Minister Han pledges equal treatment for foreign investors

Korea Times, 8 September 2005

Minister Han Pledges Equal Treatment for Foreign Investors

By Lee Hyo-sik
Staff Reporter

CHEJU - South Korea will treat foreign and local investors on equal terms, dispelling concerns that the Korean government would get tough on foreign companies and funds operating here by tax audits and regulation changes, according to the nation’s top economic policymaker.

“Free and stable international capital movement is a common goal of the 21 Asia Pacific Economic Cooperation (APEC) economies. To realize this goal, Korea will make every effort to make sure that foreign investors get equal treatment and perform businesses here like local companies,” Finance-Economy Minister Han Duck-soo told reporters late Wednesday.

He said that foreign investment is crucial for the country’s sustained economic growth, but foreign investors should also be subjected to the same rules and regulations as domestic players.

Han made these remarks while attending the 12th APEC Finance Ministers’ Meeting, which ends today on the southern resort island of Cheju.

His comments came amid growing public criticism here over foreign equity funds, including the U.S.-based Lone Star and Carlyle Group. They did not pay a penny in taxes after they took billions of dollars in capital gains from the acquisition of distressed financial institutions and corporations following the 1997 Asian financial crisis.

Foreign funds managed to make huge profits and not pay any taxes by operating through tax havens abroad.

A tax haven is a country that offers individuals and businesses little or no tax liability. Labuan, Malaysia, and the Caribbean are the most frequently used tax havens by foreign funds.

The Korean government is currently having difficulties coming up with grounds to levy taxes on foreign funds based in tax havens, which realized capital gains here under the double taxation avoidance treaty.

Under double taxation avoidance pacts, capital gains on the sale of shares and properties by foreign investors are not taxed and the same is true with respect to Korean investments in foreign countries.

Currently, Korea has signed agreements with 62 countries, including Malaysia and the U.S., to avoid double taxation.

The government announced late last month that it will remove tax loopholes that foreign funds are said to exploit by modifying tax laws and double taxation treaties with other countries.

Under the revised law, the government will tax foreign funds headquartered in tax havens abroad if their Korean operations transfer capital gains to them.

It plans to first levy withholding taxes on capital gains and interest income made by local corporations of foreign funds registered in tax havens overseas. If the funds submit the required documents that prove within three years that a company in a tax haven is a real investor in a local corporation and not a bogus company, the government will return their tax payments.

On Wednesday, the minister also held a series of bilateral talks with his counterparts from Thailand, the Philippines, Canada, the U.S. and China.

Han discussed the progress made in the trade deal when he held talks with John McCallum, Canada’s Minister of National Revenue. They agreed to expedite the negotiation process to sign a free trade agreement.

During a meeting with Chinese Finance Minister Jin Renqing, Han praised China’s move in July to revalue its currency by 2.1 percent by saying that the yuan revaluation contributed to resolving the global trade imbalance.

source: Korea Times