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April 17, 2008
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| Prosecutors have launched an investigation into the allegation that British American Tobacco Korea lobbied the nation’s tax authorities to downscale a probe into its 2006 tax evasion case. “Whistleblowers have informed us that pressure was exerted to influence the Seoul Regional Tax Service’s probe into BAT Korea, which took place for one year beginning in December 2005,” a senior official of the Seoul Central District Prosecutors’ Office told the JoongAng Ilbo yesterday. The prosecution’s special investigation unit, headed by prosecutor Kim Gwang-jun, is currently looking into the case, he added. BAT Korea denied the accusation. “We were never involved in any illegal lobbying activities to downscale the tax investigation,” an official at the company said yesterday. According to prosecution sources, the Seoul tax authority discovered in December 2006 that BAT Korea evaded taxes on 108.2 billion won ($109.35 million) of profit. The tax office learned that the largest foreign tobacco seller in the domestic market exaggerated the price of cigarettes supplied by its overseas branch in order to evade taxes. An affiliate of British American Tobacco, BAT Korea locally sells Dunhill cigarettes it gets from Rothmans Far East BV in the Netherlands. RFBV holds the license for producing and selling Dunhill cigarettes. Tax authorities found that BAT Korea, when receiving the cigarettes from RFBV, committed tax evasion through a process known as transfer pricing involving transactions between units of a multinational firm. Since the prices are controlled within the organization, there are opportunities to avoid taxes by using artificial transfer prices to reduce profits. In addition to the tax evasion through transfer pricing, BAT Korea was also found to have issued 68.6 billion won-worth of false tax invoices between 2001 and 2004, the prosecution sources quoted Seoul tax officials as saying. As a result of the audit on a series of tax violations, the company was ordered to pay a total of 56.8 billion won, including fines, in December 2006. BAT Korea, however, challenged the Seoul tax authority’s decision by taking the case to the Tax Tribunal. Three reviews were conducted, and the collection of back taxes finally took place in December. According to sources, tax investigators at the Seoul office filed a 60-page petition to the National Tax Service in March of last year, saying they want to further investigate BAT Korea and its overseas corporation, claiming that there was more unaccounted-for tax evasion. They argued that BAT Korea routinely hid taxable profits through RFBV every year, so an additional 70 billion won should be collected from the company. The prosecution sources said the petition was dropped after only a month, citing the testimony of tax investigators. “They have said senior officials of the National Tax Service pressured them to end the probe,” a prosecution official said. The prosecutors are also investigating the National Tax Service’s decision not to file charges against anyone. By Jung Hyo-sik JoongAng Ilbo/ Ser Myo-ja Staff Reporter [myoja@joongnag.co.kr] |
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