Tax policies unnerve foreign investors

The foreign business community expressed uneasiness through a survey about the nation’s taxation policies, despite Korean tax authorities’ recent promise of fewer and easier audits on foreign firms.

In March, the National Tax Service said it would reduce the frequency and scope of tax audits on foreign companies doing business here in a bid to attract more long-term investment.

But in a survey conducted by the Federation of Korean Industries on 150 foreign firms operating in Korea, 72 percent of them said the nation’s overall business environment will worsen due to stern corporate policies in areas like taxation and labor.

The 150 firms responded between March 26 and April 16, right after the NTS pledged to ease the burden of tax probes on foreign enterprises.

The survey showed that 34.7 percent of the respondents said Korea falls behind China in overall business environment competitiveness.

Only 22 percent of the 150 firms replied that the business environment is positive, compared to other major Asian countries.

For the taxation sector, 40 percent of the respondents expressed skeptical views, arguing that Korea’s falls behind major emerging countries in business environment.

Only 13.4 percent gave a positive view of the nation’s taxation policies, the survey showed.

Further, 61.3 percent of them expressed a negative view of the nation’s labor sector.

In addition, the survey showed that 55 percent of the respondents said the policies could eventually undermine investment by foreign enterprises.

In a statement last March, the NTS said, “We decided to make fewer random visits to foreign companies because they have been honest taxpayers as a group.”

Before the authorities’ promise, the NTS launched an investigation into the European Union Chamber of Commerce in Korea for allegations of dodging taxes from possible profits it made through advertisements in their magazine.

The EUCCK has a systemic fee structure for member companies wishing to be featured in their magazine. Pricing ranges from 2 million won ($1,800) for one off promotions near the back-cover, to 40 million won for ads next to the table of contents. It charges 12 million won for a website banner over a year and 5 million won for advertorial interviews in the magazine.

In early April, the Fair Trade Commission launched a probe into the Korean units of multinational IT giants HP, Oracle and IBM for alleged unfair business practices.

Industry sources said the three global IT behemoths have long-dominated Korea’s database and server system market.

By Kim Yon-se (kys@heraldcorp.com)