Lotte operates 18% of overseas units in tax havens: research

Nearly one-fifth of Lotte’s overseas corporations are in countries that might serve as tax havens, which could impede prosecutors’ investigation into possible misconduct, according to a research institute on Thursday.

The study by the Korea 20000 Corporate Research Institute analyzed Lotte Group’s 256 overseas corporations and found 46 of those companies operate in countries suspected of being tax havens.

The majority of these companies were set up in Hong Kong, which does not yet have a ratified taxation agreement with Korea.

Oh Il-sun, the head of the institute, said in a statement that the lack of such an agreement “makes it difficult for Korean prosecutors and tax agencies to analyze financial account information.”

Although Hong Kong and Korea agreed to a tentative tax treaty in 2013, it has not been ratified yet by the Korean National Assembly.

In Hong Kong, Lotte Mart China runs eight subsidiaries holding 100 percent of their shares. Hotel Lotte, the holding company of the group’s Korean operation, also controls two companies.

Other potential tax havens for the group include Singapore, the Netherlands, the Cayman Islands, Luxembourg, Mauritius and the Virgin Islands, according to the report.

In the Netherlands, Lotte Europe Holdings B.V., funded by Hotel Lotte, controls four subsidiaries including ZAO Lotte RUS, a hotel in Russia. Through such structure, Lotte Group is able to take advantage of the Netherlands’ low corporate taxes while running operations in Russia, the institute said.

The study found that Lotte Shopping was the main vehicle through which Lotte Group ran its operations overseas. Lotte Shopping was connected to 71 overseas corporations in eight different countries, by holding controlling stakes in 10 overseas corporations that in turn controlled their own subsidiaries.

For instance, Lotte Shopping controls Lotte Shopping Holdings Hong Kong, which has 27 subsidiaries in China and the Cayman Islands.

The institute found that Lotte Shopping’s control on overseas corporations could be traced to up to six tiers of control, creating a complex web of shareholding connections that make it difficult for investigators to track cash flows.

Although Lotte Group is currently under scrutiny for utilizing overseas corporations and cross-holding shares to evade taxes, it does not appear to be the only conglomerate doing so.

An analysis of overseas corporations held by the nation’s top four conglomerates (Samsung, LG, Hyundai Motors and SK) found that 8.6 percent of their overseas corporations were in well-known tax havens. Compared to Lotte Group’s dubious 46, these four groups were shown to be operating a combined 120 corporations in tax havens, with SK holding 73 such corporations.

By Won Ho-jung (hjwon@heraldcorp.com)