Starbucks Korea under probe over alleged tax evasion

A Starbucks outlet in Jong-no, central Seoul / Korea Times file

By Lee Kyung-min

Starbucks Korea is being investigated over allegations of tax evasion, mostly via overpricing goods and services imported from its head office in the U.S., according to industry and tax administration sources, Thursday.

Officials from the National Tax Service (NTS) Seoul Office's international trade investigation department have seized accounting records and data preserved online at the global coffee giant's office in the capital, following multiple searches that began in mid-May.

The Korean office allegedly sought to inflate the cost of raw materials such as coffee beans and others products for sale or needed for maintenance at its over 1,370 branches here, in what is widely known as “transfer pricing.”

Referring to the rules and methods for pricing transactions within and between enterprises under common ownership or control, transfer pricing has the potential for cross-border transactions to distort taxable income. This is why the tax authorities pay keen attention to whether certain foreign subsidiaries of a manufacturer increase or decrease the price of goods and services of tangible and intangible property transferred among or between affiliates.

Starbucks Korea downplayed the investigation, saying it was part of a regular oversight. “We believe the investigation does not concern any particular suspicion and is part of a regular audit. We hope not much will be read into this,” a Starbucks Korea official said.

Launched in 1997 through equity investment by its U.S. head office and Shinsegae, Starbucks Korea's shares are held equally by the head office and Emart, a retail subsidiary of the Korean firm.

It has maintained a steady mid-20 percent year-on-year profit growth over the past decade. It reported sales of over 1.87 trillion won ($1.53 billion) in 2019 with a net profit of 132.8 billion won.

The probe is part of the NTS' drive to crack down on overseas tax evasion, in line with the fair tax administration initiative outlined in early 2020.

It said in January that deliberate attempts to underreport income or property prices and abuse of tax treaties will be closely monitored, adding that those who fail to report overseas property including financial accounts and real estate will come under tighter scrutiny.

According to data submitted from the Korea Customs Service presented at the National Assembly audit in October 2019, a total of 672 multinationals evaded 950 billion won in taxes between 2014 and 2018, accounting for 46 percent of the total amount evaded.

They were among 1,772 firms which dodged a combined 2.8 trillion won in the same period.

The amount evaded by multinationals has hovered over 50 percent in the past years; 56 percent in 2014; 55 percent in 2015; 51 percent in 2016; and 50 percent in 2017.

The NTS said it cannot comment on an ongoing investigation. “We are not able to disclose details about ongoing matters,” an NTS official said.