By Oh Young-jin
City Editor
Call it extra dues one has to pay for living in Korea or take it as a higher law.
Despite these duplicitous distinctions, it even has a name for it ― the "national sentiment law" that has no charter, article or clause but is regarded as supreme to all other rules.
Koreans take it for granted but foreigners, when faced with the full brunt of it, cry foul over it ― oftentimes to no avail. But I believe that they either feign ignorance or fail to appreciate it. After all, every country has it, perhaps in a different shape or form.
Enough of this charade. I give two examples: one that has been stuck in a quagmire and the other that will be heading down the same path, unless it's handled properly.
The first is the case of Lone Star, a Dallas, Texas-based private equity fund that holds a controlling stake in the Korea Exchange Bank (KEB) but has been trying to sell it for years without success, having borne the full force of the public wrath ― the stiffest penalty in unwritten law.
I will skip over the figures; it would simply aggravate Lone Star stakeholders who are already in a frenzy over the incompetence of their leader, John Grayken.
I wonder why the stakeholders are keeping Grayken despite the delayed sale of the KEB and the loss of potential profits, which would have materialized, had the proceeds been invested in other lucrative deals. Perhaps, the global financial meltdown may have diverted their attention from the Land of the Morning Calm.
However, by the standard of Korea's sentimental law, Grayken is guilty of ignorance ― not knowing how to deal with Korea as a nation. Remember the photos of Grayken ― unshaved with a loosened tie ― from one of his first trips to Korea. Remember his promise of 100 billion won in donations that he has yet to keep. Both were a public relations fiasco.
Sometimes, I wonder how things can be this bad when Korean-expert Jeffrey Jones, who can speak better Korean than most Koreans, myself included, and often has a perfect grasp of things Korean, has been helping.
From my perspective as a Korean who was born with the sentiment law in my DNA, if Grayken had spruced up and paid that 100 billion won, he would have already made a nice exit out of Korea, with billions in realized profits (the difference between the buying price and selling price) transmitted to his account and those belonging to his stakeholders.
Now, the KEB has become Grayken's Iraq.
Here is another case that is similar to that of Lone Star.
ETS is a U.S.-based nonprofit organization, which administers standardized English proficiency tests around the world.
As reported in my newspaper, it has made nice profits to the tune of 25 billion won from TOEFL tests in Korea but doesn't pay any taxes.
You may think that nonprofits don't have to pay but the pertinent U.S. law, not the sentiment law, stipulates that if such organizations use less than half of their earnings for nonprofit causes, their profits are taxable.
The Korean law says that ETS should pay taxes, if, as a foreign business entity, it has a permanent establishment (PE) that contributes greatly to its sales.
ETS has what can be regarded as a PE but a moot question is how much ETS Korea, its branch office, contributes to the tens of billions of won in test fees that are directly transferred to its headquarters in the United States.
Before going further, I want to point out that ETS knows the issue in and out. For instance, it hires YBM, a private network of language institutes, for TOEIC tests, and pays taxes, while self-managing TOEFL and GRE tests without paying taxes. In a way, I believe that this arrangement is inevitable because TOEIC is a popular English proficiency test among Korean companies, making a Korean agent necessary to boost its sales.
TOEFL and the GRE are more oriented for those who want to study in the United States so ETS thinks that it can get away with the proceeds without paying taxes.
But I think that this reasoning merits reconsideration, especially considering that it has ample body of circumstantial (emphasis) evidence that it is engaged in marketing TOEFL, least of all because Korean universities, which also require the test scores for applicants, are under pressure to either switch to other home-developed tests or devise their own formula.
I think that ETS is making the same mistake Lone Star did ― underestimating the wrath of the sentiment law. The writing has been on the wall for a couple of years when public criticism crested over the inadequate preparedness that forced some applicants to skip the tests. Besides, high test fees are a constant source of grievance.
Of course, it is the tax authorities' job to determine whether their Korean operations are taxable or not through a due course of investigations.
But I hope that ETS will learn from the Lone Star case. Because it is that unwritten rule of sentiment that may determine how strongly the tax collectors will go after it.
Let's get adult about it. It is the U.S. version of the law of sentiment that forced Obama to go after big wigs on Wall Street for receiving bonuses even after their greed caused the global meltdown.
During the Bush era, a Middle Eastern country tried to buy out a controlling stake in U.S. ports but its bid was rejected. I doubt that there is a country on earth that is not controlled in one way or another by this swing of public sentiment.
I am pushing it on a take-it-or-leave it basis, but, in global society, it is important to learn the local rules. Everybody has them so don't complain.