Tax Investigation
It has been found that that the Korea National Tax Service is conducting a tax investigation into the Korean corporation of Huawei, a Chinese telecommunication equipment maker on the suspicion of offshore tax evasion. People are paying attention to this case as the Korea National Tax Service is carrying out a tax probe of Huawei suspected of trading with North Korea by the US government at a time when South Korea are at odds with China over the deployment of the Terminal High Altitude Area Defense (THAAD) missiles to South Korea.
According to the Korea National Tax Service and the IT industry, the International Investigation Department of the Seoul Regional Tax Service has been carrying a tax investigation into the Korean corporation of Huawei in Junggu, Seoul, since last week.
The Korean corporation of Huawei has about 150 employees and mainly provides network service to Korean wireless carriers. As the International Investigation Department launched an investigation into the relatively mid-sized company, industry pundits assume that they are looking into Huawei Korea’s trade with its headquarters. “Offshore tax evasion usually reminds people that a Korean company evades tax abroad,” said an official at the Korea Tax Service. “If the Korean corporation of a foreign company wires too much profit to its mother company, it can be called offshore tax evasion.”
It is said that Korean tax investigators are focusing on whether or not Huawei Korea uses lower-than-actual prices when exporting products or services or higher-than-actual prices when importing products or services in trade with its headquarters. Some industry watchers are forecasting that as the Korea Tax Service launched the tax investigation into Huawei Korea despite an advance pricing arrangement signed by Korean and Chinese tax authorities, the volume of Huawei’s advanced pricing will reach a significant level.
An advance pricing agreement (APA) is an ahead-of-time agreement on normal pricing and its scope between two nations. Korea and China exempt a company that applied for an APA from a tax prove if the company satisfies pricing standards set by the two in international trade. Chinese tax authorities charge additional tax on mid-sized Korean companies based on the fact that their advance prices were too high by carrying out omnidirectional tax investigations into them which made a foray into China in 2013.
Huawei which can be called the “Samsung Electronics” of China, posted 41.7 trillion won, up 40% from a year before thanks to strong sales of its smartphones in China. But since Huawei is not listed on a stock market, its financial situation is closed except for the fact that its operating profit ratio stood at 12%. In particular, as Huawei’s sales increase, the friction between governments of nations and multinational companies become serious. This is putting this tax investigation into the limelight.
As the U.S. government raised a suspicion over its trade with North Korea, Huawei was asked to hand export records in the past five years and is being investigated. Recently, Huawei filed a patent violation lawsuit against Samsung Electronics but Samsung Electronics brought a counter-suit seeking 8,050 yuan (about 13.7 billion won) in compensation against Huawei.