Korea’s tax authorities said they would reduce the frequency and scope of tax audits on foreign companies doing business here in a bid to attract more long-term investment.

“Korea’s economic success has been greatly helped by the participation of foreign companies. We need to get rid of all uncertainties in tax probes to help create a business-friendly environment,” National Tax Service deputy commissioner Kim Moon-soo told a meeting of foreign company chiefs Wednesday.

Explaining the change, NTS noted the long history of good practice foreign companies have shown with tax duties.

“The frequency in which we randomly select companies to probe their tax filings has been about the same for local and foreign companies,” said Jeong Kyung-seok, head of department overseeing tax revenue from foreign businesses.

“But we decided to make fewer random visits on foreign companies because they have been honest taxpayers as a group,” Jeong said. The agency said the frequency of the probe will be “greatly” reduced without specifying further details.

The tax agency will also fully support companies applying to adopt Advance Pricing Agreements, a tax dispute mechanism for those that have transactions across jurisdictions.

The system provides certainty to taxpayers by eliminating double taxation. Kim also said the agency will reward businesses that fully carry out their tax duties.

“Foreign companies weren’t rewarded as much as local ones for their honest practices. We will fix that and show more of our appreciation,” Kim said. The gathering, held at Seoul’s Koreana Hotel, took place as companies whose fiscal year ends in December are readying to file corporate tax returns by the end of March.

The meeting, hosted by the NTS, is also aimed at resolving tension with foreign firms following its recent investigation of the European Union Chamber of Commerce in Korea, according to an NTS official.

The Namdaemun branch of the tax authority launched an investigation into the foreign chamber over allegations of tax evasion on alleged profits made through advertisements in their magazine circulated mainly in the expat community.

“We continue to promote our intention to build a transparent tax auditing process. We understand how important that is as a foreign firm making investments here and we wanted to get that message across,” said Kang Dong-hoon, a director at international taxation department.

The probe was to ascertain whether EUCCK made any taxable income from collecting advertising fees for the monthly magazine it publishes. EUCCK has a systemic fee structure for member companies wishing to be featured in the magazine, which could have been subject to heavy taxes as a not-for-profit organization.

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