Audit agency to probe into interest on U.S. burden-sharing account

It has been confirmed Wednesday that during the recently agreed South Korea-U.S. negotiations on defense cost sharing, the U.S. admitted for the first time that the bank account that the U.S. had accumulated defense expenses incurred interests. South Korea`s National Tax Service started legal examinations on the matter to impose tax on interest income.

Multiple government sources said, "Issues have been raised several times on the interests of unexecuted defense costs shared by Korea and the U.S. But the U.S. had denied the existence of interests saying the unexecuted expenses were in a bank account that incurs zero interest. This is the first time it admitted it." The sources added, "During the ninth meeting on Special Measures Agreement, the U.S. admitted that it had deposited the unexecuted expenses at a bank and interest income occurred during this process."

After depositing the defense money received from the Korean government at the Community Bank within the U.S. Armed Forces, U.S. military re-deposited them at commercial banks including the Seoul branch of the Bank of America. Interests occurred while operating this re-deposited money. A National Tax Service source said, "According to the Korea-U.S. tax treaty Article 13, Clause 3, interest income paid to the U.S. government should exempt income tax, but interest income incurred through unexecuted expenses the Community Bank re-deposited at the Bank of America may not be eligible." "We are consulting the Defense and Foreign Affairs ministries for taxation." Unexecuted expenses reached 710 billion won (655 million U.S. dollars) as of August last year. An annual 17.8 billion won (16.68 billion dollars) in interest is incurred even by applying the call rate (2.5 percent), which is the shortest term interest rate. If 12 percent in income tax is applied, annual tax reaches 2.1 billion won (196 million dollars).