More Foreign Firms Targeted By South Korean Tax Authorities

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

24 January 2006

The South Korean National Tax Service has revealed that several foreign financial institutions are included on a list containing more than 100 firms who are to be investigated for alleged breaches of local tax regulations.

The foreign companies have been included on a list of 116 large businesses that the NTS wants to include in a new audit programme which starts on Thursday.

The agency has declined to name the targeted companies, but it is thought that most local firms are in the semiconductor, electronics, shipbuilding, telecom and automobile industries, while several foreign banks and securities companies have come onto the tax service's radar once again.

According to the NTS, some foreign companies have paid less taxes "despite huge profits".

The NTS believes that some foreign companies having been imposing "excessive" operating costs on their local branches to whittle down their tax bills.

Tax officials have been quick to emphasise that the latest campaign to clamp down on company tax evasion is not biased unfairly against foreign companies and that all firms, whether local or international, will be treated equally in its audit programme.

Nonetheless, the move is bound to create concern in the business community that the Korean authorities are becoming increasingly hostile towards foreign investors.

Six foreign funds were investigated and subsequently fined a total of 215 billion won (US$212 million) by the tax agency last 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.

Last month it was reported that the vice chairman of US-based Lone Star, Ellis Short, apologised for the company's role in evading tax. Lone Star was reportedly fined 140 billion won ($142 million).

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