[Edaily Marketin, Reporter Ji Young] The Financial Supervisory Service’s Disclosure Review Bureau has launched an investigation into KOSDAQ-listed company #Seojin Systems for failing to disclose tax risks in Vietnam amounting to approximately 100 billion won over an extended period. The FSS Disclosure Review Bureau believes that the substantial tax liability imposed on Seojin Systems in Vietnam should have been disclosed in its first-quarter report.

The bureau is also expected to examine potential unfair trading allegations against executives who sold shares and reaped substantial profits while failing to disclose the tax risk.

According to an exclusive report by Edaily on the 11th and sources in the investment banking (IB) industry, the FSS’s Disclosure Review Bureau has launched an investigation into Seojin System’s disclosure regarding a 100 billion won tax payment order received from Vietnamese customs authorities. The FSS believes that the issue of the large VAT assessment imposed on Seojin System’s subsidiary should have been disclosed in the first-quarter report and is currently reviewing whether to require a correction to the business report and impose sanctions after verifying the facts with the company.

The FSS confirmed the basic facts with the company and verified that Seojin Vietnam, Seojin System’s main production subsidiary in Vietnam, received a tax payment order of approximately 118.9 billion won from Vietnamese customs authorities last February. The company reportedly informed the FSS that it has paid the full amount and is currently proceeding with an appeal process.

The FSS considers the tax assessment against Seojin Vietnam to be subject to disclosure in the regular report. When a major subsidiary receives administrative measures for violating domestic or international tax laws, this must be disclosed in the regular report; Seojin Vietnam is a major subsidiary of Seojin Systems that meets the criteria of accounting for more than 10% of total assets and exceeding 75 billion won in the company’s business report. As the tax assessment by the Vietnamese customs authorities is understood to have taken place last February, the FSS is reviewing the need to correct the first-quarter report, which omitted this risk, and whether to include it in future semi-annual reports.

An FSS official stated, “It is required to disclose in periodic reports any cases where administrative measures have been taken due to violations of domestic or foreign tax laws,” adding, “Even if it is a subsidiary, if the violation occurs at a subsidiary of a certain size or larger, it must be included in the periodic report.”

The official continued, “Seojin System explained that since it has paid the tax in full and is currently appealing the decision, it does not need to be disclosed. However, regardless of whether the tax has been paid in full, the occurrence of such an event itself is subject to disclosure.”

If it is determined that the information was omitted from the periodic report, Seojin System could face sanctions. The FSS may consider measures such as fines, restrictions on securities issuance, or cautions and warnings, depending on the significance of the omission, whether it was intentional or negligent, and the impact on investor judgment. The specific level of sanctions is expected to be determined following a fact-finding process and internal procedures.

Previously, Seojin System’s local manufacturing subsidiary in Vietnam was investigated regarding its records of raw material imports and finished product exports. During the investigation, Seojin System reportedly failed to provide sufficient justification for inventory volumes spanning three out of the past five years, resulting in a demand to pay approximately 100 billion won in value-added tax and fines. As a result, Seojin System CEO Jeon Dong-gyu has been barred from leaving Vietnam by local authorities due to unpaid taxes and has been stranded there for an extended period.

Nevertheless, Seojin System’s first-quarter report did not list this tax risk as a separate risk factor or tax-related administrative action. The company has maintained the position that the matter does not require disclosure because it occurred at its Vietnamese subsidiary rather than the headquarters, and because it is currently appealing the decision after paying the full amount.

Seojin System already has a history of repeated disclosure violations. According to the Korea Exchange, Seojin System was designated as a company with inadequate disclosure in 2024 due to a retraction of a disclosure regarding the withdrawal of a corporate split decision, and was designated again last year for delayed disclosure of a stock pledge agreement involving a change in the largest shareholder.

Allegations regarding the selective provision of non-public information to investors in the capital increase and the sale of shares by executives are expected to expand into the jurisdiction of the Unfair Trade Investigation Bureau. Seojin System resolved to conduct a third-party private placement worth 180 billion won at a board meeting on April 22, and Seojin System’s senior management has stated that the investors in the private placement were aware of the tax-related situation in Vietnam. On the other hand, the investors deny the possibility of prior notification, claiming they only became aware of the matter after related reports were published.

Another point of contention is the fact that six key executives of Seojin System sold a total of 49,064 shares on the open market over three days from May 4 to 6. The total sale amount was approximately 2.859 billion won, with some executives selling their entire holdings. Furthermore, the 300 billion won in funds raised through Shinhan Investment Securities and Hana Securities while the company had not disclosed its tax risks, as well as the planned issuance of perpetual bonds currently being pursued, are also subject to risks related to undisclosed information.

The Disclosure Review Bureau is expected to verify the facts, focusing on whether there were omissions in the regular reports. Subsequently, the Unfair Trade Investigation Bureau will comprehensively examine the circumstances surrounding the use of undisclosed information or potential insider trading, including the timing of internal awareness, the details of the transactions, and any additional potential issues.

Capital market experts point out that Seojin System’s tax risk in Vietnam was an issue that could have a significant impact on investor judgment, going beyond a simple tax issue involving a subsidiary. This is because a tax payment order in the range of 100 billion won could burden the company’s liquidity and financial structure, and if it were accompanied by customs clearance delays at major production subsidiaries and the CEO’s prolonged stay in Vietnam, it could escalate into a business risk. Even if Seojin Vietnam were to circumvent customs delays by rerouting operations through other subsidiaries in Vietnam, the risk level could escalate if the local tax authorities’ investigation expands to encompass the entire group of affiliated companies.

Seojin System maintains that the tax risk in Vietnam does not represent a finalized loss and, given the possibility of a future refund, does not constitute a major disclosure matter. Even after the E-Daily report, instead of issuing a formal disclosure, the company posted an explanation on its website stating that the amount in question is subject to a refund.

Experts, however, view this as a matter that should not be taken lightly, as the VAT refund hinges on the company’s ability to properly demonstrate the linkage between raw material imports and finished product exports. If taxes were imposed because the company failed to sufficiently substantiate the connection between inventory and import/export activities for a significant portion of the five-year audit period, the refund is not a guaranteed right but rather an uncertain matter that the company must further prove during the appeal process.

An industry insider in the investment banking sector stated, “If this involves a significant tax risk, the mere fact that an appeal is pending does not eliminate the need for disclosure to investors.” They added, “If a rights offering and executive share sales proceeded while the information was omitted from the first-quarter report, an investigation into the omission of disclosure and the potential use of non-public information is certainly warranted.”

The source continued, “Given the intensity of the post-audit scrutiny that Korean companies have faced from Vietnamese tax authorities and the discretion of local authorities, whether the refund possibility claimed by the company will actually result in cash recovery must be examined separately,” and pointed out, “It seems that KOSDAQ companies have a very low level of awareness regarding investor protection.”