Foreign companies’ tariff evasion on the rise in Korea
The Korea Customs Service (KCS) levied 1.25 trillion won ($1.0 billion) in back taxes over the past five years from multinational companies that dodged taxes by tampering with invoices on transactions of goods and services between headquarters and Korean units, data showed Wednesday.
Unpaid taxes that amounted to 97.1 billion won in 2012 shot up to 355.9 billion won in 2013 and were reduced to 236.4 billion won in 2014. Last year, the figure rose to 276.3 billion won.
Back tax dues collected from multinational enterprises in the first four months of this year came to 47.9 billion won, up 52 percent from the same period a year ago. The dues were mostly from the method called “transfer pricing” frequented by multinationals by shifting profits to countries with lower levies.
Under taxation convention, tax authorities can levy tax on such transfer pricing adjustments based on a normal transaction tax rate. The rule is applied to a foreign shareholder who owns more than 50 percent of their Korean operations or a foreign company more than half of which is owned by a Korean company.
Some tax-evading companies tried to disguise their import purchase prices as non-tariff items. The customs office levied 8 billion won from a multinational car part company for its false reporting of imports worth 37 billion won. A footwear company was charged with extra 2 billion won for disguising brokerage fees as non-taxable purchasing fees.
A cosmetics company was found to have skipped reporting 15.5 billion won profit by setting its import price much lower than the market price, while a tobacco company was made to pay 10 billion won in back taxes for underreporting 81.2 billion won worth of royalty income.
The customs office will up scrutiny this year for any attempts to evade or defeat taxation as the number of foreign enterprises has grown to 6,000 this year.
