Customs casts suspicious eye on multinationals

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Customs casts suspicious eye on multinationals

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Baek Un-chan, commissioner of the Korea Customs Service, third from right in first row, declares war on shifty practices of local branches of foreign companies at the agency’s office in Nonhyeon-dong, southern Seoul, yesterday. [NEWSIS]

The Korea Customs Service will investigate practices of multinational conglomerates to see if they’re smuggling, evading taxes, cooking their books and otherwise propping up the underground economy.

The government agency, now led by Commissioner Baek Un-chan, former deputy minister for tax and customs at the Ministry of Strategy and Finance, said it aims to raise an additional 1.5 trillion won ($1.3 billion) in annual revenues by the crackdown, which the government will use to fund welfare programs.

Baek said shady activities of multinational companies such as illegal foreign-exchange transactions, misstating of profits and value of imports and tax evasion costs the agency 47 trillion won a year.

“In order to help realize the new government’s goal of expanding welfare benefits and reviving the economy, the role of the customs office as a tax collecting agency is important,” Baek said. “The customs office will especially target the underground economy created by overseas transactions in which local branches of foreign companies are involved.”

The agency decided to double the work force investigating multinational companies operating in the country.

About 5,000 branches of foreign companies in Korea are taking advantage of connections with their headquarters abroad in order to avoid taxes, the agency said.

Those companies accounted for 31 percent of the country’s total imports last year. The agency collected duties of as much as 210 billion won for the past three years from them, which is about 70 percent of the agency’s total tax collection.

“Tax evasion by multinational firms has become a serious issue for international organizations like the Organization for Economic Cooperation and Development,” the agency said in a statement.

To make its point, the agency related the case of an unnamed foreign whiskey company that imports products to Korea from its headquarters. Allegedly, the company reported a falsely lower value of the imported whiskey to cut the duties it had to pay. The tariff and liquor tax on foreign whiskey is as high as 155 percent.

The agency will also inspect foreign-exchange transactions between foreign company branches and their headquarters to see if money laundering is being done.

It found over 4 trillion won worth of illegal transactions last year, it said.

The customs agency will crackdown on undisclosed trading of highly taxed agricultural products, like ginseng, sesame and red peppers.

Since there is an increasing number of imported products that benefit from the tariff cuts of the free trade agreements with the United States and European Union, the agency will strengthen monitoring of importers that pretend their products are made in one of the FTA partners when they actually aren’t.



By Song Su-hyun [ssh@joongang.co.kr]

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