August 23, 2007 / 7:33 AM / 12 years ago

South Korea tax officials raid Lone Star offices

SEOUL (Reuters) - South Korea’s tax officials raided the offices of U.S. private equity fund Lone Star LS.UL, seizing 11 boxes of documents and copying data related to its recent domestic deals, Lone Star said on Thursday.

A woman walks by the headquarters of Korea Exchange Bank (KEB) in Seoul August 22, 2007. REUTERS/Han Jae-Ho

The National Tax Service is looking into the investment fund’s deals in June totaling $2.3 billion, which include the sale of Kukdong Engineering and Construction and a 13.6 percent stake in Korea Exchange Bank (KEB) 004940.KS.

Twenty-seven officials from the tax agency unexpectedly arrived at Lone Star’s offices in downtown Seoul at 10:30 a.m. (9:30 p.m. EDT) on Wednesday and searched them before leaving around midnight, Lone Star said.

“The National Tax Service raided Lone Star Korea offices on Wednesday, apparently in relation to Lone Star Funds’ recent sales activities,” Lone Star chairman John Grayken said in a statement.

“While we are disappointed by yet another unannounced raid of our offices, we are committed to cooperating fully with their investigation.”

National Tax Service officials could not be immediately reached for comment.

The tax agency raided Lone Star offices in 2005 before imposing more than $200 million in taxes on five foreign funds, including Lone Star, related to their tax-free profits from South Korean transactions.

Lone Star, which has been the most active investment fund in South Korea, has been in lengthy legal and tax battles in the country.

In June, Grayken told Reuters in an interview that there were no South Korean taxes due on its recent deals in South Korea, citing a tax treaty between South Korea and Belgium, where Lone Star’s office for global M&A investments is based.

But South Korea’s tax tribunal ruled last month in favor of the National Tax Service’s decision to impose $110 million in taxes on Lone Star’s 2004 sale of an office building in Seoul. Lone Star said at that time it would appeal the decision.

On Tuesday, the fund confirmed that it has been in exclusive talks with HSBC (HSBA.L) (0005.HK) to sell a 51 percent stake in KEB worth $4.8 billion.

Shares of KEB closed 2.91 percent higher at 14,150 won, compared with the wider market's .KS11 2.3 percent gain.

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