Tuesday, March 31, 2020
GM Korea’s Push for R&D Unit Separation Is Unstoppable
Labor Commission Rejects Union's Mediation Request
GM Korea’s Push for R&D Unit Separation Is Unstoppable
  • By Jung Min-hee
  • October 23, 2018, 10:02
Share articles

The National Labor Relations Commission has turned down a mediation request filed by the GM Korea labor union to resolve a dispute over the company's plan to set up a separate R&D company.

The National Labor Relations Commission has turned down a request for mediation filed by unionized GM Korea workers to resolve their dispute with the company’s management over its plan to establish a separate R&D company.

The commission’s decision has effectively made the GM Korea union's planned strike illegal and paves the way for the company to push ahead with its R&D unit spin-off plan.

The commission said on Oct. 22 that the R&D unit separation plan is not subject to mediation because no labor dispute is currently going on in GM Korea.

According to those in the know, the planned R&D company is likely to be designated as a foreign investment company as its major shareholders will be foreign companies, including the GM headquarters and its subsidiary companies (76.96%) and Shanghai GM (6.02%). The Korea Development Bank, which is the second largest shareholder of GM Korea, is expected to have a 17.02 percent stake in the proposed R&D firm, which is dubbed GM Technical Center Korea.

A foreign investment company is eligible for tax incentives such as corporate tax exemption and income tax reduction for foreign employees. The new corporation is expected to apply for the designation immediately after its establishment.

According to the Foreign Investment Promotion Act, a manufacturing company is required to make a new investment of at least US$30 million to be regarded as a foreign investment zone eligible for five-year corporate tax exemption followed by a corporate tax halved for two years.

Earlier this year, GM Korea asked the South Korean government to designate its plants in Bupyeong and Changwon as foreign investment zones in return for business normalization assisted by GM headquarters. The Ministry of Trade, Industry & Energy, however, turned down the request, claiming that it is unclear whether the company’s new investment is for facility expansion or future technology development.

According to the act, an R&D facility can be designated as a foreign investment zone by means of a new investment of US$2 million or more. The new corporation is likely to make the investment given that 300 billion won to 500 billion won is required for development of one new car. The new corporation is going to make an application for the designation after the investment. The R&D corporation is predicted to provide new car designs to GM Korea, a manufacturing and sales corporation, to get profits along with corporate tax exemption.

Employees of the corporation can enjoy an earned income tax cut, too. The current law stipulates that an earned income tax rate of 19% is applied to foreign workers for five years and an additional 50% reduction is provided for two years for foreign engineers.

Even foreign employees who have enjoyed a five-year earned income tax cut at GM Korea can enjoy the same tax favor for another five years once they move to the new corporation. GM Korea has posted a loss of trillions of won for years, yet it has offered billions of won in stock option to foreign managers each year.

The R&D corporation can generate profits by providing GM Korea with new car designs. The corporation can remain in the black even when GM Korea as a manufacturing facility is in the red. A large profit will lead to a large remuneration for the employees. The employees can keep their income tax benefits by moving to the new corporation.

Under the circumstances, KDB chairman Lee Dong-gull said he is considering applying for an injunction against GM Korea’s corporate division as he believes the enforcement of R&D unit separation can lead to a dead end. The remark was made at a parliamentary audit of the bank by the National Policy Committee of the National Assembly on October 22.

“We have executed half of the 800 billion won (US$720 million) investment in GM Korea on condition that the company maintains itself for at least 10 years, yet the rest may not be executed depending on policy decisions,” the chairman said, adding, “The first round of execution was completed in June this year and the deadline for the execution of the remaining investment is December 31.”