Tax agency looks offshore to track down the cheats

A multinational IT company is suspected of having avoided taxes by routing payments through a contrived overseas setup that reduced or eliminated its obligations.

The company’s local presence was registered as a service arm of the parent, while money earned was sent directly to foreign entities incorporated in jurisdictions that have tax treaties with Korea. The funds would eventually be remitted to the parent, which is in a non-treaty country.

By doing this, the company avoided local corporate and value-added taxes while it also avoided the 15 percent withholding tax charged on most outbound payments.

An adult child of a hotel owner with no apparent means of support lived a luxurious lifestyle, purchasing high-end watches and bags, while living abroad for extensive periods, charging his extravagant lifestyle on his father’s credit card.

The National Tax Service (NTS) considers this as a way of avoiding the inheritance taxes.

In another case, a father paid the tuition of a student studying abroad. The student purchased a house in the United States using the tuition that the parent had sent as well as funds borrowed from a Korean bank using a commercial building as collateral.

The large sum of cash that was supposedly tuition payment was not properly reported to the Korean authorities, while the parent paid off the bank loan.

These are a few of the 171 cases, including 46 involving companies, the NTS said on Wednesday, that it is investigating for offshore tax evasion.

The Korean tax authority said multinational IT companies have been employing sophisticated schemes to avoid tax payments. The investigation also includes illegal offshore real estate purchases and those who live luxurious lifestyles without a clear source of income.

The NTS said among the 57 people suspected of dodging taxes in purchasing overseas real estate, 26 turned out to have spent between 500 million won ($427,096) and 1 billion won. There was one who purchased real estate for more than 2 billion won.

Among the 54 individuals suspected of living a luxurious lifestyle overseas, nearly half - 21 of them - spent 500 million won or less, while 15 people spent 1 to 2 billion won.

Since 2013, the tax agency has been able to recoup more than 1 trillion won every year from offshore tax dodges, and last year hit its all-time record of 1.34 trillion won.

It added that under the Moon Jae-in administration it investigated 273 cases and was able to complete 208 of those investigations, leading to collections totaling 1.06 trillion won.

“We will make it widely known that there are no blind spots in terms of offshore tax evasion in our society,” said a NTS official.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]