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SM Entertainment under Probe; Did They Surf Too Far on the Back of Hallyu?
Tax Investigation
SM Entertainment under Probe; Did They Surf Too Far on the Back of Hallyu?
  • By matthew
  • March 21, 2014, 10:27
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SM Entertainment includes all of these K-Pop performers, too many to list in one caption.
SM Entertainment includes all of these K-Pop performers, too many to list in one caption.

 

The leading Entertainment company SM Entertainment (SM) is under probe by the Korean Tax Office. Other big entertainment companies are on alert as well, as the tax office launched its investigation on the number one company in the industry.

Seoul Regional National Tax Service recently secured tax-related records such as accounting books after sending their investigators to the entertainment company’s headquarters in the Chungdam district of Seoul. 

SM has been building an exclusive footing in the recording industry. It has expanded its territory in the form of acquiring Woollim Entertainment, which runs the popular group “Infinite.” It has also established a subsidiary, SM C&C, doing the business of broadcasting and performance production. According to The Financial Supervisory Service’s electronic notification system, SM dwarfs the industry runner-up YG Entertainment in sales, as the former’s sales are twice as much as the latter.

In particular, its overseas concert-generated revenues are incredible. Recently, entertainment companies have been zeroing in on overseas markets, as the domestic market has its limits. SM’s K-pop groups such as TVXQ, Superjunior, Girls’ Generation, and Shinee spend more time overseas than in Korea.

Superjunior, popular in Europe and South America, attracted a million person crowd with their worldwide tour “Super Show.” TVXQ drew 850,000 in Japan on their tour last year alone.

Some in the entertainment industry suspect that the company is under suspicion of overseas tax evasion by not reporting their overseas revenues, a problem that can be caused by receiving overseas concert sales in cash or in borrowed accounts.

Others also speculate that the suspicion may have been derived from conflicts within management. Another rumor states that an insider, dissatisfied with the current management, ratted them out.

SM’s biggest shareholder is singer turned Chairman Lee Soo-man, who is focusing on record producing these days. The professional CEO Kim Yeong-min is in charge of the company’s operations now.

The office will reportedly report SM to the prosecution if the probe finds them to be guilty of tax evasion.

However, SM denied the suspicion, saying “An overseas tax evasion charge is groundless. We are only under a regular tax examination following the previous one in 2009.”

The entertainment industry is closely watching the tax investigation by the Korean Tax Office, who recently conducted an inquiry on another entertainment giant CJ E&M. The tax authority is targeting entertainment companies that have been getting heftier on the back of Hallyu. 

An entertainment industry associate pointed out, “The leading company is under a probe, making other companies nervous. For now, it is only a tax evasion suspicion, so we are awaiting the result of the inquiry. Premature supposition can only trigger more insecurity in the industry.”

Another concern was voiced over the possibility that the incident can hamper steadily growing Hallyu. A certain record/performance planning company associate said, “If the suspicion on SM turns out to be valid, concert-related overseas personnel will see the dark side of K-pop, which may shrink concert business in other countries.”