By Choi Sung-jin From The Korea Times

About 30 percent of foreign companies and individuals investing in Korean capital markets are registered in tax shelters, with stock and bond holdings worth more than 160 trillion won ($144 billion), a lawmaker says.

These tax shelters impose less or no taxes than ordinary countries do in various financial transactions, leaving much room for tax avoidance, and are highly likely to allow investors to operate in less than transparent ways by setting up paper companies, said Rep. Park Kwang-on of the opposition Minjoo Party of Korea Monday, based on his analysis of foreign investors’ registrations and securities holdings.

There are 42,692 foreign investors with interests in Korean capital markets holding 553 trillion won worth of stocks and bonds. At least 12,785 of these investors, or 29.9 percent of the total, are on the Korea Customs Service’s list of tax shelters, with stock and bond holdings amounting to 163 trillion won, 35.7 percent of the total.

The 12,785 investors are regarded as a minimum number in part because the state of Delaware, which is classified as a tax shelter, has no relevant statistics and because data is unavailable concerning tax havens in which there is only one investor to protect individuals’ investment information.

By nationality, the Cayman Islands have the most investors with 3,276, followed by Canada (2,459), Luxembourg (1,768), Ireland (1,242), Hong Kong (1,046) and Virgin Islands (877).

In the case of the Cayman Islands, the number of investors who bought Korean stocks and bonds steadily increased from 2,735 in 2012 to 2,907 in 2013, 3,080 in 2014 and 3,204 in 2015. Their holdings of stocks and bonds also sharply increased from 6.83 trillion won to 9.39 trillion won over the period, according to the analysis.

The Virgin Islands posted an increase in the number of investors in Korea from 830 to 877 with their investment increasing from 826.6 billion won to 1.37 trillion won. The number of investors registered in Bermuda also grew from 329 to 362 and their investment climbed from 1.93 trillion won to 2.25 trillion won, over the four-year period.

The National Tax Service slapped penalty taxes of 1.28 trillion won for tax avoidance using overseas tax shelters last year, more than double the penalties of 500 billion won in 2010.

“Tax havens are where corporations and individuals gather for the purpose of dodging taxes,” Rep. Park said. “As they tend to make unfair deals by manipulating stock prices after setting up paper companies, governments should tighten their surveillance through close cooperation with one another.”

For more on this story go to: https://www.koreatimes.co.kr/www/news/biz/2016/10/123_215243.html

IMAGE: Aerial Grand Cayman FILE