Kwon Hyuk, a reclusive shipping tycoon, shows how to get around paying taxes in and out of more than five trading borders while keeping over 10 trillion won ($9 billion) in assets.

Register your business at a tax haven, stash all your profits there, and pretend you live abroad. Minimize paperwork. Even better if you can avoid the press.

Kwon has been the main target of the Korean government’s latest battle against rampant offshore tax evasion.

Kwon operates a vessel lending business with more than 160 ships purchased using the near-zero interest rate in Japan. He has been lending them to merchants of all nations at a substantially higher cost, and later incorporated his business in Hong Kong where no tax is imposed on offshore income.

If the company was incorporated in Korea, he would top industry leaders here ― Hanjin Shipping, Hyundai Merchant Marine, STX Pan Ocean ― which all possess less than 90 vessels each.

Because Korea taxes anyone who stays in the country more than 180 days a year, Kwon chooses his place of residence strategically and hops in and out of Korea, Japan and Hong Kong.

“I started my business in Japan and it is now based in Hong Kong. If I’m subject to tax it should go to Hong Kong,” the 61-year old said after he was finally charged with tax dodging for the period between 2006 and 2009.

Efforts to tamp down money laundering abroad peaked on Apr. 11 as the National Tax Services slapped 410.1 billion won ($378 million) of fines ― the largest single amount ever levied on an individual ― on Kwon Hyuk.

Kwon immediately challenged the charge, saying that it was in every entrepreneur’s interest to reduce tax. He is currently under an overseas travel ban so the NTS can dig deeper into his affairs.

The case of Kwon suggests there could be an unexplored ocean of wealthy businessmen abroad whose financial affairs authorities know little about. With such businessmen living and working in multiple countries, authorities may not know where they are incorporated or if they even exist on registers anywhere.

Because the case is transnational in nature, the crackdown was only possible with collaboration of tax authorities abroad. The NTS says details of Kwon’s bank accounts in Switzerland, the Cayman Islands and Hong Kong were accessible to the agency under the internationally agreed tax standard of the Organization of Economic Co-operation and Development.

“We now have a system which allows us to check details of taxes paid to foreign tax offices by the Koreans. Whichever country you earned your profit from, you should report them all to the NTS,” Yoon Chang-bok, director at the agency’s Planning and Coordination Bureau said.

The tax standard was put forward at the Global Forum inside the OECD where 101 member nations have joined to exchange information for tax transparency. Tax havens such as the Cayman Islands, Panama and the world’s largest private banking center Switzerland recently opened up their customer information to tax authorities after the Group of 20 economies urged its member nations to improve tax transparency last year.

The world’s 10 best corporate tax havens in descending order were Maldives, Qatar, Hong Kong, Singapore, United Arab Emirates, Saudi Arabia, Ireland, Oman, Kuwait, and Canada.

Korea came in the 17th in the list.

The NTS struck a deal with Switzerland to exchange financial information on tax evasion suspects starting June this year.

“The era of banking secrecy is really coming to an end with the pressure from the international community. It is basically in every nation’s interest to crack down on tax dodgers,” Moon Chang-yong, director general of International Tax Affairs at the Finance Ministry, said.

“The means of hiding wealth are becoming increasingly sophisticated and that is why international collaboration is the key here.”

The fresh importance given to crackdown on offshore tax invasion since last year is part of President Lee Myung-bak’s campaign to usher in a fair society. It is the current administration’s view that there cannot be a fair society without a fair tax system. Tax dodgers shrink the country’s revenues and create ill will among the public when discovered.

“From June onwards, everyone who has more than 1 billion won in foreign bank accounts must report to the NTS. Failure to do so will incur 10 percent in fines each year which is effectively the toughest penalty here,” Moon said.

Money laundering among the very wealthiest taxpayers is cited as one reason why much of the world’s population lives in poverty. Charity organization Christian Aid in 2008 estimated that underreporting of profits by corporations to evade tax deprives poor countries of $160 billion a year.

The NTS issued fines totaling 474.1 billion won for 41 cases detected this year alone. The amount meets half the target for this year.

To fight evermore sophisticated tax crimes, Seoul has been deploying a team of forensic experts and market analysts who constantly monitor fund outflows in the financial market. In January, it made the Offshore Compliance and Enforcement Center, an ad hoc taskforce established in 2009, a permanent body.

The following month, the NTS set up the Forensic & Anti Tax Evasion center with regional teams working in the agency’s Daejeon, Gwangju, Daegu and Busan offices to step up curbs on borrowed-name financial transactions and evasion of inheritance taxes abroad.

One popular means of evading tax is to set up a mutual fund company in the U.S. or Hong Kong. It involves setting up a trust fund in the U.S. which gathers Korean investors to invest in Korean equities.

“Because U.S. doesn’t tax offshore financial income, local investors participating in those trust funds often get away with paying no tax at all. It is imperative we gather more expertise and help from abroad to prevent any form of tax evasion,” Moon said.

By Cynthia J. Kim (cynthiak@heraldcorp.com)