Seoul Tax Authorities Suspect Foreign Firms Of Dodging Real Estate Taxes

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

27 April 2006

Thirteen foreign companies have been ordered to pay 36.3 billion won ($38.4 million) after being accused by the Seoul tax authorities of evading taxes in relation to the purchase of real estate in the South Korean capital.

The Seoul Metropolitan Government is investigating a total of 66 foreign-owned companies out of a total of 126 that have conducted large-scale real estate transactions since 1998.

Twenty of these firms have been inspected, with 13 of them saddled with additional tax bills. The remaining 46 firms will be investigated within the first half of this year.

It has been reported that nine companies have so far paid about 21.7 billion of these back taxes to the authorities, with the remainder expected to have been paid by the end of the month.

Among the companies accused of evading taxes is the Government of Singapore Investment Corporation (GIC), the asset management arm of the Singapore government, which has been ordered to pay 16.7 billion won in relation to its purchase of Star Tower from the US fund Lone Star.

According to the Korea Times, GIC used paper companies registered in Singapore to acquire all of the shares in the Korean listed company names as the owner of the building. These paper companies were said by Seoul tax officials to be owned 50.99 percent and 49.01 percent by GIC - just under the 51 percent threshold that would have made it liable for acquisition tax under Korean tax law.

Five other foreign firms used paper companies set up in overseas locations to avoid taxes in property acquisitions according to Seoul tax officials.

Investigators have stressed that the investigation is separate from the ongoing probe of foreign funds Lone Star and Newbridge Capital.

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