Bermuda

South Korea to finalise tax treaty network


By added on 10/03/2010

The government of South Korea is finalizing a series of financial information exchange agreements with jurisdictions such as Switzerland in order to track down funds overseas. The Hankyoreh reports that agreements are being drawn up to restrict speculative capital and simultaneously fall in line with trends in advanced countries to boost tax revenue.

According to data from the Ministry of Strategy and Finance on Tuesday, South Korea has since the latter part of last year signed tax agreements or has begun negotiations for tax agreements with 16 offshore centres. The Organisation for Economic Co-operation and Development (OECD) released a list in April of last year designated 42 countries ‘tax havens’. In September of last year, the government signed deals with Samoa, the Cook Islands and the Bahamas, while in January, it signed deals with Bermuda, Guernsey and the Marshall Islands.

In addition, the government plans to begin a second round of talks with the Swiss to finalise a deal and conclude a treaty with Vanuatu within the year. It is also writing up the paperwork for deals with the Cayman Islands and the British Virgin Islands. Prior to these agreements, the only two jurisdictions South Korea had signed tax agreements with were Belgium and Singapore.

In the background to this move is a strong will to actively respond to multinational speculative capital. Kangnam University Professor of Tax Science Ahn Chang-nam said there is agreement among developed nations for the need to restrict speculative capital, which brings instability to international financial markets. Countries like the U.S., which feel the pressure from economic stagnation and boosted budgetary spending, are very active since finding hidden overseas assets also helps increase tax revenues.

Another Ministry of Strategy and Finance official said there is some disagreement amongst G20 nations regarding financial regulations and world trade imbalances, but their interests are in accord regarding ‘tax havens’.

The South Korean government is still unable to determine how much domestic capital is hidden overseas. A National Tax Service (NTS) official said they can only find out once the lid to the box is opened. The OECD estimated that the amount of international capital that entered offshore locations last year was in the ballpark of 5 to 7 trillion dollars. After an investigation of major corporations from June 2008 to February 2009, the NTS levied taxes of 177 billion Won ($156 million USD) on 45 individuals who hid assets overseas.