Exceptionally large-scale investigation into offshore tax evasion

The Hankyoreh, May 30, 2013

Tax authorities are out in force against business figures suspected of keeping money in offshore tax havens.

The National Tax Service (NTS) announced on May 29 that it was beginning audits of 28 people suspected of evading taxes by pocketing assets or forming slush funds through "paper companies" in tax havens such as the British Virgin Islands.

Twelve of the individuals in question appear to be chaebol owners and executives appearing on two recent lists of tax haven users released by the non-profit investigative journalism website News Tapa.

An NTS source said the details of tax audits on individual businesses could not be disclosed, but confirmed that fifteen corporations had set up paper companies in tax havens without reporting them.

"Most of them were associated with large corporations and may overlap with the names of companies on the News Tapa list," the source said.

The NTS believes that eight of the 23 individuals being audited evaded taxes by using the Virgin Islands, while another eight used Hong Kong, and the rest stored money in other countries such as Panama.

The methods were also a mixed bag. In most cases involving the Virgin Islands, taxes were evaded by moving personal or company assets to paper companies - the de facto property of chaebol owners - and invested in financial products. Cases were also uncovered in which exports and offshore production were actually carried out at the head offices in South Korea and disguised to make the sales and profits appear to be coming from a Hong Kong paper company, with some of these concealed in the owners' companies in the Virgin Islands.

The NTS said it was examining twelve individuals whose names were given by News Tapa, including OCI Group chairperson Lee Soo-young and Hanjin Shipping chairperson Choi Eun-young, for possible involvement in illegal foreign exchange transactions and offshore tax evasion through tax havens.

Its audits are focusing mainly on tax haven flight and tax evasion disguised as direct investment, illegal transfers to paper companies through falsified transit trade or export and import prices, and indirect equity investment through paper companies.

Intensive audits for offshore tax evasion are one of the key missions for tax authorities this year. As of late May this year, the NTS had uncovered 83 cases of offshore evasion and imposed 479.8 billion won (US$424.5 million) in taxes. Forty-five cases are currently under investigation.

But this marks the first time dozens of people suspected of evasion through tax havens have all been audited at once.

In the past, the NTS has tracked evasion using tax havens through various avenues of international coordination and intelligence collection, only to run up against difficulties securing evidence and substantiating the charges. But with the recent announcement of several suspected cases of tax haven use by private watchdog groups and the press in South Korea and overseas - including News Tapa - it has been under increasing fire from a public fed up with tax authorities' unassertive approach.

Meanwhile, Unified Progressive Party lawmaker Kim Jae-yeon said an analysis of NTS data showed 15% of all South Korean export- and import-related foreign exchange transactions last year taking place through tax havens, and 24% of overseas direct investment.

"The only way to stop tax evasion is through a thorough investigation as to whether transit trade transactions and transfer prices are being falsified through paper companies in tax havens," Kim said.

By Park Soon-bin


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