NTS targets multinational firms

National Tax Service's office in Seoul / Yonhap

By Lee Kyung-min

The National Tax Service (NTS) will closely monitormultinational firms operating in Korea to confirm whether their earnings here are taxed in a fair and transparent manner, the tax agency said Tuesday.

To that end, the agency will add seven more professionals to its team exclusively in charge of looking into overseas financial dataand information regarding multinationalcompanies, including global tech giants Google and Facebook.

TheNTS explained that it is seeking to make suremultinational firms pay alevel of taxes corresponding to thesuccess of their business here.

In particular, it is seeking to “close” a legal loophole long exploited by foreign firms that managed to pay taxes on only a fraction of their profits here, mostly by routing them to lower-tax jurisdictions where their headquarters are based.

Four of the new workers will be required to have expertise in quantitative analysis and use of data on overseas financial assets, and the other three on the analysis of annual reports which multinational firms are required to submit.

The latest move is in line with a 2019 comprehensive policy initiative the NTS announced this month to ensure fair taxation.

Also, the agency plans to establish a comprehensive data analysis system for monitoring the income and sales of such companies in the first half of 2019.

A separate data management system will also be set up to identify overseas assets of tax dodgers living here.

The NTS said it will be able to levy “due” taxes on foreign corporate entities in Korea, as a related law was revised to require them to submit their financial data including sales, profit and other details that can help identify taxable income.

Upon reviewing the data, NTS will determine whether firms are engaged in attempts to evade taxes by doctoring accounting books,such as by underreporting profitshere through intra-firm trading.

“We expect the process will become more effective as the revised law will allow us to audit firms ― both limited and non-limited. Related data will be collected and stored for further reference, which will be vital information for us to have a legal basis in the execution of our work,” an NTS official said.

The official said more firms will be subject to corporate taxes, as the revision also recognizes a building as a permanent establishment even when it is used for just purchasing or storing goods.

Under the revision, the statute of limitationsfor taxation involving unreported overseas financial transactions will be extended to 10 years from the current seven.

Also, the statute of limitations for underreported overseas financial transactions will be extended to seven from the current five.

While considered far from a fundamental measure, the extension of the statute of limitations is the next best thing, given the Ministry of Finance, the supervisor of the NTS, has expressed caution with regard to revising the corporate tax code to impose heavier taxes on IT giants.

The ministry, instead of revising the code to recognize the Korean branch as a permanent establishment, only reiterated its earlier stance that the country will continue to join a global wave of efforts to tackle base erosion and profit shifting (BEPS).

Under the initiative led by the OECD, over 100 countries are trying to fight BEPS, a series of tax avoidance strategies that exploit gaps and mismatches in tax rules through artificially shifting profits to low- or no-tax locations.