SM Entertainment, which spawned hugely successful manufactured acts like BoA, TVXQ, Super Junior and Girls' Generation, has become the target of a tax probe.
The National Tax Service on Tuesday raided the offices of the agency in the trendy Gangnam district of southern Seoul on Tuesday and confiscated account records.
The NTS suspects that SM set up paper companies in Hong Kong and other overseas tax havens under the names of musicians in its stable and used them to evade tax on proceeds from concerts abroad.
SM allegedly made 62 percent of its W168.5 billion (US$1=W1,076) in revenues in 2012 overseas.
SM had repeatedly been accused of lacking transparency in its financial dealings. An industry source said, "Entertainers who are popular overseas generate hundreds of millions of won in sales just from merchandise like photo albums and T-shirts and by collecting fees for fan club membership. There is no system to properly account for such revenues."
Another insider said, "In China, cash is still used without receipts for transactions worth up to W10 million."
This is not the first time that a large entertainment agency has been investigated by the NTS. In 2008, YG Entertainment, which manages boy band Big Bang and girl group 2NE1, was nabbed for evading taxes and had to cough up W2.8 billion. The NTS also probed entertainment companies in 2007 and 2012.
SM Entertainment denies the charges.