Conglomerates hike subsidiaries in tax havens
Lotte Group tops list with 33 units
By Kim Jae-won
A number of foreign private equity firms such as Lone Star Funds and Newbridge Capital have been criticized repeatedly for avoiding paying taxes in Korea by operating through “paper companies” they set up in tax havens.
And now it seems that chaebol, or Korea’s family-owned conglomerates, are stealing a page from their playbook. The large Korean companies have been increasing the number of their subsidiaries in countries with no tax pacts with Korea this year, raising concerns over corporate attempts to evade taxes, according to an Internet-based market researcher.
A tax haven is a country, or territory, which levies taxes at a low rate or not at all to attract investments from other nations. For example, Hong Kong, Labuan of Malaysia, the Cayman Islands, the British Virgin Islands and Bermuda are classified in the category.
The top 30 conglomerates had 167 corporations in tax haven countries in May, up 18.4 percent from 141 a year earlier, Chaebol.com said. Lotte Group topped the list with 33 subsidized overseas units, including those located in tax havens such as the Cayman Islands, Mauritius and the Virgin Islands. Samsung Group followed with 30, and LG Group next with 21.
The data comes as the National Tax Service is investigating suspicions that Korean nationals used accounts at Swiss banks to hide money that was later used to invest in stocks on the market here. The tax authorities suspect that the money may have come from funds in tax havens.
The NTS said that conglomerates may have more unreported subsidiaries in tax haven nations.
“We do not believe that all of their subsidiaries in tax havens have been accounted for,” a high-level NTS official said, asking not to be named.
Korea has been stepping up efforts to clamp down on overseas tax evasion schemes amid rising concerns over individuals and companies who establish paper companies and foreign accounts to hide their wealth and earnings.
The government has set up a new regulation, which obliges an individual or a company to report their overseas banking accounts, where balances exceed 1 billion won, to the tax authorities.
The NTS also said it plans to carry out joint investigations with foreign tax authorities and probe overseas financial accounts. The tax agency signed a collaborative tax investigation agreement with the U.S. recently to better crack down on tax dodgers. As of June 2010, Korea had tax agreements with 77 countries, including the U.S., China, Japan and Britain.