NTS Probing 41 Foreign Companies

The National Tax Service (NTS) is probing into Korean affiliates of foreign-based companies, executives of these companies, and foreign athletes.

The NTS has not conducted a tax probe into foreign-based companies in order to overcome the foreign currency crisis, which required the investment from foreign companies.

The NTS plans to finish its initial probing into those companies and executives by the end of April. Then the NTS will charge high-rate punitive additional taxes against those who evaded their taxes. It will create a stir.

The NTS announced yesterday that it is probing into the 41 companies that paid management consulting fees to overseas headquarters, among the domestic corporations and branches of foreign-based companies that recorded more than 10 billion won of sales.

The NTS disclosed that some executives of foreign-based companies had evaded income taxes for their stock option arrangements. Since Jan. 5th, the NTS has launched a tax probe into one thousand executives of 139 companies who had reported their stock option profits.

An official of the NTS said, "It was confirmed that many domestic corporations and branches of foreign-based companies invited the officials of overseas headquarters for management consulting and paid too much money for their travel, stay, and consulting fees. Some companies even paid consulting fees to overseas headquarters without receiving any consultation."

He explained, "It is a typical method to evade taxes by increasing domestic companies` costs and to shelter away profits to their overseas headquarters."

In addition, the National Tax Service is working to impose taxes on about 10 famed foreign finance-consulting companies who have enjoyed special demands due to financial restructuring in Korea.

A related expert of foreign business said that when a company provides a short-term service in the nation, it pays only 15-20 percent tax according to the International Tax Treaties. But when the company stays over 6 months for business in a nation, the company must pay the same amount of tax as other local corporations and branches do (30.8 percent including local tax when the tax basis is over 100 million won).

NTS collected 7.7 billion won from about 10 foreign business offices that are not the objects of corporation tax but who stayed in Korea over 6 months for business last year.

In addition, NTS distributed letters to request tax reports and payment documents to corporations that owned professional soccer teams, baseball teams, and basketball teams who hired foreign players, to inspect whether the foreign players reported their taxes correctly.

Kwang-Am Cheon iam@donga.com