The South Korean Ministry of Finance and Economy (MOFE) has announced that it intends to supplement local laws and seek changes to double taxation treaties in order to prevent offshore-registered investment firms from avoiding local taxes.
The Korean government reportedly intends to tax the capital gains of foreign funds that own more than a 25% stake in local firms, which, under current double taxation treaties, are exempt. Additionally, overseas-based funds that invest in Korean companies with more than 50% holdings in real estate which sell their stake in equities will be targeted.
“We will stipulate precise tax laws to enable the Korean government to tax incomes that have been invested in Korea through tax havens to evade taxes whether they are foreigners or Koreans," MOFE announced in a statement on Monday.
“We will stipulate laws so that a resident of a third country will not be able to receive benefits by establishing paper companies in a country that Korea has formed tax agreements with," the statement added.
In April, it emerged that the Korean National Tax Service had begun investigating a number of foreign investment fund firms, including Newbridge Capital, Carlyle Group, Lone Star Funds and Citigroup, for alleged tax evasion relating to the proceeds of property sales.
The South Korean authorities are also set to investigate the Government of Singapore Investment Corporation (GIC) in connection with its purchase of a building in the Korean capital, Seoul, in December last year.
The investigation is said to be centred on the purchase by GIC's real estate investment arm, GIC Real Estate, of a 45-storey office building in Seoul, known as the Star Tower, from Lone Star Funds for an estimated sum of 950 billion won ($1.57 billion) in the form of shares rather than cash.
The proposed changes will have no bearing on these investigations since they would only apply to future investments.
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