Carrefour Raided By Korean Tax Inspectors

by Mary Swire, Tax-News.com, Hong Kong

02 May 2006

Foreign investors will have been dismayed to learn that South Korean tax inspectors have raided the Seoul office of French retail group Carrefour following the company's announcement last week that it was selling its Korean operation and withdrawing from the country.

A team of investigators descended on the Seoul headquarters of Carrefour - Korea’s fourth largest retailer - and reportedly confiscated 2.5 tons of documents for a review.

The following day, a Carrefour employee told the national KBS TV network that: "There was an internal broadcast, telling us all to keep our computers on, desk drawers open and leave the office."

It is believed that the tax collectors are looking for evidence that Carrefour allegedly received goods free of charge from subcontractors and in doing so avoided taxes. Carrefour, which operates 32 hypermarkets and 24 shopping malls in Korea, had ex VAT sales in the country of EUR1,427 million in 2005.

However, the raid came only hours after Carrefour announced the sale of its Korean business for EUR1.5 billion (US$1.9 billion) to E-Land, the fashion retail group.

Carrefour Korea is 80% owned by Carrefour Netherlands BV, while the remainder belongs to Carrefour SA, the French parent company and the tax authorities could be worried that the company will get away with paying no tax on the sale by utilising double taxation avoidance agreements between South Korea, France and the Netherlands.

For its part, Carrefour says that the divestment of its Korean operation is part of a wider effort to withdraw from insufficiently profitable or non-core activities.

Carrefour Korea CEO Philip Brollanigo also told reporters on Friday that the tax authorities were carrying out a routine audit and that the company intended to pay all its taxes in accordance with Korean law.

An increasing number of foreign companies have been put under the spotlight recently for alleged tax crimes, most notably US funds Lone Star and Newbridge Capital. Last month, the Seoul Metropolitan Government also revealed that it is investigating 66 foreign-owned companies out of a total of 126 that have conducted large-scale real estate transactions since 1998. Among the companies under suspicion of avoiding taxes under this probe is the Government of Singapore Investment Corporation (GIC), the asset management arm of the Singapore government.

However, despite the growing perception that the Korean tax authorities are carrying out a witch hunt against profiteering foreign investors, Vice Minister of Finance and Economy Kwon Tae-shin has insisted that the government welcomes foreign investment.

"Recently, some investors have mistakenly suggested that we are pursuing anti-foreign investment policies," Mr Kwon told an investment conference in April.

He added: "Quite to the contrary, I can say with full confidence the government is committed to providing a level playing field for all companies regardless of nationality."

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