South Korean tax authorities are investigating the Korean affiliate of Chinese telecom-supplier Huawei Technologies Co. on tax evasion allegation, according to sources on Monday.

The National Tax Service (NTS) Seoul Regional Office launched tax probes last week by sending international transaction investigators whose main job is to find a case of overseas tax evasion, said sources from the information technology (IT) industry. The NTS declined to confirm the details of its investigations, but according to sources, the probe is focusing on whether the company has manipulated a transfer price to reduce its corporate tax payment.

A transfer price is a price of goods or services that are internally transacted among different divisions or country entities of a multinational firm. Tax authorities often scrutinize whether different divisions use transfer pricing for tax avoidance. For example, a country division could sell goods and services to its overseas headquarters cheaper than ordinary prices, and buy high from the headquarters in order to give more profit to the headquarters.

Huawei is the third largest manufacturer of smartphones in the world, with an 8.3 percent share behind Samsung’s 23.2 percent and Apple’s 14.8 percent in the first quarter of this year. The company’s revenue reached $60.8 billion with a net profit of $5.7 billion last year.

Huawei’s Korean affiliate has about 150 employees and provides network services to Korean wireless telecom companies.

The tax investigations come after prosecutors’ raid into Huawei upon Ericsson LG’s accusation that a Huawei Korea executive leaked confidential wireless telecom technology.

In July, the U.S. Department of Commerce also ordered Huawei to turn over up to five years worth of records about its shipment to North Korea as part of an investigation into whether its business violated U.S. export laws. Governments in the U.S., Canada, Australia and India blocked the import of network equipment from Huawei.

There are rumors circulating that Huawei is closely related with Chinese military forces because the company was founded by Ren Zhengfei, a former engineer in the People`s Liberation Army.

By Lee Sang-duk

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