European Chamber of Commerce in Korea (ECCK) Chairman and MAN Truck & Bus Korea President Thilo Halter requested that the Korean government’s plan to impose taxes on corporate cash reserves be reexamined.
He joined the Oct. 20 discussion session for non-Korean companies in Korea hosted by Prime Minister Jung Hong-won as a representative of foreign investors and entrepreneurs.
“The introduction of the new taxation system is highly likely to pose a greater burden on companies than before, and the measure is unlikely to yield the result the government is intending to get,” he mentioned there, adding, “Once the taxation scheme goes into effect, companies may increase dividends for foreign shareholders in order to avoid the 10 percent additional tax, and this could result in national wealth drain. This is why I ask for an exemption of the application of the scheme.”
Vice Minister of Strategy & Finance Ju Hyung-hwan responded by saying that it was difficult to accept his request. “We need to prevent reverse discrimination against Korean companies. We made no exception during the implementation of a similar tax between 1991 and 2002, and we have not a few cases, including the U.S., in which corporate cash reserves are subject to taxation,” he explained, continuing, “In addition, foreign companies investing in Korea tend to have a high payout ratio, and thus would rarely be affected by the taxation.”
The Prime Minister, in the meantime, stressed that foreign direct investment (FDI) is showing a constant increase nowadays to exceed US$14.8 billion this year, and set a new third-quarter high with a year-on-year growth of 37.9 percent. Foreign investment companies accounted for 20 percent and 6 percent of Korea’s total exports and employment, respectively. “In particular, E.U. member countries increased their investment by 84.1 percent from the previous year to reach US$5.93 billion, which is higher than any of those by China, the United States and Japan,” he emphasized.
“Although the Supreme Court delivered its ruling on the ordinary wage late last year, the scope of the ordinary wage is still vague in the Labor Standards Act. Thus the Korean government needs to come up with some legislative measures,” Mr. Halter pointed out. Joris Dierckx, general manager of BNP Paribas Korea, asked the Korean government to have a more flexible approach concerning the overseas transfer of financial information systems.