Korean Air (KE, Seoul Incheon) has become the subject of a tax investigation in connection with inheritance tax payments required from Hanjin Group founder family members, local media reported late on January 20.

The Seoul Regional Tax Office of South Korea’s National Tax Service dispatched investigators to the flag carrier's headquarters in the Gangseo-gu suburb of Seoul to glean tax and accounting data, Tax Finance News and BusinessKorea reported.

The regional tax office’s 4th Investigation Bureau is dedicated to in-depth tax investigations. It is deployed without prior notice when a company is suspected of tax evasion or slush funds, which can result in fines or criminal prosecution.

The move was prompted by suspicions of irregularities surrounding inheritance tax payments made by Cho Won-tae, the chairman and chief executive of both Korean Air and parent company Hanjin Group who inherited the responsibilities and a shareholding from his late father chairman Cho Yang-ho in 2019, as well as other family members with positions at the company.

The family declared a combined inheritance tax of about KRW270 billion won (USD245 million) to the National Tax Service, a sum they agreed to pay in instalments over five years under an annuity system.

Cho Won-tae secured KRW40 billion (USD36 million) in loans in 2020 using his Hanjin shares as collateral. According to BusinessKorea, some sources said he borrowed the money to help pay off his inheritance tax.

The investigators stressed that the probe's main target is the family, not Korean Air, but some charges are understood to have been made against the company. Korean Air has been accused in the past of not properly paying corporate taxes, and some observers are concerned that any prosecution could affect its merger with Asiana Airlines (OZ, Seoul Incheon).

The airline last went through a scheduled tax audit - generally conducted at large companies every five years - in 2017. The National Tax Service has largely refrained from such audits during the Covid era to help support hard-hit sectors.

Korean Air has denied any wrongdoing. It was not immediately available for comment to ch-aviation.