16/02/17

Korea: Stock investment through tax haven increasing

Investors from the Cayman Islands hold 2 percent of Korean stocks held by foreigners. While investment from the small island located in the Caribbean Sea has been increasing steeply during the past few years, market analysts suspect that much of the investment is in fact made by Koreans seeking to avoid taxes through the tax haven, reports The Korea Times.

According to the Financial Supervisory Service, Thursday, investors from the Cayman Islands held 9.29 trillion won worth of stocks in Korea as of the end of the last year. That is 1.93 percent of the total shares held by foreigners here.

The small island country which has a population of 55,000 is a well-known tax haven. Those seeking money laundering or tax evasion around the world flock to tax havens which attract foreign funds with extremely low or no corporate and income taxes. Among them are the Virgin Islands, Bermuda, the Bahamas, Malta and the Marshall Islands.

Investment from the Cayman Islands is especially huge in Korea, with the value of Korean stocks held by investors from the islands increasing by over 150 percent from 2008 when they held 3.68 trillion won.

The number of investors from the Cayman Islands, including both individuals and institutions, stood at 3,305, taking 7.6 percent of foreign investors in the country. They constitute the third biggest group, following investors from the United States and Japan.

Investment through paper companies set up in tax havens has been a problem for governments worldwide. According to a recent announcement by United Nations’ human rights experts, individuals manage to hide between $7 and $25 trillion of funds that could be used to fund public services such as healthcare, schools, housing, social security, law enforcement and transportation infrastructure.

There is also suspicion that Korean investors may be disguising themselves as foreign investors through these tax haven countries. They can rig stock prices of a targeted company by pretending as if foreign investors were massively purchasing stocks. When domestic small investors start to follow them and buy the stocks, pushing up the prices, they sell off their stocks, inflicting huge losses on small investors.

Codes Combine, an apparel company listed on the junior Kosdaq market, for instance, had stock prices rise to daily limits for several days, reaching 184,100 won early last year. The bourse operator even suspended transactions to protect investors as the stock price rose without any reason. Then the stock started plummeting to daily limits, and is now trading at below 4,000 won. There was rumor that Koreans pretending to be foreign investors from tax haven countries conspired to rig the price though the bourse operator failed to find evidence.

Investors from Switzerland, a tax haven popular among those seeking to hide bank accounts, hold stocks in Korean firms worth 7.24 trillion won. They also hold over 14.46 trillion won in bonds, a steep increase from 2008 when they held 624.2 billion won.