SEJONG — The National Tax Service (NTS) announced on the 25th that it has launched a specialized investigation into large-scale bakery cafes suspected of being used as tools for illicit inheritance and gift tax evasion.
The probe targets "mega-bakery cafes" located in Seoul and the Gyeonggi metropolitan area. The focus is on whether these businesses are exploiting the Family Business Inheritance Deduction, a system designed to support the continuity of small and medium-sized enterprises (SMEs).
Under current South Korean law, if a parent manages a business for over 10 years and passes it to an heir, up to 60 billion KRW can be deducted from the taxable estate. For instance, a piece of land valued at 30 billion KRW would normally incur roughly 13.6 billion KRW in inheritance tax. However, by running a bakery on that land for a decade, the tax bill could effectively drop to zero.
The NTS is closely examining several "red flag" scenarios:
Disguised Industries: Cafes registered as "bakeries" (which qualify for the deduction) but actually operating as "coffee shops" (which do not) without proper baking facilities.
Personal Use of Assets: Cases where private luxury villas are built on the same plot of land as the bakery.
Pro-forma Management: Instances where elderly parents in their 80s or children who recently quit unrelated jobs are listed as CEOs solely to meet the 10-year management requirement.
"The original intent of this deduction is to preserve technical expertise and industrial know-how," an NTS official stated. "Using it merely as a vehicle to pass down expensive real estate undermines tax justice."
The investigation follows recent remarks by President Lee Jae-myung, who questioned the potential for the system to be abused during a senior secretary meeting on the 15th.
The NTS plans to use the findings to propose legislative improvements to the Ministry of Economy and Finance. Furthermore, if clear evidence of tax evasion is discovered during the probe, the agency will transition into a formal tax audit.
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