South Korea’s tax authority is said to be conducting a special tax investigation against key affiliates of the country’s platform giant Kakao Corp., including Kakao Entertainment Corp. and Kakao Games Corp., according to unnamed sources in the IT industry.

The National Tax Service may be expanding it investigations to other affiliates after it identified suspicious flows of funds, such as providing unfair support or tax evasion, during a regular tax probe of Kakao’s head office in Jeju Island in June.

The tax department that is conducting the probe is known as the central investigation division that generally looks into tax crimes such as corporate tax evasion. A number of Kakao’s core affiliates were subject to special tax investigations, and three teams from the division have been put on the investigation, a Maeil Business News team covering the news found.

In the regular tax probe of Kakao’s head office, the department in charge was from Seoul and not from the district where the platform provider is located. The investigation into the key affiliates of Kakao is suspected to be related to the current administration’s pledge to probe companies that hold a monopoly in industries.

“When the market is distorted in a monopoly or severe oligopoly situation, or when it is at the same level as the state-based infrastructure, the state needs to respond for the benefit of the people,” President Yoon Suk-yeol said in October when Kakao services were down for several days due to a fire at its main data center. Since then, the Fair Trade Commission has been preparing various anti-monopoly measures to prevent big tech companies from reckless expansion of their businesses.

Kakao Entertainment and Kakao Games, which are among the affiliates under investigation, are companies that symbolize the Kakao-style growth strategy by spinning off business divisions as an independent company or acquiring companies. An industry insider said, “As far as I know, there’s an investigation underway, from whether the subsidiaries have done proper accounting in the process of their repaid growth to the possibility of tax evasion on overseas sales.”

Last year, the tax office fined Kakao’s blockchain unit Krust Universe in Singapore 12.3 billion won ($9.2 million).

Still, there are speculation that this special investigation has nothing to do with alleged personal tax evasion by founder Kim Beom-su. The tax authorities had conducted a probe into K Cube Holdings, which is 100 percent owned by Kim, in June last but found no major issues.

Aside from the tax probe, the Fair Trade Commission, the country’s antitrust watchdog, is also investigating where there are any fair trade violations among Kakao’s affiliates.

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]