Korean Investment in Tax Havens Since 2000

The attempt by corporations and individuals to evade tax imposition by moving wealth and capital to tax havens has long been a problem for governments and national economies. Tax haven investment for the purpose of tax evasion has been criticized in that it causes distortions in the distribution of wealth, increasing disparities between the rich and the poor. In addition, the capital stock sheltering in tax havens does not contribute to productivity of the economy. Therefore, governments and international organizations have made efforts to monitor and restrict the flow of capital into tax havens. The OECD began conducting research on tax havens as early as the mid-1980s, and the EU is currently strengthening regulation on capital flows into tax havens. Outside officialdom, non-government organizations part of the tax justice movement are doing their own research and urging governments to take bolder action. However, these attempts thus far have not been successful and the volume of capital stock in tax havens has consistently grown and Korea is no exception to this trend. As capital flows into tax havens have increased, it has become necessary to grasp the reality of capital flight to tax havens in a comprehensive manner. Yet there is no extant research on the Korean case, although the government has occasionally performed spot investigations. In this article, I want to describe the macroeconomic characteristics of capital flight into tax havens that takes the form of overseas investment by Korean firms and individuals using data on outward direct investment. In doing so, I want to help illuminate the potential problem of tax evasion risk in Korea that assumes the form of overseas investment