[Alpha Biz= Kim Namsook] A South Korean court has ruled that legal fees paid by multiple affiliates of Lotte Group for Chairman Shin Dong-bin were personal expenses and cannot be treated as deductible corporate costs.

According to legal and business sources on February 19, the Seoul Eastern District Court sided with tax authorities in a lawsuit filed by 10 Lotte affiliates—including Lotte Shopping and Lotte Chemical—seeking to overturn corporate tax assessments.

The affiliates had collectively paid approximately KRW 6.4 billion (USD ~4.7 million) in legal fees for Shin during his criminal trials related to past corruption and governance cases. The payments were recorded as business-related service expenses in an apparent attempt to reduce corporate tax liabilities.

However, the court rejected this treatment, stating that the legal fees were incurred solely for Shin’s personal criminal defense and had no direct connection to the companies’ revenue generation or business operations.

The court further noted that the charges against Shin—including embezzlement, breach of fiduciary duty, and bribery—were primarily linked to personal control and private interests rather than the benefit of the affiliated companies.

 

The ruling is expected to require the affiliates to repay previously deducted taxes and could expose them to further legal risks, including potential shareholder lawsuits alleging breach of fiduciary duty.

Legal experts said the decision highlights governance concerns, particularly regarding the use of corporate funds for controlling shareholders’ personal matters. “This ruling sends a clear message against treating corporate assets as private resources,” said Choi Jae-geun, head of J&K Law & Tax Firm.

The case has also drawn criticism from investor groups, who argue it underscores structural weaknesses in corporate governance within large conglomerates.

 

 

 

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