Multinational firms evaded $375 mil. in customs duties over past 5 years

Authorities urged to overhaul administrative process, cooperate with other countries

By Lee Yeon-woo

Multinational firms in Korea were found to have evaded more than 500 billion won ($375 million) in customs duties for the past five years by failing to submit relevant data and documents, according to government data unveiled on Monday.

The Korea Customs Service (KCS), however, has emerged victorious in only three out of 10 tax litigation cases on average involving these companies.

According to KCS data submitted to Rep. Hong Sung-kook of the main opposition Democratic Party of Korea, multinational firms evaded 547.2 billion won in customs duties from 2019 until the first half of this year. This constitutes 63 percent of the total 862.4 billion won in total unpaid customs duties and is 1.7 times larger than the amount evaded by domestic firms.

The proportion of unpaid customs duties by multinational firms out of the total amount of evasion rose from 54 percent in 2019 to 86 percent in 2020 and 77 percent during the first half of this year.

However, when the customs agency pursued litigation against multinational firms during the same period, they won only 28 percent of the cases. This is significantly lower compared to the KCS's track record of winning 48 percent of lawsuits filed against domestic firms for the same violation.

Many experts attributed the low success rate primarily to an unfavorable judicial system for tax authorities coupled with a lack of manpower.

“Fundamentally, the tax law is designed for compliant taxpayers. This implies that if a taxpayer declines to disclose relevant data, the onus is on the tax authority to provide evidence of the taxpayer's illicit activities,” said Park Hun, a taxation professor at the University of Seoul.

“In the case of multinational firms, chances are high that the relevant data is housed at their headquarters overseas. Securing the data necessitates the firm's cooperation, making it challenging for tax authorities to obtain such information and prevail in litigation compared to cases involving domestic firms,” Park added.

In a phone interview with The Korea Times, Rep. Hong said that there is currently no efficient way to penalize multinational companies that refuse to provide evidence of their alleged tax evasion.

“The administrative process must be strengthened to ensure these documents are submitted,” he said.

Multinational firms often employ large law firms. This is seen as one contributing factor to the challenges faced by Korea's tax authorities.

“Tax authorities seem to lack a system of rigorously enforcing taxation, especially when confronting major law firms,” Park said.

In response, experts urged structural reforms by tax authorities. Given that the process of litigation can take several years, it is essential that the individuals in charge remain consistent. This means preventing key personnel from being appointed to different departments during regular organizational reshuffles. There is also a consensus on the need to bolster expertise in the sector.

“Most of all, Korea should collaborate with other nations. Multinational firms operate globally, not just in Korea. Hence, other countries are likely facing similar challenges. The customs agency should align its efforts with international customs agencies,” Park emphasized.

However, some experts raised the possibility that the KCS might have imposed excessive taxes on such firms due to public sentiment, which could subsequently cause tax authorities to lose in court.

“The low win late suggests the possibility that the tax authorities might have overtaxed,” said Sung Tae-yoon, an economics professor at Yonsei University.