Big companies soak up the tax climate overseas

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Big companies soak up the tax climate overseas

As the economy continues to struggle and the government tries to cope with a revenue shortfall, big Korean companies have been identified as having subsidiaries with total assets worth 5.7 trillion won ($5.1 billion) in overseas tax havens.

According to chaebul.com, 24 Korean conglomerates with assets of more than 1 trillion won had 125 overseas branches in the Cayman Islands, Virgin Islands, Panama, Marshall Islands, Labuan in Malaysia, Bermuda, Samoa, Mauritius and Cyprus.

The Web site reported that 57 percent, or 71 subsidiaries, had no assets or reported revenue.

Chaebul.com is a consulting and research organization specializing in Korean conglomerates referred commonly as chaebol.

The most popular tax haven was Panama, where 77 Korean companies have subsidiaries, followed by the Cayman Islands (18) and Virgin Islands (14).

When ranked by total of assets, the Cayman Islands tops the list with 2.6 trillion won followed by Panama with 1.6 trillion won and the Virgin Islands with 1 trillion won.

Among the Korean companies, SK has the most subsidiaries (63) in foreign tax havens, 52 of them in Panama. Lotte was second with 12, including nine in the Virgin Islands.

Hyundai Group has six subsidiaries, including a shipping company, while Dongkuk Steel Mill owns six companies, including one in logistics, in tax havens.

STX has five, while Hanwha owns four. LG Group, Daewoo Shipbuilding and Marine Engineering (DSME), Hyundai Heavy Industries and Dongwon Group have three each.

Samsung, Korea’s largest conglomerate, has two subsidiaries in Panama, a consulting company and electronics goods seller, and CJ Group has two, including a company that manages a movie theater in the Virgin Islands.

Among the Korean conglomerates, Hanwha has 1.7 trillion won in four subsidiaries at tax havens. SK Group follows with 1.3 trillion won while the global shipbuilder DSME has more than 784 billion won.

Samsung Group has 353.5 billion won, while LG Group has 334 billion won and Lotte Group 206 billion won.

Chaebul.com’s report also showed that among the 125 subsidiaries operating in tax havens, only three were set up in the 1990s while the vast majority were established since 2003, including 13 since January last year.

Although companies with subsidiaries located in tax havens are typically suspected of trying to reduce their tax burdens, that is not always the case.

“Some companies set up overseas branches for legitimate business reasons, but when an individual sets up a shell company, it’s for the sole purpose of tax evasion,” said one market expert.

SK, Hanwha and other companies said their offshore subsidiaries were not set up to avoid taxes and mostly were related to businesses like shipping and acquisitions.

In Korea, tax revenue in the first three months of the year was 7.4 trillion won less than a year ago, and there is concern the shortfall could reach 30 trillion won or more by the end of the year.

Amid heightened scrutiny from the National Tax Agency, Financial Supervisory Service and prosecutors’ office, Internet news site Newstapa (www.newstapa.com) announced last week that 245 Koreans have shell companies in tax havens.

It unveiled only a few names, including OCI Chairman Lee Soo-young, but said it would announce the rest in coming weeks.

By Lee Ho-jeong [ojlee82@joongang.co.kr]

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