Solving offshore tax evasion

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Solving offshore tax evasion


“This is not just another meeting. Hong Kong is a key region to eradicate offshore tax evasion,” said National Tax Service (NTS) Commissioner Lim Hwan-soo before meeting with Commissioner Wong Kuen-fai of Hong Kong’s Inland Revenue Department on March 16 in Hong Kong. Wong agreed to cooperate in cracking down on offshore tax evasion. When the media and public didn’t seem to be interested in the NTS’s press release, an NTS official called me and explained the significance of this meeting.

The tax authorities had trouble securing evidence, as there were no legal grounds to investigate a company suspected of tax evasion in Hong Kong. As of the end of 2014, Hong Kong had the largest amount of overseas accounts from Korean companies, with 8.12 trillion won ($7.08 billion). Moreover, the international nongovernmental organization Tax Justice Network named Hong Kong as one of the three countries that accommodate offshore tax evasion, along with the United States and Switzerland.

Hong Kong is an overseas tax haven that the NTS pays special attention to. With the authority to crack down on companies evading taxes through Hong Kong, the NTS has a key weapon to prevent offshore tax evasion.

In fact, Korea and Hong Kong have been cooperating on this issue for a while. In July 2014, they signed a tax treaty to exchange financial and fiscal information, and National Assembly ratification is pending. The Legislative Council of Hong Kong already ratified it in December 2014. What prevents enforcement of the treaty is the Korean Assembly. The ratification bill was presented to the legislature in April 2015, but it was left unprocessed for nearly a year. With the general election scheduled next month, no one can be sure when it will be ratified.
This is all too familiar. Economic bills such as the basic act on service industry promotion and labor reform bills are asleep in the National Assembly. While those bills may cause disputes, the Korea-Hong Kong tax treaty is not a controversial matter. There is no opposition to an offshore tax evasion bill. So the government is frustrated. A government source said, “If there were opponents, we would go and persuade them. But that’s not the case.”

Offshore tax evasion is not a simple issue. In order to secure tax revenue when the economy is not flourishing, eradication of tax evasion is an urgent task. Offshore tax evasion is a mockery on fair taxation.

Recently, the NTS declared war on offshore tax evasion. In January, it warned that it was conducting an unprecedented investigation of corporations and 30 individuals suspected of offshore tax evasion. The NTS was trying to encourage the tax evaders to come clean. But the National Assembly is interfering with the NTS’s hard fight by not doing its job. The idle National Assembly has done just as much harm as the tax dodgers.

JoongAng Ilbo, March 22, Page 29

*The author is a business news reporter for the JoongAng Ilbo.

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