TAX NEWS - JUNE 2010

Korea Tax: Need for bank tax hinted

by Jung Ha-won, 02 June 2010 -- Yoon Jeung-hyun, the Korean finance minister, hinted yesterday that Seoul might favor the imposition of a global bank levy in the first sign that the government might be abandoning its neutral stance on the contentious issue.

Korean government agencies "are all debating the issue .?.?. though we have not reached a firm conclusion yet," said Yoon. "But I won't deny that we also feel a considerable need [for the bank levy]."

He made the remarks at a press briefing outlining agenda for the meeting of G-20 finance ministers in Busan on June 4 and 5.

Korean government officials have long shied away from publicly expressing their stance on the issue of a bank levy, which is supported by the U.S. and U.K. but opposed by Canada, Australia and some emerging countries.

"We're thoroughly preparing to take a leading position in the debates," said Yoon referring to the fact that Korea will chair the meeting.

The bank levy and possible ways to control cross-border capital flows are likely to head the agenda at this weekend's meeting, he said.

The idea of a tax on banking transactions, aimed to raise a fund to cover future bailouts and ward off another future banking crisis, gained currency after U.S. President Barack Obama first suggested the idea in January. Though details on how and on what operations the levy will be charged largely remain up in the air, countries have been sharply divided on the issue.

The U.S. and Britain, whose financial companies were at the center of the banking crisis, are the most vocal advocates, while opposing countries say their financial institutions were not responsible for the financial crisis and should not pay the tax.

Seoul officials have remained conspicuously reticent, saying their position as the host of G-20 Summit in November makes it hard for them to publicly take a side on the potentially contentious issue.

Yoon said the G-20 policy makers in Busan will likely reach a consensus on reforming international credit raters criticized for misjudging the risks of debt instruments at the core of 2008-09 financial crisis due to conflicts of interest with those issuing the debt.

"Some even go so far as to suggest a need to establish a brand new credit ratings agency free from conflicts of interests, but the discussion will unlikely go that far," Yoon said.

"There will be a consensus that these [credit rating] agencies should operate based on objective and fair criteria and any conflicts of interests should be removed."

Yoon also said the euro zone debt woes could delay "exit strategies" in some nations.