Tax Service Eyeing Lone Star Assets

The National Tax Service (NTS) is considering seizing Lone Star-owned Korea Exchange Bank (KEB) shares in an effort to secure 140 billion won in penalty taxes from the American private equity fund.

If the NTS does so, the pace of the disposal of the KEB shares, which has recently gained speed, could be delayed considerably.

Lone Star has not paid any of the 140 billion won in taxes that the NTS imposed on it at the end of last year regarding the capital gains it earned by selling the Star Tower Building in Yeoksam-dong, Gangnam-gu, Seoul and making other transactions.

“Through a tax probe, the NTS gave Lone Star notice that it should pay 140 billion won in taxes for its capital gains from the disposal of the Star Tower Building and others holdings by the end of February. Lone Star, however, has yet to pay any of the taxes,” said one senior government official yesterday. “We seized all the properties of Lone Star’s in Korea that we could legitimately take, but the sum of the properties is simply too miniscule. We are considering a seizure of its KEB stocks, as it would be difficult to collect the taxes from Lone Star once it liquidates related funds and leaves Korea.”

He went on to say, “The two funds which invested in the Star Tower Building and the KEB, respectively, have different owners, but they have the same manager, Lone Star. This could cause a legal problem, so we are examining relevant legal stuffs.”

When an individual or business does not pay its taxes on schedule, the NTS may seize the taxpayer’s properties, including bank deposits, real estate and stocks.

If the NTS seizes the KEB shares, Lone Star’s negotiations for the disposal of its stake in KEB might be deadlocked.

“It is Lone Star’s internal problem that different funds have different investors. If the manager of those funds is legally identical, I guess it would be possible to seize the assets of other funds as well,” said Kim Gwang-yoon, a professor of business administration at Ajou University and the former chairman of the Korean Academic Society of Taxation (KAST).

On the other hand, Lone Star Vice Chairman Ellis Short simply made a short comment about the issue, saying, “Lone Star has been honest in paying taxes in any country when it has had to do so,” saying he could not give a specific answer as the “taxation issue was not covered in the press conference.” He has been staying in Korea for the KEB disposal deal, and announced Kookmin Bank as its preferred bidder on that day.

Lone Star is reportedly preparing for an appeal to the National Tax Tribunal (NTT), claiming that the 140 billion won taxes imposed by the NTS is an unfair amount.

Meanwhile, Kookmin Bank, the preferred bidder in the KEB deal, is said to have suggested 15,400 won per share as the acquisition price. On this basis, it is expected that Lone Star might get some 4.3 trillion won in capital gains from the disposal of its stake in KEB.