Secret accounts overseas urged to be reported
Those who have been hiding their income or wealth overseas had better think again, as Korea will soon be exchanging financial information with multiple countries, including tax havens. They are advised to voluntarily report it to the government before the end of March to be given a grace period, said Kim Kyung-hee, who is heading the Secretariat of Offshore Voluntary Disclosure Initiatives at the Ministry of Strategy and Finance.
“Back in 2008, the United States took issue with UBS in Switzerland, where U.S. citizens were hiding their accounts. It established the Foreign Account Tax Compliance Act (FATCA), according to which financial institutions overseas had to provide the U.S. Internal Revenue Service (IRS) with information on accounts of U.S. citizens. Other developed economies, which were troubled by tax evaders, also found the measure useful, and it led to the signing of the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (MCAA),” Kim explained.
Korea joined MCAA as well as signing FATCA with the United States. From September, Korea will be exchanging financial information with the United States, while MCAA will take effect next year.
“Previously, the information on accounts was exchanged on request, but now it will be an automatic exchange. From 2017, even countries known as tax havens such as Lichtenstein will be subject to change. There will be nowhere to hide accounts,” she said.
Kim is the first female to be a senior director at the finance ministry, known as a male-dominating elitist group. Kim said she wanted to change society.
“Ever since I was a teenager, I was wondering why Korea should be suffering a chronic deficit in its trade with Japan. I came to be interested in economics, and looked for a job where I could make a change. That’s why I chose the finance ministry,” she said.
At the ministry, she has been building expertise in tax policies. Kim stressed that all Korean residents are supposed to file their worldwide income to the Korean tax authority. For instance, exporters who got money from their business partners overseas should bring the money to Korea. However, they sometimes leave it there and do not report it. That is a violation of the foreign exchange transactions act and the tax code, as well as a criminal act, according to Kim.
Before implementation, the government set a grace period. Those who voluntarily report their hidden income and wealth by March will be given much tolerance. For instance, a Korean resident who has been hiding 1 billion won income in an offshore account since 2012 will be subject to 220 million won tax for the income and 70 million won additional tax for late payment, if he or she reports it to the secretariat by March. Those who miss this chance and later get caught, meanwhile, may be subject to 210 million won in taxes on top of the 290 million won mentioned above, as well as up to a 50 million won fine and up to a two year prison term.
She said that there has been much voluntary disclosure to the secretariat since last October. It is also getting many inquiries from Korean residents overseas wanting to know whether they should be concerned. The secretariat has been holding briefing sessions in a number of countries, including Southeast Asia where many Koreans do business and have assets.