The National Tax Service (NTS) has decided to levy W214.8 billion in tax fines on 5 foreign investment funds found to have engaged in tax evasion. Two or three executives are being handed over to the prosecution to be charged with deliberate violation of tax laws.
Many people have long interpreted the law to say that these investment funds can't be taxed on the money they take in. The NTS is to be complimented for not being held back by those interpretations and instead engaging in a special tax investigation in order to examine past transactions, and for having decided to issue penalties in cases of tax evasion. This investigation is very significant for making it clear that taxes will be levied fairly without regard to capital's nationality and that there can be no exceptions when it comes to tax evasion investigations.
The methods employed by these foreign investment funds were as ugly as can be. They cleverly misused the international agreement preventing double taxation, and they embezzled cash out of the country by borrowing money from overseas subsidiaries and paying them high interest. They were disregarding of our laws altogether for underreporting stock transaction tax. It is a naked revelation of the true facts about investment funds that will stop at nothing to make money.
The fact that most of the funds that have been exposed are famous investment companies is shocking. The Korean government sold a domestic bank to one of them, and another once saw government officials obsessing with it in order to bring in outside capital. What the NTS investigation shows you is that being a famous investment company does not in any way guarantee ethical management. Those who have served foreign capital as if lord and master need to reflect on their approach.
It is unfounded fear to say the tax investigation will lead to the flight of foreign capital. Any foreign capital concerns that fear being fined for tax evasion are not of help to Korea. Many investment funds will have already circumvented the law and left without paying the proper taxes. The government needs to work harder at fixing the system, including supplementing the agreement against double taxation, so that speculative investment funds aren't able to abuse any loopholes.
The Hankyoreh, 30 September 2005.
[Translations by Seoul Selection (PMS)]
[Editorial] Ignoring Tax Evasion by Foreign Investment Funds` |
