• 폰트크기작게
  • 폰트크기크게
  • TTS
  • 단어장
  • 기사스크립
  • SNS
2017-04-04 17:48
By Yoon Sung-won
 
Calls are surfacing for the introduction of a bill to stop foreign limited liability companies from exploiting loopholes in the law to sidestep taxes. The government and the legislature have been urged to expedite their efforts to plug the legal loopholes they have made.

Limited liability companies are not legally obliged to release financial information such as sales, operating profit, dividends, royalties and donations, and do not face external audits so they can easily dodge scrutiny by the authorities.

For this reason, many foreign companies in Korea have registered their names as limited liability companies.

Before 2010, Korea’s commercial laws stipulated that a business must have less than 50 employees and over 10 million won in capital to become a limited liability company.

But a revision in 2010 lifted such regulations while keeping limited liability companies out of the obligations such as external audits and information releases, further encouraging foreign companies to register themselves as such for more benefits.

The number of limited liability companies here reached 26,858 at the end of 2015, up 9,304 from 17,554 in 2010 before the revision of commercial law, according to data from the National Tax Service (NTS).

Taxation experts say multifold loopholes in our legal system have allowed many foreign companies, which would naturally try to pay the smallest amount of taxes possible, become limited liability companies.

In the network equipment market, Cisco Korea has always involved a smaller third-party local distribution partner to sell expensive network equipment. Cisco Korea forces its clients and its headquarters to deal directly with each other so that it can avoid taxes as it does not hold an official stake in the transaction.

“One may claim that Cisco Korea should pay the taxes but it is difficult to prove its involvement in the deal unless the clients testify to it. Worse, it does not have to disclose its balance sheet and income statements because it is a limited liability firm,” a taxation expert said.

The expert also pointed out that Cisco’s dominance in Korea has established a supplier-centric market here, giving Cisco Korea power to control distributors and buyers. He said Korean companies have blindly purchased Cisco’s expensive products, giving it dominant status in the market in Korea.

Consequently, Cisco Korea has continued to dodge taxes and shifted the burden to its local distribution partners.

Because Cisco does not open its financial reporting, we can only guess at its business operations through past figures unveiled before it became a limited liability company in 2013.

In 2012, Cisco Korea posted only 82.8 billion won in sales. Considering that Cisco’s network equipment has been adopted by multiple conglomerates such as SK Telecom, KT and Samsung Electronics, its actual performance would have been far greater than that.

The practices of Cisco are not illegal and sources said that years ago Cisco Korea had examined various lawful ways through legal reviews how it could avoid paying all but the least amount of taxes ― called tax planning ― with the help of a domestic accounting firm.

But people do not accept that as a proper way of doing business here. They think that if a company makes money here, it should pay taxes here, not burden third-party distributors.

The country needs to do something about this by introducing a “Cisco Act,” which will deal with two things _ one is about transparency of limited liability firms, particularly foreign firms, and the other is about the controversial practices of Cisco.

In fact, the government has put forth efforts to grapple with the former as in January it proposed an amendment about external audits of companies which can strengthen the auditing of the accounting practices of many foreign businesses here and make them release essential business information.

But the National Assembly has been unable to act on the revision bill. The ruling and opposition parties failed to close the gap on the bill in March. It is also likely that the bill’s progress will be further delayed with the parties preoccupied with the campaign for the upcoming presidential election in May.

The latter would be very tricky because rash moves to change the current rules on taxing foreign companies and their forms of business may trigger a trade dispute with governments overseas.

It will need long-term cooperation with not just foreign companies but also foreign governments where their headquarters are. This is why many governments have taken so many years to discuss the regulations on base erosion and profit sharing, which is more commonly referred to as the “Google tax” in Korea.

But one thing seems to be sure: the country should do something with the status quo so that companies like Cisco Korea cannot use the loopholes to its advantage so they avoid the taxes they would otherwise have to pay.


  • 폰트크기작게
  • 폰트크기크게
  • TTS
  • 단어장
  • 기사스크립
  • SNS