Tax watchdog, allies taking aim at conglomerates
Following the prosecutors’ mid-May raid of CJ Group headquarters, and its chairman’s house, for allegedly raising a slush fund through overseas offices, the tax watchdog targeted offshore tax evasion.
In its latest tactic to effectively root out chaebol tax-dodging by taking advantage of overseas tax havens, the NTS announced?last week?that it has enlisted the Financial Supervisory Service, Korea Customs Service and Bank of Korea.
“Under the joint team, the four government institutions can exchange information on offshore tax evaders on a real-time basis, as well as have working-level officials freely discuss details about the direction of ongoing tax probes,” said an NTS official. “Since offshore tax evasion emerged as a hot social issue, there’s a pressing need for these four related organizations to work together to boost efficiency and synergy.”
When the Financial Supervisory Service finds companies or individuals that violate foreign exchange law, it will impose a fine and immediately report the matter to the NTS and the prosecutors. The central bank will provide up-to-date information on foreign exchange trades.
Based on all this information, the NTS will conduct a tax probe of violators and the Korea Customs Service will check exporters.
It is the first time in eight years that the four government organizations have teamed up to resolve a specific issue.
Until the rebirth of the joint team, the four government institutions worked independently and each separately reported results of their investigations to prosecutors or the appropriate government agencies.
Market observers said the launch of the joint investigation team signals that the Park administration is speeding up efforts to tap into the underground economy. The team is also?tasked with investigating chaebol executives named in tax evasion reports released by the nonprofit news organization Newstapa as well as CJ Group’s slush fund allegations.
Newstapa reports cited Choi Eun-young, chairwoman of Hanjin Shipping Holdings, and seven former or sitting executives at Hanwha, Daewoo International (now a subsidiary of Posco) and SK.
According to Newstapa, Choi set up a shell company in the Virgin Islands on Oct. 2, 2008, under the name Wide Gate Group.
Most of the people on the list set up shell companies during times of economic difficulty like the Asian financial crisis of the late 1990s and the global financial crisis that began in late 2008.
Creation of the joint investigation team comes after Kim Young-ki, head of the NTS investigation department, announced May 30 that the agency would investigate 23 businesses and individuals on possible offshore tax evasion at locations including the Virgin Islands.
“Among the 23 businesses and individuals are some companies that people will find familiar when they hear their names,” Kim told reporters. “Normalizing the underground economy is not just to secure revenue. It is more about establishing tax justice and social integration through equitable imposition of taxes.”
As of the end of May, the NTS had levied 479.9 billion won ($423 million) in fines against businesses and individuals for offshore tax evasion.
While the NTS will push for cracking down on conglomerates and the super rich, high-income self-employed people, loan sharks who dodge taxes on the high interest rates they charge and offshore tax evaders, it said it will reduce tax probes of small and medium-sized enterprises.
In May, the NTS dispatched investigators to collect accounting books, hard disks and other relevant materials at Hyosung Group, Hanwha Life Insurance and Nonghyup. Although the three companies said the NTS was conducting regular tax checks, some market observers suggested the tax watchdog was investigating potential offshore tax evasion in the past.
The Ministry of Strategy and Finance said in April that the Park administration will need 135 trillion won to finance election pledges, to boost state support of social welfare and nurture small and medium enterprises and startups.
It said the government can come up with 62 percent of that amount by cutting unnecessary spending, adding that the remaining 38 percent needs to come from cracking down on the underground economy and tax dodgers.
While the Park administration expects the crackdown on tax evasion to help the government boost welfare spending, business circles expressed concern that the probes will discourage corporate investments.
“The large-scale tax probe initiative has turned into a witch hunt that perceives all management activities as crime,” said Lim Sang-hyuk of the Federation of Korean Industries. “For conglomerates, they’ll be negatively affected by the government’s economic democratization moves.”
“Many companies are doing what they can to overcome the slow global economy recovery,” said a conglomerate executive. “The government’s aggressive tax probes will greatly discourage corporate activities.”
A survey of 302 companies released yesterday by the Korea Chamber of Commerce and Industry showed 35 percent of respondents think the government’s economic democratization moves will weaken corporate investment and job creation, and 31 percent said they will undermine corporate competitiveness.
By Kim Mi-ju [firstname.lastname@example.org]