The chief administrators of the Korean National Tax Service (NTS) and the Malaysian Inland Revenue Board (IRB) held a meeting in Kuala Lumpur last week, where the subject of Labuan's involvement in the recent tax violations by foreign fund companies operating in South Korea was discussed.
According to a report by the Korean Overseas Information Service (KOIS), Lee Ju-sung, head of the NTS, expressed concern to Zainol Abidin Rashid, chief executive of the IRB, about "Malaysia's tax haven of Labuan in connection with the NTS's investigation into foreign funds".
The report went on to state that the two tax administrators "exchanged views fully on excluding Labuan from the proposed revision of the bilateral tax treaty."
The Korean tax authorities believe that many of the firms which are accused of avoiding tax on capital gains are doing so through offices registered in Labuan.
In September, six foreign fund firms were landed with a total back tax bill of more than US$200 million by the Korean National Tax Service after an investigation which began earlier in the year.
According to the NTS, the funds evaded taxes by nominally basing themselves offshore, paying high rates of interest to their overseas affiliates, using illegal expenses and failing to report securities transactions in accordance with the law.
Seoul is attempting to tighten up several of its double taxation agreements with other countries, and is drafting new laws to tighten tax rules governing the activities of foreign funds.
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