South Korean Tax Chief: Did He Jump Or Was He Pushed?

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

29 June 2006

Confusion was the order of the day on Tuesday after South Korea's National Tax Service Commissioner, Lee Ju-sung, handed in his resignation, leaving the media to speculate as to the real reasons behind his sudden departure.

If, as is seemingly expected, the government accepts Lee's resignation, then he is unlikely to be fondly remembered by foreign investors in South Korea, many of whom became the subject of the NTS's unprecedented and increasingly aggressive policy against tax avoidance, particularly foreign buyout funds.

As head of the tax service, Lee oversaw the first ever tax probe into foreign investment funds, most notably the Dallas-based Lone Star which was ordered to pay 140 billion won (US$145 million) in taxes and fines after an investigation last year concerning the disposal of real estate in Seoul. Other investment firms, such as Newbridge Capital and GIC, the Government of Singapore's investment arm, were also handed multi-billion won fines.

Whether this unpopular policy played a part in Lee's departure from the NTS is at the moment unclear. Certainly it led to the increasingly held view that South Korea was becoming hostile towards the activities of foreign investors, a perception that the government repeatedly tried to dispell.

Lee himself issued a statement saying that he decided to resign as "now is the best time to wrap up my job." A public relations official from the NTS added that Lee was keen to step aside in order to open opportunities for younger tax officials and add a new vigour to the tax department, according to a Korean Times report.

Lee also cited as a reason concerns that his successor would have insufficient time to carry out important policies if he served out his full two year term, which had several months left to run.

However, sources within South Korea's governing party have stated in the country's media that Lee was in frequent conflict with the Ministry of Finance, and his actions were seen as contrary to the administration's stated aim of transforming South Korea into North-Eastern Asia's financial and economic hub through a programme of deregulation and investor incentives.

The presidential office has reportedly denied these accusations and countered that it supported the scrutiny of foreign investment companies.

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