Lotte faces probe on structure, taxes (5 Aug 2015)

Lotte faces probe on structure, taxes

By Choi Kyong-ae

Lotte Group is facing investigations into its governing structure and possible attempts at tax evasion as two sons of the group's founder escalate their succession battle over the retail giant.

"We are looking at the overall ownership structure of Lotte Group, including its overseas affiliates, as we found in April the same person (Lotte Group founder Shin Kyuk-ho) was controlling Korea's Lotte operations through Japan's Lotte businesses," a spokesman at the Fair Trade Commission (FTC) said Wednesday.

Late last month, the anti-trust regulator asked Lotte Group to submit documents which show the cross-shareholdings of its affiliates in Korea and Japan, the spokesman said.

"If we find something wrong with the governing structure, the company will face correction orders or fines," he said without elaborating.

The FTC plans to explain its position towards Lotte's ownership structure in a meeting of the government and ruling Saenuri Party to be held today in Yeouido.

Adding woes to Lotte Group in which the Shin brothers ― elder Dong-joo and younger Dong-bin ― are fighting for control of the conglomerate, non-governmental organizations such as the Citizens' Coalition for Economic Justice (CCEJ) and the Solidarity for Economic Reform (SER) are demanding the FTC and the National Tax Service (NTS) look into Lotte's ownership structure to make the intertwined, opaque group fair and transparent.

"The NTS has to make a thorough investigation into any possible attempts to evade or underreport taxes by Lotte," the CCEJ said in a statement released on Tuesday.

The previous day, the SER said in a statement that the National Pension Service, a major shareholder in Lotte Group, "should make an aggressive intervention to improve Lotte's governing structure. That's because the freefall of Lotte's corporate value due to the ongoing family mudslinging will undermine the wealth of its shareholders. It's time for shareholders to move for their own interests."

Shin Hak-yong, a lawmaker of the main opposition New Politics Alliance for Democracy, proposed a bill which would put overseas affiliates of a Korean company under Korean regulations in terms of mutual investment.

"Many companies likely invested in their overseas affiliates as current laws only allow them to invest in domestic ones. The family feud at Lotte shows the need for a revision of fair trade rules," Shin said in a statement.

The NTS started investigating Daehong Communications, an advertisement affiliate of the 93 trillion won retail group in Korea, last month.

"It is a regular audit of the company," said an NTS spokesman; but he declined to comment on the possibility that the investigations will be expanded into other Lotte affiliates.

In the latest development, the younger son Dong-bin who controls operations in Korea and Japan has drummed up support from executives, directors and shareholders to win the battle.

In contrast, his elder brother Dong-joo continues his battle with support from father Kyuk-ho, who was demoted from general chairman to honorary chairman last month by Dong-bin, and other family members who reportedly own a sizable stake in Lotte Holdings in Japan, the de facto holding company of Lotte Group.

Shin Kyuk-ho founded Lotte in Japan in 1948 and later expanded into Korea where succession wars are not rare in conglomerates.

In 2013, Lotte's Korean operations led by Dong-bin posted 55.42 trillion won in sales, dwarfing 4.57 trillion won in its Japan businesses then led by Dong-joo.

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