On February 4, the National Tax Service Seoul Regional Office in South Korea revealed that SM Entertainment and its founder, Lee Soo Man, were currently under tax investigation. Now, the company has been ordered to pay ₩20 billion KRW to the government.
According to the National Tax Service, the irregular tax audit was conducted because of suspicions that Lee Soo Man and SM Entertainment were committing tax evasion. Despite SM Entertainment stating that they have been complying with regular tax audits “diligently“, the authorities revealed that certain transactions and documents appeared unusual.
Reports alleged that there had been a leak of company funds transacted between the former CEO and the agency and that financial information had been omitted during a corporate-to-corporate transaction.
As part of the investigation, the National Tax Service’s Bureau of Investigation examined the stock shares of Lee Soo Man and his nephew, Lee Sung Soo (the current co-CEO of SM Entertainment). After stepping down as CEO, founder Lee Soo Man is currently SM Entertainment’s largest shareholder, with an 18.73% stake in the company.
Now, a report published by the Financial Supervisory Service states that SM Entertainment has just over one month to pay the tax office ₩20,216,665,498 KRW (about $18.0 million USD). The payment, which totals 3.19% of the company’s net worth, is due on March 31, 2021.
In a statement released on February 5, SM Entertainment representatives revealed that while they will be paying the ₩20.2 billion KRW (about $18.0 million USD) charge by the deadline, they also intend to “follow with an appeals process”. Despite allegedly evading taxes, SM Entertainment was found to have made a net loss of 15.6 billion between July and September of 2020.
This is not the first time SM Entertainment—the home of Red Velvet, NCT, aespa, and more—has come under investigation for tax evasion. In 2014, Lee Soo Man was ordered to pay over ₩10.0 billion KRW (about $8.93 million USD) after setting up false companies in Hong Kong to hide overseas profits.
In 2002, Lee Soo Man was also placed on Interpol‘s wanted list for charges of embezzling around $1 million USD from company funds. He was arrested upon returning to South Korea and sentenced to two years in prison with three years of probation.