[EDITORIALS]Tax, but don’t discriminateThe government has said that it will develop measures for taxing foreign funds that have made profits in Korea after setting up a paper company in a tax haven. The government also said that it would try to find a way to tax foreign funds’ capital gains from acquiring management control in Korean companies and selling the shares back later, or from selling a company in Korea whose value derives mostly from its real estate.
Currently, the Korean government cannot tax foreign investors’ earnings from the Korean stock markets, or from real estate transactions here. This is because no provisions for doing so were written into Korea’s tax laws, or because laws dealing with the issue are vaguely written. Another reason is the tax treaties Korea has signed with other countries, treaties designed to prevent double taxation. Thus, it is a relief that the government plans to establish a legal basis for levying such taxes, though it comes a bit late.
But the government should take care that such measures not be seen as an intentional exclusion of foreign funds from the Korean market, or as discrimination against foreign investors.
Many of the foreign funds that have made enormous profits in Korea invested here after the 1997-98 financial crisis, for Korea’s sake. Back then, most of the Korean companies and financial institutions that were put on the market would otherwise have been liquidated, or the government would have had to shoulder the struggling companies.
Now, some complain that Korean companies were sold to foreign funds at dirt-cheap prices, or argue that it would have been better if Korean funds had purchased them. But at that time, every single cent was desperately needed. Of course, there were some cases in which foreign investors here took advantage of loopholes in Korea’s capital market regulations, knowing that Korean funds could not afford to compete.
But as long as foreign funds do not violate laws and regulations, it would be going too far to punish them for making money by excluding them from the market, or otherwise discriminating against them. If we do so, the lessons we learned from the difficulties of restructuring, and the fruits of globalization that we have acquired since then, will be in vain. Korea needs realistic, sophisticated measures that can expand the government’s right to tax foreign funds without inflaming emotions against them.