Amnesty for offshore tax cheats
The Finance Ministry said Tuesday that it would pardon individuals and companies that not paid taxes on gains from overseas investments, as long as they voluntarily report their gains for tax payment by the end of March.
The tax authority’s policy came from the Park Geun-hye administration’s efforts to expand the sources of state tax revenue, according to government officials and market observers.
The plan targets both Korean residents and firms operating in Korea, said Deputy Prime Minister and Finance Minister Choi Kyung-hwan.
In his joint statement with Justice Minister Kim Hyun-woong, Choi promised to exempt voluntary taxpayers from surtaxes or legal punishment if they come forward in the six-month grace period ― from Oct. 1, 2015 to March 31, 2016.
“While they will be allowed to pay only their back taxes plus the additional taxes for the amount in arrears, or 0.03 percent a day, until the end of March, those who would not report even during the leniency period will be the key targets of criminal and tax investigations,” said the statement.
The finance and justice ministers have also promised to offer as much lenience as possible toward cases of past tax evasion or illicit relocation of assets to overseas territories in the coming grace period.
Government data estimated that offshore tax evasion had continued to increase over the past few years to reach 1.21 trillion won ($1.03 billion) last year, compared to 501.9 billion won in 2010.
Tax investigators also estimate that the collective wealth of the individuals and enterprises with tax reporting obligations came to 87 trillion won as of 2013.
The Finance Ministry said offshore tax dodging has also been an issue in other major economies. It noted that 15 countries, including the U.S., the U.K., Germany, France and Australia, had reaped considerable results by implementing this sort of voluntary report schemes since 2002.
One such model, Australia, increased its tax revenues by about 500 billion won after its government induced taxpayers’ confessions. The country is estimated to have found new revenue sources from the system totaling about $3.5 billion.
The Finance Ministry of South Korea, so far, has reached an agreement with 51 countries on exchanging taxation information. It has also been participating in last-ditch talks to implement the provisional pact with the U.S.
Apart from the bilateral pacts, multilateral agreements among a group of nations on the information interchange is expected to take effect as early as 2017, according to ministry officials.
In particular, some notorious tax havens, including the Cayman Islands and British Virgin Islands in the Caribbean Sea, are participating in the multilateral pact.
