Oracle’s tax evasion

The National Tax Service (NTS) has imposed more than 300 billion won in back taxes on Oracle Korea, the local unit of American tech giant Oracle Corp., for alleged evasion. The tax agency took the action in January last year after discovering through an audit that Oracle had omitted profits it made in Korea by sending them to its unit in Ireland, a famous tax haven.

Oracle Korea had sent its profits from software licensing fees to its headquarters in the United States until 2007. Under the Korea-U.S. tax treaty, the NTS imposed a 15 percent tax on the fees. Since 2008, however, Oracle has not paid corporate taxes in Korea because of the Korea-Ireland tax agreement as it began to transfer the software licensing fees to the Irish unit.

The tax agency carried out an on-site inspection and allegedly discovered circumstantial evidence that the U.S. IT giant had evaded taxes. The NTS said the Irish unit had been established to help Oracle evade taxes, noting that most of the fees Oracle paid to the Irish unit eventually flowed to the U.S. headquarters.

Oracle Korea denied tax evasion and filed a complaint with the Tax Tribunal in April last year. But the tribunal dismissed the complaint in November. Oracle Korea then filed a lawsuit with the Seoul Administrative Court in February this year, seeking to nullify the tax levy.

Whether the tech giant violated the law will be eventually determined by the court. But this case is noteworthy in that it is the first time that a multinational company has been caught for evading taxes in Korea.

What draws our particular attention is that most multinational companies such as Google and Apple have taken advantage of tax havens to dodge taxes. This means that our tax agency needs to look into other multinational companies to find out if some of them have evade taxes in a similar fashion.

Needless to say, the NTS should do whatever it can to prevent multinational companies from dodging taxes in order to enhance justice in taxation. It is also necessary for the tax agency to scrutinize possible legal and institutional loopholes in our tax regulations.

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