Gov’t to tackle multinational firms’ tax evasion

The government said Wednesday that it will toughen its stance against tax evasion by multinational firms by adopting a global agreement in the country’s legal system within the year.

In the mid-to-long term tax policy plan announced Wednesday, the finance ministry said that it would submit bills to enact “OECD BEPS” by the end of the year.

This refers to an agreement signed by some Organization for Economic Cooperation and Development (OECD) member countries in November 2015, where they agreed to cope with base erosion and profit shifting (BEPS) by businesses operating in multiple countries.

The countries participating in the BEPS project, including Korea, agreed to apply the agreement to their tax codes to tackle tax evasion.

Experts have pointed out that many multinational companies including Google and Apple are exploiting gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations, slashing their corporate taxes.

OECD estimates that such BEPS lead to annual losses of between 4 and 10 percent of global corporate income tax revenue, or $100 billion to $240 billion annually. When it is included in the tax code, businesses will have to report aggregate information relating to the global allocation of their income and taxes paid.

The ministry added that it would bolster taxation on digital transactions in the mid- to long-term, on top of improving taxation on overseas income of residents and domestic corporations.

Tax support for foreign investors and cooperation with other countries including the exchange of financial information are also included in the agenda.

“To strengthen control over international tax resources, there has been a growing need for cooperation between countries in taxation,” the ministry explained in a press release.

The finance ministry cited job creation, income redistribution, and securing the foundation for tax revenue as the key agenda in tax policies for the next five years.

Currently, a bill seeking to raise the corporate tax rate to 25 percent from 22 percent is pending at the National Assembly. The government plans to raise the effective tax rate even further by decreasing tax cuts and exemptions.

As the Moon Jae-in administration is shifting focus of tax policies to job creation, however, those creating quality jobs will get tax incentives.

To achieve income redistribution through taxation, taxes on capital gains and financial income will be raised. Currently, a comprehensive tax is levied on financial income exceeding 20 million won a year, but experts doubt its effectiveness as there are various tax cuts and exemptions. The ministry also hinted that it will raise property taxes on real estate, which are relatively low compared with real estate transaction taxes.

Regarding customs duties, the government plans to expand free trade agreements (FTAs) with emerging markets for diversification of trading partners.