Yongsan Tax Office accepted Donghwa’s explanation and classified the transaction as a regular sale, not a gift. But after the Audit Board’s review, the NTS is now reconsidering. “We will review the imposition of gift tax on Chairman Seung’s family,” an NTS official told Hankyoreh. The Yongsan Tax Office has since told the Audit Board that, as of June 2016, the transaction should be subject to gift tax, estimating the liability at around 49.6 billion KRW (about $36 million USD).
What’s especially striking is the Audit Board’s meticulous breakdown of why the transaction doesn’t pass muster. They highlighted that the family’s “repayments” were not made from their own resources but from the sale of the very shares received, which further supports the view that the deal was not a genuine purchase. The Audit Board’s report stated, “The transferor (Chairman Seung) transferred ownership before receiving payment, and the transaction was processed interest-free, so there was no actual exchange of value. This cannot be considered a normal transaction between unrelated parties.”
For those unfamiliar with South Korea’s tax system, gift tax is a major mechanism intended to prevent the wealthy from passing on assets tax-free through subterfuge. The law is clear: if a transaction is structured in such a way that it effectively allows someone to receive property without paying fair value, it’s treated as a gift, regardless of what the paperwork says. The authorities have, in the past, aggressively pursued cases where business families attempted to transfer wealth or control through loans, discounted sales, or other creative arrangements.
Yet, the Donghwa case also reveals the limits of regulatory oversight. It wasn’t until the Audit Board’s regular review of the National Tax Service last year that the irregularities came to light. The Board’s findings prompted the NTS to revisit the case, highlighting a broader issue: even in highly regulated environments, the complexity of corporate finance and family succession can sometimes outpace the ability of authorities to keep up.
As for Donghwa Group, it’s maintaining its stance that the transaction was aboveboard and that any outstanding debts have largely been settled. “Whether the loan contract constitutes a gift must be judged comprehensively, considering the contract terms and actual interest payments,” the company reiterated. But the Audit Board’s skepticism is unlikely to fade soon, especially with the NTS now signaling a renewed push for enforcement.
The case is far from over. If the NTS does proceed with imposing the estimated 49.6 billion KRW in gift taxes, it would send a strong message to other conglomerates contemplating similar succession strategies. For now, the Donghwa saga stands as a cautionary tale: in the world of corporate inheritance, even the most carefully crafted deals can unravel under the spotlight of public scrutiny and regulatory review.
With the eyes of the business community and the public alike fixed on the outcome, the story of Donghwa Group’s share transfer is set to shape the broader conversation about fairness, transparency, and the rule of law in South Korea’s corporate world.