[Yonhap news, Nov. 22] Lone Star files ISD arbitration claim against Seoul government

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http://english.yonhapnews.co.kr/national/2012/11/22/61/0302000000AEN20121122009700315F.HTML

Lone Star files ISD arbitration claim against Seoul government

SEOUL, Nov. 22 (Yonhap) -- Lone Star Funds has filed investor state dispute (ISD) arbitration claims against the South Korean government for losses related to its investment in Korea Exchange Bank (KEB), according to multiple local government sources on Thursday, the latest move by the U.S. private-equity firm in a decade-long tax dispute.

  It marks the first time that the Seoul government will go through arbitration trials under the ISD mechanism to resolve the tax issue. The ISD mechanism allows a foreign investor to request international arbitration against a government that has caused them to lose money by violating international investment treaty obligations.

   The Dallas-based private-equity firm submitted an arbitration application with the International Center for Settlement of Investment Disputes based in Washington D.C. on Wednesday (U.S. EST), sources said. The firm argued that the South Korean government had violated the South Korea-Belgium/Luxembourg Bilateral Investment Treaty.

   In January, Lone Star sold its 51 percent stake in KEB, the No. 5 lender in South Korea, to Hana Financial Group Inc. for about 4 trillion won (US$3.5 billion). The National Tax Service (NTS) imposed a 10 percent withholding tax on the proceeds from the sale, or 391.5 billion won.

   The U.S. private equity company, however, filed a complaint in May, arguing that the tax should be exempted since the actual seller of KEB was its subsidiary based in Belgium, with which South Korea has a double-taxation avoidance deal. Belgium exempts taxes on income from overseas equity investments.

   Lone Star argued that it was arbitrary and contradictory for Seoul's tax authorities to levy capital gains taxes on the sales of its investments, they said. The firm also insisted that further consultation is necessary with the South Korean government.

   The Seoul government, meanwhile, said that it has dealt with Lone Star-related affairs in accordance with domestic and international laws, vowing to raise questions about the unreasonableness of Lone Star's claims. It also said it has already set up task force teams to prepare for the ISD arbitration trials.

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See also

http://www.koreatimes.co.kr/www/news/biz/2012/11/488_125322.html

Lone Star seeks international arbitration

By Kim Jae-won

2012-11-22 20:22