By Choi Sung-jin
Since some leaked documents on a tax haven in Panama showed 195 Korean names were included, people are asking what the government has done to prevent offshore tax avoidance.
Government officials have attempted to prevent untaxed money being hidden in overseas tax shelters, especially since a similar report in 2013 about alleged offshore tax dodging by 245 Koreans, including a son of ex-President Chun Doo-hwan.
But the backdoor remains open because a related bill has been gathering dust at the National Assembly over the past three years, government officials said.
According to officials at the Ministry of Strategy and Finance, the Foreign Account Tax Compliance Act (FATCA) between Korea and the United States, which calls for the exchange of financial information, has been in limbo for nine months.
This is because the opposition parties have refused to hold the Assembly’s Foreign Affairs Committee, in protest at the agreement on former sex slaves between Seoul and Tokyo. The adverse effects of the Park Geun-hye administration’s diplomatic blunder have spilled over to the economic arena, an opposition lawmaker said.
According to the Korea-U.S. accord, U.S. financial firms will automatically provide the National Tax Service (NTS) with information about Koreans who have savings accounts that produce interest of more than $10 a year. Assuming the annual interest rate is 1 percent, bank accounts of $1,000 or more are subject to automatic notification.
Also subject to automatic notice is information on financial accounts related to income generated from U.S. sources, including the account holders’ name, account number and taxpayer identification number. That means all ordinary financial transactions made in the U.S. are notified to Korean tax authorities, making it difficult to avoid taxes.
Korean tax officials now request the U.S. Internal Revenue Service to provide information on financial accounts only of specific people suspected of tax evasion.
Seoul and Washington signed the FATCA last year but its implementation has been put off for a year as the Korean parliament drags its feet on ratifying the pact. If the National Assembly ratifies it soon, Korea will be able to receive information on financial accounts in 2014 and 2015 by September. If the 19th Assembly fails to approve it until its final working month of May, however, the 20th Assembly should restart the ratification process.
The NTS has received thousands of voluntary reports of undeclared overseas income and assets up to March 31. Those who made voluntary reports are exempted from surtaxes and penalties, plus some legal action, tax officials said.
The voluntary reporting system is based on the idea in a special bill on overseas tax evasion, sponsored by Rep. Park Won-seok of the Justice Party. Under the bill, Korean individuals who have real property overseas, as well as businesses with equity investment abroad, have to report them to the NTS. That compares with the present system, which calls for reporting only financial accounts of 1 billion won or more. The bill also called for tax audits of all people with assets of 1 billion won or more in offshore tax havens.
The National Assembly did not pass that bill, however.