Foreign investment funds earn profits of sometimes trillions and yet pay not one bit in taxes. Lone Star earned close to W300 billion from its investment in the Start Tower building and has earned between W500 billion and W600 billion alone, but using a loophole in the form of a tax agreement with Belgium it has avoided paying taxes. It has kept the government from being able to do so by selling its real estate in the form of stock shares. Another investment fund used a tax haven to purchase a company and then sell it and take away hundreds of billions in profit. Building a bogus company in a tax haven to avoid taxes is a typical method used by foreign investment funds.
It remains to be seen what the results of NTS's action will be. When a tax haven is involved it needs to be able to prove that the bogus company was built to avoid taxes in order for it to be able to levy taxes anyway according to the "principle of essential taxation," but doing that is not easy. It is hard to grasp the flow of cash across national borders. Still, the investigation must not avoid the issues. Previously the NTS penalized Korean companies that were engaging in tax evasion using tax havens. In essence this is no different. Also the investigation needs to be a turning point that keeps the country's sovereign taxation rights from being harmed by foreign investment funds. There must be no delay in amending tax agreements with foreign companies so as to block tax evasion by foreign investment funds
There also needs to be a change of thinking among companies. They need to get rid of the insensitivity that allows them to thoughtlessly accept proposals that they go through tax havens. The subject of this tax investigation is different from the foreign capital that is on the stock market. There is no need to worry beforehand about it influencing the market. Even if it does influence the market, the country should still not concede its "tax sovereignty."
The Hankyoreh, 15 April 2005.
[Translations by Seoul Selection (PMS)]
