Korea Launches Tax Probe Into Foreign Investment Firms

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

15 April 2005

The Korean National Tax Service has launched an investigation into several foreign investment fund firms over allegations that they evaded tax on the proceeds of property sales.

According to reports, the investigation is likely to focus on whether the firms diverted the profits from the property deals into offshore accounts in an attempt to avoid Korean taxes.

A report in the Korean Herald stated that seven firms are under investigation, including Newbridge Capital, Carlyle Group, Lone Star Funds and Citigroup. The investment arm of the Singapore government, known as GIC, is also said to be among the organisations under suspicion.

Shin Hak-soon, head of Sewon Tax Office in Seoul, was quoted by the Korean Herald as commenting that: "When foreign funds are registered in an overseas tax haven, it's difficult to impose taxes on them even as they reap huge profits from Korea operations."

However, some observers have speculated that the investigation has more to do with growing discontent over the levels of profit being made by some foreign funds, an accusation which the tax office has denied.

"There's no problem with foreign private equity funds making profits in Korea. What matters is whether they pay taxes as they are required to, and many are suspected of evading taxes through several irregular ways," Shin remarked.

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