Cisco, Apple may shudder at regulatory change
Cisco Korea may have to share its key financial information starting next year as the government aggressively pushes to tackle the lack of transparency and tax-dodging practices by foreign enterprises, according to industry sources, Tuesday.
“Though there still is much to be seen about the application of the revision, it can provide authorities the legal grounds to track important financial actions of limited liability companies (LLCs). It would prompt foreign firms such as Cisco Korea to monitor possible malicious offshore tax evasion and practices of base erosion and profit shifting,” an industry source said.
According to the Financial Services Commission, the National Assembly passed a revision on the External Audit Law on Sept. 28. One of the key points of the revision is that LLCs here, many of which are Korean subsidiaries of foreign enterprises, will be obliged to receive external audits and release audit reports including their balance sheets, income statements, surplus appropriation statements and dividend information.
This revision is scheduled to take effect in October next year.
Under the current law, LLCs have been considered private companies and thus have been exempt from external audits. A commercial law revision in 2011 even lifted regulations on their number of investors and share assignments, giving them extra freedom.
To tap into such unchecked freedom, Cisco Korea changed itself to an LLC in 2013 like many other Korean subsidiaries of foreign enterprises such as Apple. Apple Korea had become an LLC earlier in 2009. Cisco Korea, which is 100 percent owned by its U.S. headquarters, was founded in 1994.
Since 2013, Cisco Korea stopped releasing earnings reports, leading to criticisms over its lack of transparency. Cho Bum-coo is in charge of the company.
In its last available business performance data, Cisco Korea posted only 82.8 billion won in sales, 14.1 billion won in operating profit and 13.8 billion won in net profit in its 2012 fiscal year between August 2011 and July 2013. But the company is estimated to generate over 500 billion won in sales in Korea in the year considering its dominance in Korea’s network equipment business for mobile carriers and data centers.
It has been criticized for being lukewarm in investments and making social contributions here.After becoming an LLC, however, it could keep such business information secret, the source said.
Another industry source pointed out the revision may not have significant impact on local subsidiaries of multinational IT companies as they have already received internal rules on receiving external audits.
“Many local subsidiaries of global enterprises have received external audits from accounting firms, following directions from headquarters,” the source said. “The point will be that if the law can tackle profit shifting practices of Korean subsidiaries of global firms and force them to release actual sales and profit information they generate here, it will be difficult to force their global headquarters to bend their rules to take advantage of Korea.”
