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The National Tax Service has raided the Korean offices of several overseas investment funds including tax haven-based Lone Star as part of a comprehensive tax-probe. The raids come hard on the heels of allegations from the international press of ¡°paranoia¡± and ¡°economic nationalism¡± in Korea.
The NTS said Thursday investigators from its Seoul office paid unannounced visits on Tuesday and Wednesday to Gangnam's Star Tower, where Lone Star Korea is headquartered, to collect documents related to the fund's domestic business dealings. Lone Star is the largest shareholder in Korea Exchange Bank.
"Like investigations into local funds for unlawful tax evasion, this probe aims to verify whether foreign funds have made wrongful profits," NTS tax probe chief Han Sang-ryul said. "The current probe targets two funds, including Lone Star." But a source close to the government said some four or five funds besides Lone Star will be targeted. The targets are overseas funds that reaped huge marginal profits by selling off shares in banks and real estate they bought cheap in the wake of the 1997 Asian financial crisis.
The funds have yet to make official statements concerning the tax probe, but their responses so far reveal uneasiness.
Some worry about the timing. "It's hard to understand why the NTS would brandish the tax investigation sword at this sensitive time, when there is debate going on over growing xenophobic capital sentiment in Korea,¡± an official with a European investment body said. The head of an overseas financial firm said, "I'm worried that international opinion could deteriorate with rising concern over economic nationalism over the recent 5 percent rule and caps on the number of foreign directors on Korean banks."
The 5 percent rule singled out by London¡¯s Financial Times states that funds buying more than 5 percent in a Korean company must declare their assets and purpose in acquiring the share.
Some also slammed the "ambush-style" with which the raids were carried out.
"Every chance it gets, the Korean government pledges to create an environment where foreign capital can be freely invested in Korea, but is raiding offices without prior warning up to global standards?" one CEO said.
Others find the background to the investigation suspicious. "The funds targeted by the probe have received the concerted criticism of Korea's progressive civic groups,¡± said an official from a foreign PEF on condition of anonymity. He added the government appeared to be responding to the criticism.
An employee of one foreign securities firm said, "Finance Minister Han Duck-soo has taken positions friendly to foreign funds, but on the other hand you have the government rattling foreign funds with tax probes, so foreign investors are bound to be confused... Foreign investors believe that the probe is political since it comes just ahead of parliamentary by-elections."
(englishnews@chosun.com )
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