'1 in 5 foreign shareholders could be linked to tax dodging'

W37.9 tril. held by 2,095 from Luxembourg

By Lee Kyung-min

Over 20 percent of foreign shareholders were registered in “tax haven” countries often used for overseas tax evasion and other illegalities, a ruling party lawmaker said Wednesday.

Foreign investors from a number of countries that impose little to no tax liabilities, with no residency or business presence here, are increasingly linked to speculative forces in the local financial market, according to the lawmaker, which he considers to be a source of major disruption that must be dealt with.

Data presented by Rep. Park Kwang-on of the ruling Democratic Party of Korea (DPK) showed 9,269 foreign investors here were registered in 50 countries believed to be monitored by the OECD as tax havens. They were among 44,318 registered in 126 countries.

The National Tax Service has been refusing to publicly acknowledge that there is an official list of countries being monitored since 2015, citing potential diplomatic friction.

About a third, or 31 percent, were registered in the Cayman Islands (2,898), followed by Luxembourg (2,095), the British Virgin Islands (979), Singapore (757), Malaysia (747), Switzerland (431), Bermuda (318), the Bahamas (138) and The Island of Jersey (133).

The value of shares held by them was 105.3 trillion won ($91.9 billion) as of August, up from 72.4 trillion won in 2015.

An increase of 793.3 billion won in the first eight months of 2020 is notable since the equity market sentiment worldwide had largely tanked due to the COVID-19 pandemic.

A total of 2,095 investors from Luxembourg held a combined 37.9 trillion won worth of shares, followed by Singaporean investors with 36.6 trillion won.

Over 10.4 trillion won in shares were owned by 2,898 investors from the Cayman Islands, while 10.3 trillion won was held by 431 investors from Switzerland.

About 5.2 trillion won worth of shares were held by 5,747 investors registered in Malaysia, followed by 2.3 trillion won owned by those in Bermuda.

The lawmaker sitting on the National Assembly Trade, Industry, Energy, SMEs and Startups Committee said monitoring should be strengthened to better detect illegalities engaged in by the registered foreign investors.

“International cooperation should be strengthened to prevent and prohibit stock price manipulation and the illegal outflow of foreign currencies. Tax haven countries are highly likely to be linked to tax evasion and stock price manipulation, key factors that could trigger uncertainty in the volatile financial market,” he said.

The lawmaker's data is in line with a continued jump in the amount of tax evaded over the past decade.

NTS data showed that 1.38 trillion won in taxes were evaded, up 2.7 times from 501.9 billion won in 2010.

Of the 44,318 foreign registered investors, over a third, or 34 percent, were Americans (15,226), followed by Japanese (4,147), those from the Cayman Islands (2,898) and Canadians (2,748).

About 5.8 percent were from the United Kingdom (2,596), followed by Luxembourg (2,095), Ireland (1,408), Australia (1,319), Hong Kong (1,165) and Taiwan (989).

Their investment total of 740.2 trillion won includes stocks (589.2 trillion won) and government and corporate bonds (151 trillion won).

The number of foreign investors has been on a continued rise over the past few years. The figure was 37,727 (119 countries) in 2015; 39,180 (121 countries) in 2016; 40,662 (122 countries) in 2017; 42,355 (125 countries) in 2018 and 43,612 (125 countries) last year.

The shares owned by the 44,318 foreigners rose to 589.2 trillion as of August, up 28.5 percent from 421 trillion won in 2015.