A couple days ago I got some interesting reaction to my chalking a point for the “the Hub” plan. Alas there were actualy two parts to the post. If any of you are looking for clear examples of foreigner discrimination in Korea’s economy they don’t get much clearer than this:
From Jan.14, the ministry waived the 15.4 percent taxation on capital gains from onshore funds investing in foreign equities. But it excluded offshore funds from the tax benefits, citing difficulties getting documents to warrant tax exemptions.
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“Most foreign fund managers expressed difficulties offering such materials,” MOFE’s director-general Lee Hee-soo said. “We’ve decided against granting tax exemption to offshore funds after extensive reviews, including international case studies.”
So let me get this straight, because forgeiners are balking at the onerous documentation process to get the tax excemption they would rather exclude foreigners rather than make the process easer.
Brillant.
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You’re missing the significance of what’s going on - in part perhaps because of the absence of effective reporting by the local press, but it’s just a matter of putting the reporting of two different stories together.
The required documentation concerns personal data regarding the customers of such funds, i.e., Joe Investor’s citizenship, place of residence, address for the remittance of dividends, etc.
This is an outgrowth of Korea’s unhappiness with its tax treaties and the manner in which they have afforded some foreign players with a tax holiday on their gains from investing in Korea, e.g., Lonestar, Newbridge, et. al.
Korea has sought to unilaterally abrogate its treaty obligations by means of an end-run - demanding data about the ultimate beneficiaries of offshore companies in known tax havens as a condition for the repatriation of capital and earnings so that they can then hold hostages the taxes to which they believe Korea is entitled and make people come here and litigate against the govt. to get their money.
The foreign funds won’t comply because it obviously could queer their access to the capital of tax-savvy investors and, in most of the jurisdictions in question, would subject them to criminal liability for the disclosure of legally protected information.
As far as I understand this has nothing to do with the documentation of the investors (as mentioned above). The Korean government requires information on the composition of the offshore funds themselves as, in order to apply the tax exemption on capital gains, it is necessary to break down the gains in a fund into capital gains and income gains. Capital gains will be exempt from tax but income gains, as with onshore funds, will be subject to tax. For onshore funds established in Korea, including those established by foreign asset managers, information on the breakdown into income and capital gains is already available, but it is not for offshore funds.
The background to this issue is that the Korean authorities wanted to encourage more money to move out of Korea in order to check the appreciation of the Korean won, which in turn is to help the competitiveness of Korean exporters. One of the solutions was to come up with the idea of granting a tax exemption on capital gains for funds that invest overseas (this would bring funds investing overseas into line with funds investing in Korea, which are exempt from capital gains). This issue seems to have arisen because of the failure of the financial authorities to think through the consequences of their actions when they announced that they would provide a capital gains tax exemption for funds that invest overseas (not an uncommon failing here).
As mentioned though, the authorities seem to have decided that the best approach is just not to give the tax exemption to offshore funds rather than trying to come up with a way of resolving this issue to create a level playing field for both onshore and offshore funds that would enable investors to benefit from a tax exemption.
South Korea has to change this. South Koreans take foreign investment as foreign companies entering South Korea to make money and leave when it’s convenient. They don’t think about the jobs created for South Korean people. Much has been lost already. Wal Mart left !
Lee Myung Bak will change things. I’m confident.
Economics should be a required course for everyone. There is so much difference in thinking between people who understand economics and those who don’t.
People in the US who complain about the US trade deficit with China are stupid, too.
Hasn’t there been gnashing of teeth and moaning about the lack of foreign investment in Korea? And then when foreigners invest and make profits, many Koreans decry the loss of ‘national wealth’. Well, the country can’t have it both ways. It doesn’t look like things are getting any better in terms of encouraging foreign investment. This does not bode well for Korea, as most foreign investment is and will continue to head elsewhere for the foreseeable future. What’s more, if the FTA with the US dies on the table, Korea will have thrown away another opportunity for strengthening its economy in the face of severe competition on the way.
GM came and saved DaeWoo Motors. DaeWoo’s Bu Pyong factories are still making cars today. South Koreans don’t see it that way. They say, Ah !, if we could have only held on to DaeWoo, then DaeWoo would still be a South Korean company. Blame the 9 pm news. They shape how people think from school age to their retirement years.
It’s like China — they want foreigners’ money and technology in, but they don’t want them to make a profit. When profits are made, rules get changed posthaste.
Of course, when it’s a _Korean_ company making money in Uzbekistan, Poland, or Alabama, well, that’s a horse of a different color!
Ignore those earlier comments, Dram Man. The real issue is one of Early Modern grammar.
There is no such construction as “had giveth” except as an example of an incorrect construction. This past perfect form requires a past participle — “given” not “giveth.” The form “giveth” is a third-person-singular-present form of the verb “give,” as in “he giveth.”
Yours in King James English,
Jeffery Hodges
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Jeff> Changed, color me embarassed.
Oops, now I’m a bit embarrassed. I hadn’t recognized that the ‘error’ was merely a typo.
Jeffery Hodges
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