Gov’t to tackle multi­na­tional firms’ tax eva­sion

Google, Ap­ple ex­pected to be first tar­gets

The Korea Times - - NATIONAL - By Yoon Ja-young yjy@ktimes.com

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 transac- tions 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.

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