No More Tax Heavens

The National Tax Service (NTS) has begun a probe into domestic corporations and individuals suspected of evading taxes via tax heavens abroad.

On August 19, 2002, Han Sang-yool, NTS’s investigator in charge of overseas evasions, announced, “We have launched a large-scale investigation of 65 corporations and individuals suspected of tax evasion. The investigation will be wrapped up by the end of next month.”

This is the first time the NTS has ever investigated tax evasion by corporations and individuals using tax heavens.

Tax evasions through tax heavens are made through paper companies (i.e. companies exist only on paper) in foreign countries with which Korea has no tax treaties or which do not impose taxes. The paper companies, once set up, invest in stock transactions and do not pay tax on the profits made from the transactions.

The NTS understands that the tax heavens are used for various purposes such as for illegal transactions of foreign currencies; illegal financing of affiliates; manipulation of stock price in the name of foreign investment; and tax evasion on profits of selling shares.

In addition, the NTS estimates that a total of 411 billion won ($350 million) has been evaded through tax heavens.

Han also stressed, “So far we have been unable to check out the transactions in the tax heavens. Thus, we could not perform any investigations. Now we can share information with foreign agencies. We will continue this type of investigations in the future.”

Jeong-Hun Park sunshade@donga.com