Tax Evasions: Oracle Korea Slapped with 314.7 Billion Won in Back Corporate Taxes | BusinessKorea

Wednesday, August 23, 2017

The National Tax Service (NTS) has imposed 314.7 billion won (US$275.74 million) in corporate taxes for alleged tax evasion on Oracle Korea.
The National Tax Service (NTS) has imposed 314.7 billion won (US$275.74 million) in corporate taxes for alleged tax evasion on Oracle Korea.
SEOUL,KOREA
11 April 2017 - 12:00pm
Jung Suk-yee

According to industry sources on April 10, the National Tax Service (NTS) has imposed 314.7 billion won (US$275.74 million) in corporate taxes for alleged tax evasion on Oracle Korea after conducting a tax audit of the company for four months from July 2014.

Through the audit, the NTS said it found that Oracle Korea, the local unit of Oracle Corp., a global leading information technology (IT) firm, dodged about 310 billion won (US$271.62 million) of taxes for seven years by taking advantage of a tax haven abroad. Accordingly, all eyes are on whether other tech giants, such as Google and Apple, will stop evading taxes.

Oracle Korea transferred most of gains it earned in South Korea to the headquarters in the U.S. in the name of software license fees. In the process, the company was required to pay intellectual property rights fees to South Korea's tax agency according to the Korea-U.S. Tax Treaty. However, Oracle Korea did not pay corporate taxes to the NTS as the company started sending the fees to Oracle's unit in Ireland, a known tax haven, from 2008.

Oracle Korea filed a complaint with the Tax Tribunal in April last year against tax agency's earlier decision to slap an unspecified amount in taxes on the company. In November, the tribunal rejected Oracle Korea's complaint. Accordingly, the company filed a suit with the Seoul Administrative Court this February, seeking to nullify the imposition of the corporate tax.

Industry watchers believe that the South Korean government is highly likely to strengthen its tax regulations in order to keep pace with the recent trend that many countries wage a war on expedient tax evasion by multinational companies.

An official from the tax authority said, “We cannot confirm whether to conduct a tax audit of individual company. It is true that many countries, mainly advanced countries, are tightening regulations on tax avoidance by multinational companies and we are also thoroughly monitoring taxes paid by global companies.”

A lawyer specializing in taxation from a large law firm also said, “The number of foreign companies’ income transfer and tax dodging cases caught by the NTS is growing in recent years. Now, there are rigid regulations on mostly private equity funds, including Lone Star, and patent trolls, but there is a possibility that the regulations will extend to large companies like Oracle.”

The forecast seems reasonable because the tax avoidance strategy taken by Google and Apple is similar with Oracle’s. Oracle Korea has not sent its profits to its headquarters in the U.S., but to the Irish entity. In this way, the company saved 314.7 billion won (US$275.74 million of taxes since 2008. According to globally renowned aid and development charity Oxfam, the top 50 companies in the U.S., including Oracle, keep US$1.4 trillion (1600.62 trillion won) of funds in tax havens such as Ireland, Bermuda and Panama. Apple ranked first with US$181 billion (206.97 trillion won) and Microsoft and Alphabet, a holding company of Google, also ranked among the top 10.

The IT industry is paying close attention to whether an aftermath of the Oracle case will expand to other companies. An official from a global IT firm said, “The company is paying taxes in accordance with the law here. But, we are watching how things go because it is the first time that a large company like Oracle got caught dodging taxes.” Meanwhile, an official from Oracle Korea said, “It is not a tax evasion. There is an ambiguity of the interpretation of tax laws so we will verify it through the lawsuit.”

 

 

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