Tax Probes into Multinational Firms to Increase
The National Tax Service (NTS) will strengthen taxation on multinational companies, such as Google and Facebook, by hiring more workers for overseas financial information collection. The number of tax investigation into multinational firms is expected to greatly increase as a legal basis is now in place to check on transfer prices in their transactions with branch offices.
The NTS is planning to hire four more employees to analyze and utilize overseas financial information and three more officials to analyze consolidated financial reports of multinational companies.
The NTS decided to intensify its scrutiny of multinational firms’ tax avoidance earlier this year. It will also establish a system to analyze information of multinational companies in the first half of this year. During a meeting with senior tax officials held at the end of last month, Han Seung-hee, commissioner of the NTS, said, “With the advance of information technology (IT), new sources of taxation are expanding, including global e-commerce and one-person media, and the ways of dodging taxes are getting smarter.”
NTS will also strengthen investigation into transfer prices starting this year. The tax law revision last year has provided the legal basis for levying tax on international transactions which lack rationality. Multinational companies exchange goods and services between the headquarters and branch offices. In this process, the headquarters make a profit by setting the sale prices of its goods and services abnormally high for the branch offices. This makes it difficult for local tax authorities to collect taxes as the branch offices in their countries suffer losses.
With the external audit law revision last year, limited liability companies are required to be audited and disclose financial information like corporations. Accordingly, the NTS will be able to accumulate taxation information through this. Starting this year, places for simple purchases and storage are recognized as local businesses subject to corporate tax. There are more objects of taxation. The NTX conducted a tax audit of Google Korea in December last year.
The period of limitations on assessment will also be extended. The exclusion period of offshore transactions without notice will be extended from seven years to 10 years and the period of underreporting from five years to seven years. The latest move is also related to a digital service tax, or Google tax. Considering Korean digital service providers, such as Naver and Woowa Brothers, and IT companies, including Samsung Electronics Co., it is difficult to introduce the digital tax immediately to collect taxes from multinational companies. Korea is different from Europe. An official from the government said, ”In Korea, there are so many things to consider before introducing digital taxes. We will thoroughly look into multinational firms’ tax avoidance activities through tax investigations and verifications in a bid to establish tax sovereignty.”