900 Foreign Companies Face Tax Evasion Probe

The National Tax Service (NTC) launched an extensive investigation into 900 foreign companies suspected of tax evasion.

International Tax Resource Management Division Chief Kim Young-keun said Sunday, “After analyzing the taxation data in the past 3 years, we offered notification to 900 foreign corporations and investment firms under suspicion for tax evasion.” The NTC plans to bring forth additional charges by conducting tax audits if related foreign companies fail to submit corporation tax returns within this month.

The NTC focuses on illicit omissions of taxes through international transactions and foreign investment, transfers of income to overseas holding companies or branches, tax dodging through new international transactions like derivative products, and income diversions to tax havens.

Analysis by the National Tax Service will be based on the international transaction-related database of foreign exchange network, customs clearance for exports and imports, embarkation and disembarkation, and overseas credit card use, as well as a list of tax returns in the Tax Integrated System (TIS) as well as changes in property.

Also, in case companies have been evading not only payment of corporate tax but also value-added tax by not adding up part of sales to an account book, the NTS will use various taxation data from outside institutions and the TIS database to check whether any tax payments were left out.

The National Tax Service also plans to collect more information on foreign investment and local sources of taxation, while developing a system to individually analyze the thin capitalization and taxation in tax havens. Furthermore, the NTS decided to exchange more information with 54 countries of the tax convention, immediately collect information on foreign exchange transactions of financial institutions, cooperate with Korea Customs Service regarding suspects of illegal foreign exchange, and establish a cooperation system with financial watchdogs in order to effectively supervise convertible bonds transacted in the international market. So far, 4,256 foreign companies have to submit corporate tax reports within this month.

Ki-Jeong Ko koh@donga.com