Tax Evasion Bill Has Lone Star in Mind

A tax revision bill to step up taxation on Lone Star and other foreign funds has been put to the National Assembly.

While the Uri Party lawmakers who proposed the bill are aiming to get it passed before July at the plenary session, the administration is taking a noncommittal stance.

The Ministry of Finance and Economy (MOFE) and the National Assembly disclosed yesterday that Uri representative Ooh Che-chang and others submitted to the legislature on April 21 a revision of the corporation tax law and income tax law that designates paper companies or particular funds which clearly abuse international taxation treaties as tax-evading companies, and permits withholding their taxes.

Revised last year and scheduled to take effect from July 1, the corporation tax law decrees withholding taxes only on foreign companies that have headquarters in tax haven countries or regions specified by the Minister of Finance and Economy.

Under this law, withholding taxes on Lone Star’s capital gains from the sale of Korea Exchange Bank will be difficult in practical terms, as it would be impossible to name Belgium, where Lone Star is headquartered, as a tax haven.

In the proposal brief, the lawmakers explained that the reasons behind introducing the bill were to fill the gaps in the current taxation laws which only identify tax haven countries or regions, and thus cannot be applied to paper companies or certain funds that obviously make ill use of tax treaties.

“We have no intention of hiding that the bill is targeting Lone Star,” said Ooh.

They declared their plan to pass the bill after holding consultations with the MOFE so that the Finance Minister will be able to disclose the relevant types of funds before July 1.

However, an MOFE official expressed doubt on the bill, noting that although the legislation of the bill is up to assembly members to decide, there are no international precedents of setting certain fund types as tax-evading companies. “There is also a lot of room for controversy as the bill targets particular funds,” he said.

Hyun-Jin Park witness@donga.com