Domestic branches of limited-liability companies such as Louis Vuitton, Gucci, Apple and Microsoft will no longer be exempt from external audits, the Financial Services Commission and the National Tax Service said.
According to the government agencies’ latest LLC data released Monday, the number of limited-liability companies as of the end of 2015 was 26,858, up 122.1 percent compared to 10 years ago.
Last month, the Act on External Audit of Stock Companies was amended after years of debate to include limited companies as subject to external audits. A limited company is similar to a corporation, but has no external disclosure obligations including the disclosure of sales information, operating profit, net profit as well as management information such as dividends, donations and entertainment expenses.
According to the government, the bill amendment was intended to target large companies that established domestic branches in Korea in the form of limited companies, or converted their businesses to limited companies, in order to avoid external audits.
Roughly 10 percent of the 20,000 such limited companies registered in the country have assets surpassing 12 billion won ($10.4 million), the threshold for being subject to audits despite their LLC status.
In Korea, a number of well-known foreign companies including Louis Vuitton Korea, Gucci Korea, Chanel Korea, Prada Korea, Hermes Korea, Pizza Hut Korea, Coca-Cola Korea, Microsoft Korea, Apple Korea, Google Korea, Facebook Korea, Hewlett Packard Korea and Nike Korea all operate domestic branches as limited companies.
In the case of Louis Vuitton Korea, Gucci Korea and Apple Korea, although the companies started off as corporations, they later converted to LLC status, in a move financial experts say could be a way for the companies to avoid being subject to domestic external audits.
Currently, businesses that are subject to external audits in Korea include: listed companies; companies with assets exceeding 12 billion won; those with total liabilities more than 7 billion won and assets exceeding 7 billion won; and companies with more than 300 employees and total assets more than 7 billion won.
By Julie Jackson (email@example.com