Tax haven blacklist.
EU slammed for going too far in including Korea
The European Union's first-ever blacklist of 17 tax havens is seen as its efforts to crack down on international tax avoidance and evasion. It is a step in the right direction to establish a global system for fair taxation.
Despite the right reasons for the action, the EU's inclusion of South Korea on the blacklist has raised questions about its fairness and objectivity. The EU cited Korea's "harmful preferential tax regimes" as one of the reasons it named the country a tax haven.
The "problematic" tax regimes, however, are none other than tax benefits for foreign businesses in free economic and foreign investment zones. The EU apparently regards such benefits as an unfair preferential tax regime. But this kind of tax support is widely accepted in many countries, both developed and developing ones.
The EU also cited that the blacklisted countries have refused to commit to tax transparency and information exchanges with other countries. But this is not the case with Korea, considering that the country has made concerted efforts to improve transparency and set up an extensive information sharing system through a series of agreements with other nations.
The government expressed its deep regret over the blacklist immediately after the EU revealed it Tuesday. The country warned that the EU action runs the risk of violating Korea's taxation sovereignty. It also criticized the EU for not following international standards in its screening of the tax havens. Many Koreans think the EU went too far in the selection process.
It is natural for Korea to question the legitimacy of the EU blacklist as it lacked fairness and objectivity in many respects. As Oxfam, an international nongovernmental organization (NGO), pointed out, the EU did not include some notorious tax havens such as the Cayman Islands, Bermuda and Jersey. And 47 countries avoided the blacklist by just promising to improve their transparency, revise tax rules and promote information sharing.
Seoul officials noted that it was absurd to juxtapose Korea with infamous tax havens such as Barbados, Macao, the Marshall Islands and Samoa. In fact, Korea is one of the G20 economies and the world's eighth-largest trading nation. Besides, the country has been considered a victim of tax havens, not a tax haven itself.
The problem with Korea might have been that it has not properly dealt with the EU move to blacklist tax havens. The government and its officials should acknowledge their failure in trade diplomacy to publicize the country's efforts to enhance tax transparency and information sharing.
It is high time for Korea to double down on its efforts to boost its credibility and trust which could be damaged by the EU blacklist. Without such efforts Korea will never be able to cope with the mounting challenges arising from trade protectionism, the ongoing renegotiations of the Korea-U.S. trade agreement, and Chinese economic retaliation over the deployment of a U.S. anti-missile system here.