South Korea Rebuffs Tax Audit Reports

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

11 May 2006

The South Korean government has moved to dismiss media reports over the alleged harassment of foreign firms operating in the country by the Korean National Tax Service (NTS) as "groundless and hapless."

In a statement released by the Ministry of Finance and Economics (MOFE), it is claimed that the large number of investigations into foreign firms, which have been widely reported in the world's media, are "just conventional and normal operational activities of the NTS as tax authorities of any country would undertake as part of their business as usual."

According to the MOFE, the NTS has the right to be informed when a registered company has suspended or discontinued its business operation, or when shareholder structure and nationality of the investors has changed.

"The same procedure applies indiscriminately to all registered businesses in Korea regardless of the nationality of the investors concerned," the MOFE maintains.

While liaison offices of foreign companies are not subject to corporation tax in Korea, the statement added that the MOFE conducts "simple fact-finding" of these offices to establish whether they withhold taxes from compensations paid to their employees as required under Korean law.

The statement responds to reports of ongoing investigations into companies such as Lone Star and Newbridge Capital, the fund firms, GIC, the Singapore government's asset management arm, and Carrefour, the French retail giant, among others, which have led many to conclude that the Korean authorities are becoming increasingly hostile to foreign investors.

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