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Oracle charged $293M USD in Korean back taxes

Tue 11 Apr 2017

Korea tax

Multinational tech giant Oracle has been charged $293 million USD ($300 billion won) for corporate tax evasion in South Korea.

The $293 million charge is made up of back taxes, as well as a punitive charge from the government tax agency.

The company was originally notified of the tax debt in January of last year, when the National Tax Service (NTS) charged Oracle with evasion of corporate tax payments on 2 trillion won in earnings from 2008-2014.

Oracle was accused of funneling revenues to Ireland to avoid paying taxes in South Korea. In an audit of the company’s books, the tax authority found that Oracle had channeled profits generated in South Korea to an Irish subsidiary; however, it was found that those funds ultimately profited the company’s headquarters in the United States. Because of this, the NTS determined that Oracle should have paid taxes on profits generated in South Korea to the South Korean government.

The company insisted that it had paid taxes as required, and filed an appeal with the tax tribunal, which was dismissed last November. The company then appealed to the Administrative Court in Seoul, which has determined that Oracle is responsible for back taxes and damages, and upheld the NTS charges.

Other multinational companies, including Google, Apple, and Cisco are being eyed by the tax authority for suspected similar practices. Government data shows that taxes collected from multinational companies for South Korean profits is down over 35% since 2012, despite known increases in profits generated inside the country.

The National Tax Service is looking closely at multinational companies for payment of taxes and transferring of profits to known tax shelters, including Ireland, Bermuda, and the Virgin Islands.

These practices of legal tax evasion, taking advantage of loopholes in international tax codes, are known as ‘base erosion’ or ‘profit shifting’ and are becoming more of an issue for tax authorities in various countries. Local tax authorities are under increasing pressure to determine whether multinational conglomerates are paying the appropriate amount of taxes.

Just last month, Israel announced that it was investigating Google and Facebook for tax payments on advertising revenue that may have been generated in the country and funneled to Ireland.

Tax audits and investigations then often result in long, drawn-out and expensive legal battles. However, if companies are found to have participated in base erosion and profit shifting, the resulting back taxes and punitive measures are often in the hundreds of millions of dollars owed to the government. Last year, Google paid $185 million to settle a tax debt in the UK, and is currently under investigation by tax authorities in Israel, Indonesia, and France.

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