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Korea: Still only half in love with foreign investment

Korea’s love-hate relationship with foreign capital continues. In October, the government announced that it would be seeking tax payments totalling $210 million from five foreign private-equity investment firms that relate to profits earned from investments in Korean businesses.

The payments are being sought despite the fact that the foreign firms, which include Carlyle and Lonestar, employed deal structures in jurisdictions with double-taxation treatments with Korea. What most foreign investment firms would regard as legitimate taxation mitigation techniques are being regarded increasingly in Korea as tax evasion. The issue is especially emotive because of the public outcry over the huge non-taxed profits earned by Newbridge Capital on its sale of Korea First Bank and Carlyle on its sale of Koram Bank.

Investors might face another brush with the authorities soon: Lonestar’s controlling interest in Korea Exchange Bank expires at the end of October. Competition is likely to be intense for control of one of the country’s few remaining significant banking assets and Lonestar stands to earn a significant profit on its original investment.

Although some investors have been incurring the wrath of Korean authorities for selling Korean assets, Goldman Sachs’s private-equity arm announced in October a $550 million investment in Korean lender Hana Bank.

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