SK Group, the nation’s third-largest conglomerate, has the most offshore companies in tax havens, according to market data Tuesday.
According to local business tracker Chaebul.com, SK operates 69 paper companies in the havens, the highest number among the nation’s top 61 conglomerates, followed by Lotte with 38 companies, Samsung with 20 and CJ with 12, as of 2014.
By country, 32 of SK Group’s companies are located in Hong Kong, 32 on the Cayman Islands, three in Panama, one on the Virgin Islands and one in Bermuda. They were set up mostly for financial business purposes and partially for shipping business.
SK Group views that there is nothing wrong with the presence of the paper companies in the tax-free regions, as they were set up simply for business purposes.
“The paper companies were set up for the needs from the business partners and administrative convenience for the group’s global business,” an SK Group spokesperson told The Korea Herald.
Besides SK, 33 out of the nation’s top 61 conglomerates set up 237 companies in tax havens, which account for 7.5 percent of their total 3,155 companies set up overseas, according to the report.
Although the presence of paper companies in the havens is not illegal, it raises concerns among market experts, as there are high possibilities of misuse for tax evasion. Further, the increasing outflow of capital is not a good sign for the national economy already suffering from low investment.
“Because there are no institutions and laws to monitor the businesses, it is certain that companies in the tax havens are in a relatively freer position to evade tax,“ said Ahn Chang-nam, a professor at Kangnam University.
There were already some cases that large companies here were accused of hiding their money in the tax havens. Hyosung Group chairman Cho Suck-rae is currently suspected of evading taxes through a paper company located in Hong Kong. CJ Group chairman Lee Jay-hyun was also sentenced to two years and six months for hiding his income through a paper company in a tax haven.
Apart from the tax evasion issue, increasing capital outflow is also seen as a worrying sign for the nation, industry experts said.
According to data compiled by the Bank of Korea and the National Tax Service, the total volume of dollars sent to the tax-free regions stood at $432 billion from 2007 to 2014 while $274 billion was sent back to the nation from the regions during the same period, meaning there was a capital outflow of more than $150 billion.
“The continued capital outflow will further increase opportunity cost for the Korean economy as there are still many sectors here, which need investment for growth,” according to a senior government official.
By Shin Ji-hye (
shinjh@heraldcorp.com)
