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| Deloitte Anjin M&A, Inbound Tax Service leader and partner Scott Oleson speaks during a recent interview with The Korea Times at the firm's headquarters on Yeouido, Seoul. / Korea Times photo by Shim Hyun-chul |
By Lee Kyung-min
Korea should improve predictability and consistency in tax law enforcement to help more foreign businesses operate here, according to a senior international tax expert.
Making proper business decisions is all but impossible without the two most important elements factored in, especially in the field of international taxation where the uncertainty translates directly into unwanted rise in costs ― mostly tax expenses.
If all other conditions are equal, he added, foreign businesses would not choose the Asia's fourth-largest economy as an ideal destination for business expansion over Singapore, for example.
"I have been in meetings where people said we need to expand somewhere in Asia. They say let's put it ― yes the cost of living may be a little bit higher ― in Singapore, but at least we know how we are going to be treated," Deloitte Anjin M&A, Inbound Tax Service leader and partner Scott Oleson said in an interview with The Korea Times Jan.9.
India, he added, is not an option for reasons related to hard tax regime and neither is China which they view as "very unpredictable."
This is a deeply concerning response to Korea in desperate need to attract foreign businesses amid a flagging economy struggling to find growth momentum.
Yet it nevertheless is an inevitable result of an informed decision, following years of uncertainty and inconsistency around how Korea has interpreted and implemented new tax standards.
"The perception by some clients is that Korea does not apply the ever changing tax rules in a predictable manner as compared to other countries, which results in them having to do things differently or not doing some normal business things in Korea," he said.
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| Deloitte Anjin M&A, Inbound Tax Service leader and partner Scott Oleson speaks during a recent interview with The Korea Times at the firm's headquarters on Yeouido, Seoul. / Korea Times photo by Shim Hyun-chul |
Uncertainty costs money
Say, somebody wants to build a new plant in Korea, he said.
The firm would advise clients on how much tax they should pay for the next 10 years for them to put that into a financial model.
But if there is no predictability, the clients would have to discount cash flow among other ways to try to take into account the uncertainty.
If they have to choose between Korea with 24 to 27 percent tax rate, and the U.S. with 21 percent, provided that the labor and the regulations are the same, They would choose one that is more consistent because they can plan for it.
Korea changes tax law every year, while the U.S. which had the largest in real change in almost 30 years in 2017 when U.S. President Donald Trump signed the Tax Overhaul.
"You can pretty much assume that unless the law changes or there is another court ruling that overturns it, that's going to be the answer for all companies in that situation. The issue that many of the multinationals in Korea have is even if there is a ruling it's hard to rely on that."
Compared to other countries, Korea is probably in the middle, in his view.
"It is not the worst. There are very hard tax regimes, for example in India. But compared to Europe and the U.S. Korea would be not quite as advanced in the level of predictability. But the companies want that level of certainty."
The international tax expert emphasized that it is ultimately a disadvantage to a country if the predictability is not there.
This is because decision makers like predictability and they like to be able to make assumptions believing that those are going to be the right answers.
"In a tie-breaker scenario, I mean if Korea's got better regulations, better educated people, tax is not going to be why they don't come to Korea but if everything is the same, it can be."
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| Deloitte Anjin M&A, Inbound Tax Service leader and partner Scott Oleson speaks during a recent interview with The Korea Times at the firm's headquarters on Yeouido, Seoul. / Korea Times photo by Shim Hyun-chul |
Tax raids
In recent years, he said, there seems to be an increase in the use of tax raids as compared to normal tax audits with advanced notification.
"There is a perception that often the tax audit teams have a collection target based on prior audits or audits of similar companies rather than waiting to review whether any mistakes were actually made by the taxpayer. Unfortunately, this causes some companies to view Korea as unfriendly country for corporate bodies."
