NTS tackles corporate tax evasion

Korea’s tax collection agency is getting tougher on multinational companies operating in the country.

Starting this month, foreign companies doing business in Korea, such as Apple and Google, will have to submit a comprehensive corporate report to the National Tax Service that details financial transactions made with headquarters and affiliates, along with information about companies’ corporate governance structure, financial statements and major contracts.

Reports must also include the total income that multinational companies have collected around the word and taxes paid in the countries where they operate.

The National Tax Service said Tuesday that it would begin collecting comprehensive reports from companies with fiscal years ending this month. Companies with fiscal years ending in March will have until April 2 to turn in the reports.

The requirement will apply to companies that make at least 100 billion won ($92 million) in annual revenue in Korea and 50 billion won abroad. The government estimates 570 companies, including multinational companies based in Korea, will be subject to the requirement.

Through the report, the Korean government hopes to prevent tax fraud and evasion by gaining deeper insight about transactions that multinationals have made with their headquarters and overseas affiliates.

The National Tax Service said the comprehensive corporate report is a recommendation from the OECD and G-20 to combat “base erosion and profit shifting strategies” in which companies dodge taxes by exploiting gaps and mismatches in cross-border tax rules.

The OECD first proposed the measure in 2015 as countries were battling major multinational companies like Amazon, Apple, Google and Starbucks, which faced accusations of shifting their profits to low- or no-tax locations to avoid paying taxes in markets where they operated.

During a National Assembly hearing last month, Naver founder Lee Hae-jin raised the suspicion that Google might not have been properly paying its taxes, speculating the company might be benefiting from lax treatment, and proposed the company disclose its Korean tax payments. Google denied the accusations.

Earlier this year, the National Assembly passed a bill to strengthen the tax reporting system by raising the fine for falsifying or failing to submit parts of a report from 10 million won to 30 million won.

Major economies including Australia, China, Germany, Japan and the United States already require multinational companies to submit details about their overseas transactions. In Korea, most of the information that these companies are now required to submit was not available.

The tax service said it would create a database with the information and use it to manage tax collection.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]