O`seas Tax Evasion

The owner of a Korean manufacturing company opened a secret bank account in Switzerland. He deposited slush funds created by manipulating sales after setting up overseas branches and a paper company. The slush funds were then sent to the tax haven Labuan Island in Malaysia to be reinvested in Korea. Part of the money was used in an illegal inheritance. After auditing him for six months, the National Tax Service in May collected 213.7 trillion won (191 million U.S. dollars) in back taxes from him.

In auditing four people including the manufacturer`s owner, the tax agency secured records on secret bank accounts they opened in Hong Kong and Singapore. The records were found via covert means and not with help from other governments. Tax authorities say overseas tax evasion through the use of overseas bank transfers is rapidly spreading, which could be in large part due to the enforcement of real-name financial transactions.

The world is trying to combat cross-border tax evasion. The Organization for Economic Cooperation and Development and G-20 member countries promised to strengthen international cooperation on this matter, through they have yet to share financial information on tax evaders. Unlike Switzerland, Labuan maintains bank secrecy laws and keeps trading with Korean companies that seek to evade taxes. To beef up vigiliance against offshore tax evasion as well as keep closer tabs on both multinational and domestic companies operating in Korea, tax officials have set up an international consolidated analysis system enabling access to financial statements of domestic and foreign companies. Seoul also joined the Joint International Tax Shelter Information Center in March last year.

The tax agency also needs a system allowing nationals and companies to voluntarily report offshore bank accounts. For Koreans working overseas, creating a bank account for living expenses is of no concern but having tens of millions of dollars in borrowed-name bank accounts is. Rep. Lee Hye-hoon of the ruling Grand National Party submitted a motion to parliament to revise laws on international taxes and punishment for tax evasion. Though difficult to identify offshore bank accounts that are not reported, this law can at least restrict the creation of bank accounts overseas.

The tax office will set up 15 agencies abroad to conduct intelligence on tax evasion and make permanent a temporary center for offshore tax evasion tracking. National Tax Service Commissioner Lee Hyun-dong must keep his promise to build a tax infrastructure that catches overseas tax evasion and to eradicate the practice once and for all.