Seoul protests EU tax haven blacklist

By Yoon Ja-young

The government plans to seriously protest the decision by the European Union (EU) to include Korea in its tax haven blacklist.

“We sent an official letter (to the EU) yesterday,” Strategy and Finance Minister Kim Dong-yeon told the media, Wednesday.

“We plan to take appropriate measures since there is no problem at all in Korea’s tax policies according to other international standards.”

The EU published its first list of “non-cooperative tax jurisdictions,” Tuesday, as a part of steps to “raise the level of good tax governance globally and prevent large-scale tax abuse.”

Korea is included in the blacklist of 17 countries, along with American Samoa, Bahrain, Barbados, Grenada, Guam, Macao SAR, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and the United Arab Emirates.

“Korea has harmful preferential tax regimes and did not commit to amending or abolishing them by 31 December 2018,” the EU noted in its release.

According to the finance ministry, the EU took issue with Korea’s tax support for foreign investment in free economic zones and other special districts for foreign investment. Korea exempts corporate tax for five or seven years if businesses in foreign investment zones meet certain conditions.

However, the finance ministry said the EU’s decision doesn’t meet international standards such as the Organization for Economic Cooperation and Development (OECD) and goes against the global consensus. Furthermore, it said the decision may violate Korea’s sovereignty in taxation.

Most of all, the finance ministry pointed out that the EU, which claims the blacklisted countries have not met the OECD’s Base Erosion and Profit Shifting (BEPS) minimum standards, applied different criteria rather than BEPS.

BEPS refers to an agreement signed by some OECD member countries in 2015 to tackle base erosion and profit shifting by multinational companies. Korea, which participates in the BEPS project, also agreed to apply the agreement to its tax codes.

“The OECD’s BEPS project is limited to finance and services industries, which have high mobility. It thus had ruled that Korea’s support for foreign investments should not be categorized as a harmful preferential regime. The EU, however, expanded the scope to apply it to the manufacturing sector,” the finance ministry noted.

It added the EU promised to accept the OECD’s harmful preferential regimes at the OECD’s Inclusive Framework meeting in February, but went against the global consensus.

“It is infringing on taxation sovereignty by pressuring non-EU member countries to accept EU criteria.”

While the EU cited lack of transparency as one of reasons to include Korea on the blacklist, the finance ministry countered that Korea is effectively exchanging information through extensive tax treaties on top of guaranteeing a high level of transparency in tax administration.

The finance ministry said it will actively tackle the EU’s decision, taking the issue to international institutions such as the OECD.