Korea National Tax Service Investigating GM Korea

GM Korea acknowledges its financial affairs are under investigation by South Korea’s National Tax Service.

The probe begun last month also includes Volvo Korea and other foreign-owned companies, in addition to General Motors’ Korean subsidiary.

“The investigation is just a regular investigation by NTS,” a GM Korea spokesman tells WardsAuto. “Such an investigation is known to take about six months in general. It is regular that NTS conducts an investigation every five years.”

The government agency also investigated GM Korea in 2008 when it was operating as GM Daewoo Auto & Technology. “There was no investigation before 2008,” the spokesman says. “The year 2003 would be meaningless for NTS to conduct an investigation as GM Daewoo was launched in Korea in 2002.

“No major issues came out as a result of the first investigation in 2008,” he notes.

The NTS does not comment on whether investigations are taking place.

Volvo says the NTS examination launched last month was routine and acknowledges it was investigated in 2006. Following that probe the agency levied 3.1 billion won ($2.8 million) in additional taxes on the auto maker.

Putting foreign-owned car companies under a microscope began in 2006 after the NTS was enlarged and reorganized with a special unit formed specifically to investigate overseas companies, or those in which foreigners or foreign firms own 50% of the shares.

Korean authorities were, and are, concerned that companies operating globally could find ways to circumvent the country’s revenue-taxation system, a KTS official says. Of Korea’s total government revenue, 96.3% is derived from taxes, including 6.9% from customs duties.

The new government of President Park Geun Hye, who took office as Korea’s first woman president in February, has said additional investigations would strengthen the tax system, increase national revenue and offset the effects of the country’s current recession.

GM Korea is an obvious target for Korea’s NTS in that it is 77% owned by a Detroit-based parent.

In February, GM Korea acknowledged it had redeemed 700 billion won ($649 million) in preferred shares from the Korea Development Bank and other creditors. About half the auto maker’s 325,414 preferred shares were redeemed in that transaction, with the remainder to be redeemed by 2017.

GM Korea also opened preliminary talks with the KDB late last year in a bid to acquire the bank’s common-stock holdings, which total about 17% of the auto maker’s outstanding common shares. Such a transaction, if successful, would give GM 94% ownership of its Korean subsidiary.

Additionally, the Korea Customs Service said last month it would toughen its tax investigations into multinational companies, especially those that import luxury items. That agency is increasing the number of businesses that will be examined and is expanding the size of the investigating teams.

GM Korea imports luxury and semi-luxury vehicles from the U.S., including Cadillac, Chevrolet Corvette and premium-priced Chevrolet Camaro models.