South Korea yesterday vowed to seek revisions to taxation treaties with other states to stop foreign investors or offshore funds from abusing the pacts to avoid tax payment, officials said.
The finance and economy ministry said it was seeking to levy taxes on investment funds even if they are registered in a state which has a treaty on preventing double taxation with South Korea.
The move followed complaints here that foreign investors or offshore entities made hefty gains here while avoiding due taxation by using tax havens.
South Korea is to hold talks in Seoul with Malaysia starting tomorrow to discuss ways to revise their tax treaty and stop the abusing of taxation rules, the ministry said in a statement.
"It is a worldwide standard to prevent the abusing of tax treaties and strengthen rules on tax havens," it said.
Foreign funds have made huge profits by acquiring real estate and other prime assets in the aftermath of the 1997-98 Asian financial crisis.
But South Korean civic groups said foreign funds like US-based Newbridge Capital had reaped a massive profit of US$1.16 billion here via investment in Korea First Bank, but did not pay a penny of tax to South Korea.
Newbridge could avoid paying taxes by making investments through a paper company in Labuan, a tax haven in Malaysia. Malaysia has a treaty on preventing double taxation with South Korea.
Local media reports said South Korean tax authorities were looking into possible irregularities by two US-based investment funds, Lone Star and Carlyle Group.
Lone Star is said to have earned hundreds of millions of dollars on real estate investments here and has a huge unrealized profit through acquiring Korea Exchange Bank for US$1.2 billion in 2003.
The fund avoided taxation by registering its unit in Belgium, which has a treaty with South Korea not to impose taxes on profits from share sales.
Carlyle Group sold a 36 percent stake in South Korea's KorAm Bank to Citigroup for US$2.6 billion last year but did not pay taxes by registering its affiliate in the Cayman Islands, a tax haven in the Caribbean.
South Korea has tax treaties with 62 countries.
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