By Yoon Ja-young
Staff Reporter
The National Tax Service (NTS) slapped 60 billion won in taxes on Newbridge Capital Korea and Standard Chartered Bank involving Newbridge's sale of a controlling stake in Korea First Bank (KFB) back in 2005.
The tax agency reportedly imposed 15 billion won tax on Newbridge Capital and 45 billion won in tax on Standard Chartered in the beginning of the year. Both have been under tax probe since around April last year.
Newbridge Capital acquired 50 percent of Korea First Bank for around 500 billion won in December 1999, and reaped 1.18 trillion won in capital gains by selling its stake to Standard Chartered Bank in April, 2005. The bank changed its name to SC First Bank.
Officials from Newbridge Capital were not immediately available for comments.
The U.S.-based investment fund Newbridge Capital, however, didn't pay any tax as the transaction was made through the KFB Newbridge Holdings, addressed in tax haven Labuan in Malaysia, a signatory of the double taxation avoidance treaty with Korea. It donated about $20 million to Korea Asset Management Corp. and Korea Small Business Institute in 2005 April, but there has been argument over the leakage of the national wealth.
The tax agency focused on proving that the New Bridge Capital Korea is a permanent establishment (PE), but failed to do so.
``It is usual that foreign funds set up a paper company in tax haven which has a tax treaty with Korea. But if their office in Korea is regarded as a permanent establishment, the tax agency can levy taxes upon the establishment here,'' Han Chang-soo, aide of Grand National Party lawmaker Choi Kyung-hwan, told The Korea Times.
Choi was the first who suggested applying permanent establishment theory on the Lone Star Fund, which is expected to reap over 4 trillion won through sales of Korea Exchange Bank.
The tax agency, however, is known to have applied other taxation theories for the imposition of taxes.
In case of New Bridge Korea, NTS used transfer price (TP) theory. It assumed that New Bridge Korea minimized the corporate taxes by getting less commission from the headquarters of the Newbridge Capital than they should get for their services here, such as market research.
``We can't comment on this case, but the permanent establishment theory and the TP theory are totally different,'' said an official at the tax agency.
Also, it noted that some of the investors are from the countries that have no tax treaties with Korea, according to local media. Though KFB Newbridge Holdings is addressed in Malaysia, the NTS could levy taxes upon these investors for their gains in the sale of stocks. Hence, it levied around 45 billion won taxes on the Standard Chartered Bank, which is in charge of deducting the tax at the income's source.
SCB is known to have filed petitions with the National Tax Tribunal against the imposition of the taxes, and the New Bridge Capital Korea filed an appeal at the NTS.