By Kim Jae-won
The National Tax Service (NTS) is expected to levy as much as 440 billion won ($400 million) in tax on Lone Star Funds, when the U.S. buyout fund finally sells its controlling stake in Korea Exchange Bank (KEB), sources said Thursday.
Lone Star signed to sell its 51 percent stake in the fifth-largest lender to Hana Financial Group for 4.4 trillion won ($4 billion), and the tax agency plans to impose a 10-percent withholding tax on the profits as dictated by the appropriate law.
“The NTS will levy tax on Lone Star, even though it may take the case to the court eventually,” said a source on condition of anonymity.
The source, however, said that the amount of tax could be lowered, if the Texan private equity company and Hana agreed to negotiate a new deal due to a fall in the KEB share price.
Shares were traded at 7,800 won Thursday, down 41.7 percent from the initial deal price of 13,390 won agreed in the contract between the two firms.
Kim & Chang lawyer Kim Do-yeong, the legal representative of Lone Star in Korea, did not respond to repeated calls from The Korea Times.
Industry watchers say that the Dallas-based private equity company might file a complaint with the court against the NTS over the taxation because Lone Star has argued that it has no duty to pay taxes on profits in previous claims citing an international treaty.
Lone Star sued the NTS for seeking 119.2 billion won in tax on the sale of a 13.6 percent stake in KEB in 2007 — the issue is currently pending at a Seoul district court. The buyout fund argued that it has no obligation to pay taxes under the Belgium-Korea Tax treaty, which exempts tax obligations in Korea for Belgian companies, while the NTS argues that LSF-KEB Holdings, Lone Star’s Belgian subsidiary that owns KEB, is a paper company set up in the European nation to evade taxes.
However, the NTS said it is not sure whether it can impose corporate tax on Lone Star as it is hard to prove that the Texan fund owns a permanent entity in Korea.
Koreans have regarded Lone Star as a symbol of “meogtwi” — a greedy foreign company that makes huge profits, but is reluctant to pay taxes.
Lone Star is eager to exit Korea by selling its stake in KEB, but faces severe protests from unionists and lawmakers who accuse the company of taking “excessive national wealth.”
The Financial Services Commission, which has authority to approve the Lone Star-Hana deal, is expected to make a decision on the matter in the near future.