Foreign capital inflows as a means of supplementing insufficient internal capital to fund domestic investment provided an undeniably important contribution to the process of economic growth in the country.
However, since the Asian financial crisis in 1997, speculative foreign capital inflows demonstrated several problems. They weakened the long-term growth potential of domestic firms and maximized the short-term investment profit by pursuing excessive structural adjustment and high dividend yield and they also diminished the money-supply function of the industrial funding of financial sectors due to its high-risk adverse appetite.
In addition, tax authorities have often had difficulties maintaining fair taxation due to the fact that speculative foreign capital investors tend to avoid paying a reasonable amount of tax by facilitating loopholes in domestic tax law or avoiding tax using abusive exploitation of tax treaties even though they acquire high returns on their investments.
Tax avoidance ultimately undermines the fairness of the tax system by defying the intention of tax policies defined by tax law and eroding tax base in the country.
Under the current circumstances, although tax authorities have introduced new measures to make tax avoidance transactions taxable, there are problems with retroactive application of tax on avoidance transactions. Also, taxpayers who engage in tax evasion find new strategies for hiding their tax avoidance transactions to continue avoiding payment of taxes, even after those measures are implemented.
Accordingly, tax authorities should take strong preventive actions on any detected suspicious tax avoidance transactions. It should be a more effective and reasonable measure than taking follow-up actions afterwards.
This report focused on proposing reasonable tax measures as preventive actions against tax evasion because our country is likely to lose the right to tax and have some limitations with regards to to tax avoidance on foreign capital inflows.
The information presented in this report represents the supplement of General Anti-Avoidance Rules and the introduction of the “Limitation on Benefit” article in revising the tax treaty and data sharing of source documents on financial investment products that needed to be taxed and registration as supplement under procedural law.
Choi Cheun-gyu
However, since the Asian financial crisis in 1997, speculative foreign capital inflows demonstrated several problems. They weakened the long-term growth potential of domestic firms and maximized the short-term investment profit by pursuing excessive structural adjustment and high dividend yield and they also diminished the money-supply function of the industrial funding of financial sectors due to its high-risk adverse appetite.
In addition, tax authorities have often had difficulties maintaining fair taxation due to the fact that speculative foreign capital investors tend to avoid paying a reasonable amount of tax by facilitating loopholes in domestic tax law or avoiding tax using abusive exploitation of tax treaties even though they acquire high returns on their investments.
Tax avoidance ultimately undermines the fairness of the tax system by defying the intention of tax policies defined by tax law and eroding tax base in the country.
Under the current circumstances, although tax authorities have introduced new measures to make tax avoidance transactions taxable, there are problems with retroactive application of tax on avoidance transactions. Also, taxpayers who engage in tax evasion find new strategies for hiding their tax avoidance transactions to continue avoiding payment of taxes, even after those measures are implemented.
Accordingly, tax authorities should take strong preventive actions on any detected suspicious tax avoidance transactions. It should be a more effective and reasonable measure than taking follow-up actions afterwards.
This report focused on proposing reasonable tax measures as preventive actions against tax evasion because our country is likely to lose the right to tax and have some limitations with regards to to tax avoidance on foreign capital inflows.
The information presented in this report represents the supplement of General Anti-Avoidance Rules and the introduction of the “Limitation on Benefit” article in revising the tax treaty and data sharing of source documents on financial investment products that needed to be taxed and registration as supplement under procedural law.
Choi Cheun-gyu