The incoming head of South Korea's National Tax Services stated yesterday that the tax authority will endeavour to tax Lone Star's multi-billion dollar profit when the US fund disposes of its stake in Korea Exchange Bank.
Jun Goon-pyo, who has been named the next tax agency chief, told a parliamentary conformation hearing that he was "confident" that the agency will be able to tax the gains.
"We’ve got to go through a series of battles full of logic and evidence to win the case against speculative foreign investments including Lone Star, but I’m confident we will win eventually," he stated.
If recent reports are correct, Lone Star stands to make a tax free gain from the sale of its majority stake in KEB by using South Korea's double taxation avoidance treaty with Belgium. The 50.5% stake was acquired by Lone Star's Belgian subsidiary in 2003 for about $1.2 billion. It is now reportedly worth about $5 billion.
However, it will not only be Lone Star in the taxman's sights, as Jun signalled that there would be no let-up of pressure on foreign investment companies under his regime, and promised "stern measures" to prevent foreign funds from trying to exploit loopholes in the double-taxation avoidance treaties.
"Speculators will realize it is no longer possible to make profits through speculation in real estate," he warned.
Jun was appointed by President Roh Moo-hyun after the unexpected departure of his predecessor Lee Ju-sung. As head of the tax service, Lee oversaw the first ever tax probes into foreign investment funds - a policy that looks set to continue under his successor.
However, domestic firms look in for an easier ride under Jun's tenure at the tax service, as he pledged that the number of tax probes into local companies will be "greatly reduced".
"The government should not rely too much on tax probes but should seek ways to encourage both businesses and the public to pay taxes," he told lawmakers.
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