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South Korea's tax authorities are planning to slap a capital gains tax on U.S. private-equity firms exiting deals in South Korea, reports the Wall Street Journal [9], noting that it is still unclear what form or level any capital gains tax might take if the bilateral tax treaty gets amended.

The newspaper says that Korean officials have been under pressure to introduce the tax as U.S. firms such as Carlyle and Newbridge Capital have made billions of dollars from investments in South Korea without paying any taxes in the country. The Journal says that under the current treaty, South Korea doesn't tax capital gains on investments made by U.S. foreign private-equity firms and vice versa.

Sources told the Journal that while Korea is eager to introduce treaty amendments establishing the capital gains tax, the U.S. is reluctant. If the proposal becomes a law, investments in Korea by all major U.S. financial players would be affected by the new tax. The Journal notes that a capital gains tax could also deter further investment if introduced.
 

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