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‘Tax Haven’ Korea

Posted December. 07, 2017 08:19,   

Updated December. 07, 2017 08:51


Except employees at the Internal Revenue Service to levy taxes, there is nobody who doesn’t like “tax free.” Even IRS employees look for tax free opportunities when they go for shopping. Money always goes to somewhere tax is small or free. Cayman Islands in the western Caribbean Sea does not levy corporate tax. The Caymanian government is not interested in whether a company physically exists or is just registered as a paper company. They just care about fees for corporate registration and renewal.

Last year, Pulitzer prize-winning investigative journalist Bastian Obermayer at the German newspaper Sueddeutche Zeitung received internal documents covering 100,000 items from an anonymous source. It is the famous Panama Papers. Information of celebrities, including Russian President Vladimir Putin and soccer player Leonel Messy, who built paper companies at tax haven area was leaked and became the talk of the world. Some 190 Koreans are reportedly included in the leaked information.

The European Union designated Tuesday that South Korea is one of 17 tax haven countries. Except South Korea, all other designated countries are small GDP-sized countries or overseas territory islands. We feel like Korea being a small country comparable to Saint Lucia, which most of us don’t know where it is. The reason why South Korea is included for the tax haven countries is because there is no transparency in tax benefits for foreign companies that invest in foreigner investment area and Korean Free Economic Zones. The fact that Korea is in a “blacklist” hit a blow to foreign currency market, weakening Korean currency won, despite the clear penalty not being decided by the European Union.

Blacklist of tax havens has been discussed in earnest at G20 meeting in 2009. The list is posted at the OECD’s website but Korea is not listed there. The European Union has a more stringent guideline for tax haven and it classifies Free Economic Zone as a kind of tax haven. The definition of tax haven is diverse, but the key is transparency. To Korean employees who have to pay tax for every single income, tax haven Korea sounds unrealistic. But unless the Korean government does improve its complicated corporate taxes, it is not likely to be escalated into “gray list” from the current blacklist.