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Taxation Benefit to GM That Takes over Daewoo Motors

Posted September. 22, 2001 08:39,   


The government will delay the special consumption tax at least for 6 months by the conclusion of the Memorandum of Understanding (MOU) between the General Motors and the Daewoo Motors.

In addition, GM will benefit by the foreigner`s investment promotion law that regulates the 50 –100 percent reduction of income tax, corporation tax, acquisition tax, and registration tax. This decision was made by the Ministerial meeting related with the Daewoo Motors presided by Deputy Prime Minister Jin Nyum yesterday.

Consequently, GM will not pay income tax and corporation tax at all for 7 years and, for 3 years after then, will pay only 50 percent of income tax and corporation tax. The GM will also benefit 100 percent exemption of local tax including acquisition tax and registration tax and 50 percent for 3 years after five years.

Chung Ghun-Yong, the governor of the Korean Industrial Bank and Asia/Pacific CEO of GM exchange the MOU, agreed to complete the contract by the additional negotiation until the end of this year. The Daewoo factory in Bupyong will be operated as an independent corporation for 6 years and, if the productivity and the stability of the labor-management relationship meet to the GM`s criteria, GM will also take over the factory then. The Daewoo Capital and the factory of the Daewoo Communication were excluded from this MOU.

According to the MOU, the GM and the creditors will invest 400 million dollars and 200 million dollars respectively to establish a new corporation, which will make the GM to hold 67 percent of share. The new corporation will take over the Daewoo factories in Kunsan, Changwon, and overseas corporations in addition to the debt of Daewoo Motors amounted 834 million dollars.

The new corporation will issue preferred stock of 1.2 billion dollars to pay off the debts to the creditors. The preferred stock would be like a debt to the creditors, then the new corporation will pay 3.5 percent dividend annually and eventually will buy the preferred stocks again from the creditors between 10 and 15 years after the contract. 834 million debts are related to the business operation including debts to the affiliated business and the retirement allowance.

Therefore, the total investment of GM in the nation is only 400 million dollars and the creditors would not see any money for the time being.

GM also takes over 11 percent share of the Daewoo Motor Sales Corp. and became the greatest shareholder of the company.

The domestic creditors, in addition, promised to provide the new corporation with the mortgage of 2 billion dollars for long-term operation fund. The Korea Industrial Bank and GM set up an estimated sale goal of the new corporation as 5 billion dollars per year.

Park Joong-Hyun sanjuck@donga.com