Singapore Investment Corporation Accused Of Evading Korean Taxes

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

30 May 2005

The South Korean authorities are to launch a tax audit of 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.

Under Korean tax rules, acquisition and registration taxes do not have to be paid provided the buyer does not own more than a 51% stake in the asset. It is reported that GIC purchased the building via two of its units, which now own a 50.01% and 49.99% stake respectively, saving the company 43 billion won in taxes.

However, local tax experts have doubted whether the government has sufficient grounds for prosecuting GIC for deliberately evading taxes.

In April, it came to light that the Korean National Tax Service was 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.

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.

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