Country-by-country Tax Service Finds Many Businesses That Are Suspicious of Tax Evasion

Mar 12, 2018

611 multinational businesses that are in South Korea submitted BEBS (Base Erosion and Profit Shifting) reports to Country-by-country Tax Service (NTS). After analyzing reports, NTS found out that there are about 100 businesses that are suspicious for having holding companies in tax haven. It will be interesting to see if fair tax environment will be established as ‘BEPS Project’, which will be carried out for the first time this year, is carried out on full-scale. BEPS Project is a country-by-country mutual-assistant system that focuses on prevention of tax-evasion by some multinational businesses.
According to Country-by-country Assembly and tax authorities, 611 multinational businesses that have business places in South Korea submitted 2016 reversion reports to NTS. NTS initially believed that there will be about 700 businesses that would have to submit reports. It is expected that this number will be met once corporates that have statements at the end of March are added in early next month.
Reports that are submitted to NTS are divided into country-by-country reports, comprehensive business reports, and individual business reports. There were 611 businesses that submitted individual business reports at the end of January. Out of 611 businesses that submitted reports, 347 of them were South Korean businesses while 264 of them were foreign businesses. These businesses either make more than $93.9 million (100 billion KRW) in sales from their business places in South Korea or have more than $46.9 million (50 billion KRW) in transaction amount with special foreign representatives. There were 594 businesses that submitted comprehensive business reports and 324 of them were South Korean businesses. NTS received country-by-country reports from 334 businesses, and 191 of them were South Korean businesses. From these reports, NTS can deduce whether these businesses made agreements with South Korean Government on exchange of tax treaties and country-by-country reports or have parent companies in countries where they are not obligated to submit these reports according to laws of their corresponding countries.
After analyzing the reports, it found out that there are about 100 businesses that are suspicious of using South Korea as tax haven because 93 foreign businesses that make less than $93.9 million (100 billion KRW) in sales from their business places in South Korea submitted country-by-country reports. Looking at Ministry of Strategy and Finance’s notification, businesses that have to submit country-by-country reports are multinational businesses that made more than $939 million (1 trillion KRW) in sales during a previous tax year.
. They only need to pay taxes to the countries where headquarters are located. For example, an American business only has to submit reports to tax authorities from U.S. Government. These businesses are suspicious of making sales in South Korea and transferring their performance to other countries. Intercountry-by-country accounting experts believe that significant number of these businesses have their corporates in tax haven.
“There is a high chance that a business is using South Korea as tax haven if it did not make any agreements or treaties with South Korean Government and does not have to submit its country-by-country report to South Korean Government.” said an accountant who deals with BEPS. “It is safe to assume that these businesses may transfer earnings to their own countries if they have holding companies in tax haven.”
“Although agreements on exchange of country-by-country report were not completed at the end of last month, many of them are currently under way.” said a representative for NTS. “Number of businesses that did not submit reports will be reduced greatly after we make agreements.”
NTS is currently looking at whether businesses submitted their comprehensive business reports satisfactorily. If they find that a business has yet to submit a report, it is planning to impose fine or supplemental requests. Fine will be $28,167 per missing report.
Staff Reporter Choi, Jonghee | choijh@etnews.com

■Current status of comprehensive reports (Based on end of January of 2018)
▪Country-by-country report ▲More than 1 trillion KRW ∆Total: 130 ∆South Korean business: 110 ∆Foreign business: 20 ▲More than 500 billion KRW ∆Total: 26 ∆South Korean business: 20 ∆Foreign business: 6 ▲More than 100 billion KRW ∆Total: 42 ∆South Korean business: 18 ∆Foreign business: 24 ▲Less than 100 billion KRW ∆Total: 136 ∆South Korean business: 43 ∆Foreign business: 93 
▪Individual business report ▲More than 1 trillion KRW ∆Total: 174 ∆South Korean business: 131 ∆Foreign business: 43▲More than 500 billion KRW ∆Total: 79 ∆South Korean business: 43 ∆Foreign business: 36 ▲More than 100 billion KRW ∆Total: 352 ∆South Korean business: 171 ∆Foreign business: 181 ▲Less than 100 billion KRW ∆Total: 6 ∆South Korean business: 2 ∆Foreign business: 4
▪Comprehensive business report ▲More than 1 trillion KRW ∆Total: 171 ∆South Korean business: 123 ∆Foreign business: 48 ▲More than 500 billion KRW ∆Total: 80 ∆South Korean business: 41 ∆Foreign business: 39 ▲More than 100 billion KRW ∆Total: 330 ∆South Korean business: 160 ∆Foreign business: 170 ▲Less than 100 billion KRW ∆Total: 13 ∆South Korean business: 3 ∆Foreign business: 10
Reference: Country-by-country Tax Service
<■Current status of comprehensive reports (Based on end of January of 2018) ▪Country-by-country report ▲More than 1 trillion KRW ∆Total: 130 ∆South Korean business: 110 ∆Foreign business: 20 ▲More than 500 billion KRW ∆Total: 26 ∆South Korean business: 20 ∆Foreign business: 6 ▲More than 100 billion KRW ∆Total: 42 ∆South Korean business: 18 ∆Foreign business: 24 ▲Less than 100 billion KRW ∆Total: 136 ∆South Korean business: 43 ∆Foreign business: 93 ▪Individual business report ▲More than 1 trillion KRW ∆Total: 174 ∆South Korean business: 131 ∆Foreign business: 43▲More than 500 billion KRW ∆Total: 79 ∆South Korean business: 43 ∆Foreign business: 36 ▲More than 100 billion KRW ∆Total: 352 ∆South Korean business: 171 ∆Foreign business: 181 ▲Less than 100 billion KRW ∆Total: 6 ∆South Korean business: 2 ∆Foreign business: 4 ▪Comprehensive business report ▲More than 1 trillion KRW ∆Total: 171 ∆South Korean business: 123 ∆Foreign business: 48 ▲More than 500 billion KRW ∆Total: 80 ∆South Korean business: 41 ∆Foreign business: 39 ▲More than 100 billion KRW ∆Total: 330 ∆South Korean business: 160 ∆Foreign business: 170 ▲Less than 100 billion KRW ∆Total: 13 ∆South Korean business: 3 ∆Foreign business: 10 Reference: Country-by-country Tax Service >

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