Hyundai Whistleblower Faces 28.5 Billion KRW Tax Controversy

Kim Gwang-ho, former Hyundai Motor department head, reported engine defect issues to the audit office, initially hoping for accountability for those responsible and system improvements.

He believed that if the internal report succeeded, it could refresh the company's recall atmosphere and contribute to the company.

The company did not officially ostracize him. Official ostracism was avoided due to concerns he might report to other agencies.

They were constantly monitoring his movements, waiting for an opportunity to exclude him.

This is interpreted as the company's aggressive legal response to prevent a second or third whistleblower.

The company used lawsuits to send a warning about internal whistleblowing and showed a strong stance against leaking internal information to external parties.

This fine was structured as one-third cash payment, one-third quality investment, and the remaining one-third as a conditional deferral.

This means that if the company fulfills certain conditions, a portion of the fine may be waived.

Korea's Public Interest Whistleblower Protection Act follows a tiered fixed-rate system, where the reward percentage (4-30%) is determined by the fine amount. The reward ceiling is also limited to 3 billion Korean Won.

In contrast, the U.S. discretionarily determines between 10-30% based on overall internal contributions, and pays a certain percentage of the fine without a cap.

If one is involved in the issue or has intentionality, they are excluded from receiving the reward.

Internal reporting details are important evidence for determining internal contribution, so a whistleblower's strenuous efforts and frustrations must be proven to receive protection.

He conveyed several issues, including Theta 2 engine defects, R engine oil consumption problems, and airbag non-deployment issues, to the responsible team leader.

However, after a year with no action, he confirmed the limitations of the domestic system and decided to report it to the United States.

Former Department Head Kim stated that the estimated reward he could receive through public interest reporting in Korea at the time was approximately 60 million Korean Won, less than his annual salary.

In contrast, the U.S. allowed for rewards of tens of billions of Korean Won depending on the fine amount, which could serve as a financial cushion to offset the risks of dismissal and criminal charges.

He chose to report to the U.S., recognizing the lack of effectiveness of the Public Interest Whistleblower Protection Act and the limitations of the domestic system, to ensure minimal survival.

Kim Gwang-ho, former department head, received a total reward of 24.3 million dollars (approximately 28.5 billion Korean Won at the time's exchange rate) from the U.S. National Highway Traffic Safety Administration.

The actual amount received after deducting attorney fees was approximately 16.2 million dollars (about 18-20 billion Korean Won).

He inquired with the National Tax Service about the taxability of this reward but received no answer for 1 year and 3 months. With the deadline for comprehensive income tax filing approaching, he eventually decided to self-report and pay in installments.

Former Department Head Kim pointed out that the National Tax Service avoided responding by utilizing the fact that there are no mandatory regulations requiring them to answer inquiries.

He argued that the National Tax Service delayed tax notifications, effectively depriving taxpayers of the opportunity to object through administrative lawsuits or complaints.

Consequently, due to the burden of unreported additional tax (20%), he had to pay the tax first and then dispute the unfairness of the tax assessment through a correction request.

As the joint meeting concluded with a taxable decision, his case was converted to an administrative lawsuit.

Currently, Mr. Kim has lost in the first administrative lawsuit.

Former Department Head Kim asserts that the U.S. Department of Transportation explicitly stated 'Whistleblower Award' in its decision, and he received it recognizing it as an award.

He points out a discrepancy between the dictionary definition and legal interpretation of 'award' and 'compensation' in Korean.

He questions why what he received should be classified as a 'reward' and thus taxable, given that 'award' has a stronger discretionary nature while 'compensation' has a stronger compensatory nature.

In Korea, rewards under the National Security Act and the Health Crimes Control Act are explicitly termed 'awards.'

Also, tax collection rewards, while named 'rewards,' are considered 'awards' and receive non-taxable treatment.

Former Department Head Kim argues that such cases in Korea, where awards and rewards are not distinguished and receive non-taxable benefits, raise issues of fairness.

However, Mr. Kim argues that the intent of the revision was not to limit the scope of awards, and that non-taxable items should be interpreted more broadly.

Conversely, Mr. Kim argues that it should be viewed as a non-taxable award or an incentive for public interest reporting.

The U.S. government used the term 'Award' for this payment, and the Anti-Corruption and Civil Rights Commission also expressed the opinion that this reward should be non-taxable.

However, the National Tax Service has not yet acknowledged the Commission's recommendation and maintains its stance of 'cannot acknowledge it'.