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Swiss aid in detecting tax evasion

Posted June. 17, 2011 08:17,   


The Swiss Federal Tax Administration imposed a 20-percent tax on the profits that multiple non-Swiss nationals reaped as dividends after investing in the Korean stock market using a Swiss-based bank account. In accordance with Swiss laws and a bilateral tax treaty with Korea, Switzerland took 15 percent of the dividend taxes while handing over 5 percent or 5.8 billion won (5.33 million U.S. dollars) to Korea’s National Tax Service. The market capitalization of such investment is estimated at 1.8 trillion won (1.65 billion dollars).

A significant portion of the investment is highly likely to be made by “black-haired foreigners,” or Koreans who disguise themselves as foreigners to illegally take out a huge sum of funds to deposit in foreign financial institutions and then invest the money back into the Korean stock market. Experts say that given the circumstances, more than half of the investment are made by Koreans.

Switzerland imposes a 15-percent dividend tax on Swiss nationals and 20 percent on non-Swiss nationals. Most developed economies levy a 10-percent dividend tax and Korea 14 percent. Despite the high dividend tax of 20 percent, the owners of the money have not responded because they are reluctant to identify themselves. The money is likely to be illegal slush funds belonging to businessmen, politicians, high-income professionals and their relatives or close friends. They might have remained silent because it has become difficult to hide the funds for a long time since Korea adopted a real name-based financial transaction system in 1993. In the past, suspicions were raised that relatives of conglomerate owners or politicians’ children bought expensive properties in the U.S. and other countries with suspicious money. Some say hedge funds purchased by Korean financial institutions at bargain prices included the money of black-haired foreigners.

Countries strictly control offshore tax evasion. The U.S. has prepared guidelines that require non-American banks to report data on their American customers who deposit 500,000 dollars or more to the U.S. Internal Revenue Service. The world is strengthening cooperation in cracking down on cross-border tax evasion. Germany and France purchase customer information from the employees of Swiss banks for use in catching tax evaders. Korean and U.S. tax authorities agreed in September last year to cooperate in tracking offshore tax evasion and slush funds outside of their borders.

Swiss tax authorities have refused to identify the black-haired foreigners though they imposed dividend tax on them. If Swiss wants to delete its image of a “paradise for black money,” it should share information on Koreans’ secret bank accounts with Korea. Korean tax authorities and prosecutors should investigate on their own, but should also persuade tax havens to help them catch Koreans with illegal bank accounts. The disclosure of black money will not only root out corrupt connections but also increase tax revenues and help good taxpayers pay less tax.