Audits spell more work for law firms

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Audits spell more work for law firms

Amid growing calls from both social and political circles for “economic democratization,” as well as beefed-up audits by the National Tax Service targeting tax evaders to expand the nation’s coffers, major law firms that have worked as legal shields for conglomerates are now increasingly sought out by major firms.

A group of five Woongjin Group companies, Woongjin Think Big and Woongjin Chemical among them, were fined 3.4 billion won ($3 million) by the Fair Trade Commission in December 2011 for unfairly awarding business contracts to their holding companies.

Woongjin swiftly appealed the decision. A year later, Seoul High Court sided with the group, which was represented by law firm Kim & Chang.

In 2005, Kyobo Life Insurance filed an appeal against the 99 billion won corporate tax imposed by the Jongno Tax Office, which claimed the company was required to pay corporate tax initially deducted because of the insurance company’s scheduled initial public offerings, but Kyobo did not go ahead with the IPO as planned.

With legal representation by law firm Yulchon, the Supreme Court last month exempted the company from the tax burden, bringing an end to the eight-year legal battle.

Major law firms, such as Kim & Chang; Bae, Kim & Lee LLC.; and Lee & Ko, preemptively readied themselves for a string of legal disputes involving tax troubles, pitting the government against major corporations.

“We prepared for what was to come by recruiting a wide range of people specialized in taxation, accounting and patents as well as by analyzing economic democratization-related campaign pledges by [the two major] presidential candidates last year,” said an official at a law firm who requested anonymity.

One of the most common ways to boost their competitiveness as a legal firm to help out troubled chaebol companies is by recruiting a wide range of talents, including those from government supervisory agencies such as the Fair Trade Commission and the National Tax Service.

High-ranking government officials, patent lawyers and tax advisers are also favored by law firms to meet the growing demand.

To handle the particular interest among chaebol in avoiding legal repercussions for unfairly awarding contracts to their subsidiaries and taking care of inheritance tax, law firms such as Yulchon and Lee & Ko formed a task force comprised of about 20 lawyers specifically dealing with those matters.

“For law firms [with these task-force teams], it is no different than responding to clients’ demands in the market,” said an official at Bae, Kim & Lee, speaking on the condition of anonymity.

Not everyone is content with the law firm’s renewed focus in the legal market.

Some worry the law firms’ way of doing business - defending major firms accused of unfairly conducting business - may run counter to the pledges of economic democratization.

Concerns over the repeated practice of former government officials working for law firms have also been met with negative public sentiment.

“We have noticed a recent series of legal disputes over taxation that were ruled in favor of major companies, represented by major law firms,” said an official at the Korean Government Legal Service, a state-run institution that provides legal services for government institutions, who asked for anonymity.

“We have reached a point where we need to explore a wide range of legal issues for policies related to economic democratization.”

By Kim Ki-hwan []
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