Ruling camp reluctant to root out offshore tax evasion

By Choi Sung-jin

President Park Geun-hye has steadfastly refused to increase taxes to meet rising demand for welfare, and vowed to bring the vast underground economy into the open to raise financial resources.

In some ways, however, the government and its party have been running counter to President Park’s intention, critics say.

A case in point is the governing camp’s reluctance to toughen crackdowns on tax avoiders using overseas shelters. The issue has also emerged as a global concern, as shown by the recent exposure of numerous paper companies in Panama by the International Consortium of Investigative Journalists (ICIJ).

According to a 2013 report by Newstapa, the Korean chapter of the ICIJ, 34 large Korean businesses had set up about 160 paper companies in seven tax havens designated by the Organization for Economic Cooperation and Development. Among those who set up such companies were former presidents’ sons and owners of companies on the government’s industrial restructuring list.

Offshore tax avoidance is an anti-social crime that violates tax justice and leads to the outflow of national wealth. According to Oxfam, an international relief organization, 50 of the largest U.S. companies, including those bailed out by public finds during the 2008 financial crisis, are hiding $1.4 trillion in tax shelters. The tax dodging by U.S. businesses inflicts the loss of $111 billion a year on the U.S. economy, and $100 billion on the poorest countries.

Korea’s National Tax Service, too, uncovered 890 cases of offshore tax evasion and collected 3.95 trillion won as penalty taxes between 2010 and 2014.

“In Korea, which heavily relies on foreign trade and overseas investment, the foremost task of tax administration is to grasp tax sources occurring abroad and prevent tax avoidance,” said Rep. Park Won-suk of the Justice Party, who sponsored a “special bill” to prevent offshore tax avoidance in October 2013. “There are no rules in the current law that copes with offshore tax evasion in a comprehensive and systematic way.”

Rep Park’s bill failed to pass even the National Assembly’s finance committee, however, in the face of opposition from the government and its party.

The Ministry of Strategy and Finance said Korea has the National Tax Basic Law and Punishment of Tax Evaders Act, as well as tax agreements with various foreign countries, so the nation does not need a special law. “The ruling Saenuri Party did not want to put it to public discussion, either,” Rep. Park said.

Government officials said the bill, if enacted, would put additional burdens on businesses and contract the economy further. Vice Minister of Strategy and Finance Ju Hyeong-hwan said a drastic rise in financial rewards for whistleblowers was expected to increase corporate burdens and breed distrust within organizations.

“The special bill could constitute the core of bringing the underground economy into the open, as the Park administration has pledged, but the governing camp had no intention to enact the bill disliked by the business community,” Park, who will leave the Assembly in May, told Yonhap News Agency. “I hope some lawmakers in the next parliament will push for its legislation for social and economic justice.”