Tax treaty threat to trade talks

South Korea’s attempts to revise double taxation treaties with three European countries are creating uncertainty for investors in Asia’s third-largest economy ahead of trade talks next week, according to European Union officials.

Seoul and Brussels will start negotiations on Monday on a trade agreement that EU officials say could double or even triple the bloc’s investment in Korea and give European companies a stepping stone to the wider Asian market.

Bilateral trade totals more than $70bn (€52bn, £35bn) a year, about the same as trade between the US and South Korea. Washington and Seoul last month forged a wide-ranging free trade agreement that Brussels is keen to match.

The EU is the biggest single investor in South Korea, with foreign direct investment inflows of €3.9bn ($5.3bn, £2.7bn) last year, taking its total investment stock in South Korea to €32bn, according to Korea’s commerce ministry. But the talks come amid renewed concern about tax arrangements between Korea and three EU member states – Belgium, Ireland and the Netherlands.

Seoul, concerned that “treaty shoppers” are abusing its double taxation treaties with the three, has been seeking to revise the agreements and impose tax on Korea-sourced income derived by foreign investors through tax shelters.

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