Seoul to levy tax for transactions among affiliates

The government is to toughen its crackdown on conglomerates’ irregular support for affiliates, often used to evade taxes and hide the transfer of owners’ wealth to their siblings.

The Ministry of Strategy and Finance said Thursday the government will widen its investigation into and levy new taxes on corporations unfairly giving orders to subsidiaries.

As part of the government’s commitment to establishing a fair society, the ministry reported to President Lee Myung-bak that it would take disciplinary action against dubious intra-group trading.

“Several conglomerates are still conducting irregular inheritance and donations, exploiting their non-listed affiliates or subsidiaries,” the ministry said.

In a bid to block unfair wealth transfers without paying due taxes, the ministry said it is considering introducing appropriate taxation system against the practices in coordination with the National Tax Service.

Government officials also said the ministry and the NTS are centering on a reinforced crackdown of tax evasion by businesses and their owners.

They said the tax authorities would carry out wide-ranging corporate tax probes which involve individuals holding a controlling stake in companies suspected of dodging taxes.

The policy is designed to enhancing inquiry into practices of unauthorized succession of management rights among major business groups.

The government has continued to express its resolution to enhance oversight of possible leakage of company funds via illegal transactions.

But market observers predicted that it would take longer than expected to implement the taxation on the practices.

Their prediction is based on the possibility that the tax authorities could face difficulties in distinguishing unfair funding from regular business transactions.

Furthermore, the conglomerate sector is calling for the government to ease tax burdens, citing a variety of unfavorable factors for business at home and abroad.

Meanwhile, on the same day, President Lee instructed the NTS to redouble efforts to win public trust, saying fair taxation is a key to the success of his campaign for a fair society.

“The NTS is making a lot of positive changes, but there are still many aspects that the people think of negatively,” Lee told policymakers.

Lee declared the launch of the fair society drive in his Liberation Day speech last year, with a vision to create a corruption-free society, where the laws and institutions work properly and transparently, and equal opportunity for the people is guaranteed.

The president pointed out that many former heads of the NTS were embroiled in bribery scandals.

Lee also said he hopes the NTS will carry out tax administration which could be trusted by the public.

The NTS has also decided to widen its probe into several company-owners on charges of dodging taxes and misappropriating company funds to gamble overseas.

It said some of them are suspected of having gambled in Las Vegas or Macau with company funds by rigging accounting books.

Last year the NTS opened an online center for reporting tax evasion committed by Korean nationals and corporations at overseas locations.

It said that the “Overseas Tax Evasion Reporting Center” was established in response to increasingly elaborate methods used to evade taxes and to diversify its information gathering channels.

The reporting center receives information on a wide range of activities related to tax evasion including information concerning individuals and corporations that hide their income from domestic and overseas sources and Korean residents involved in speculating and heavy gambling overseas.

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