President Lee Jae-myung said Wednesday that some companies have exploited tax incentives for relocating headquarters to provincial areas by merely changing their registered addresses while reaping the benefits.
"We had a policy of giving tax cuts to companies that move their headquarters to provincial areas, but since it was based on the address concept, there were actual cases where companies just slightly moved their address and received the benefits," Lee said at a town hall meeting at Halla University Convention Center in Jeju.
The remarks are widely interpreted as directed at Kakao (035720.KS) and Nexon, both of which have headquarters registered in Jeju. "I also have a company that comes to mind," Lee said.
NXC, the holding company of Nexon, relocated its headquarters to Jeju and received tax benefits, but has faced criticism that only a handful of employees are actually based there. Kakao similarly has its headquarters in Jeju, but the vast majority of its executives and employees work in Pangyo, near Seoul.
"Our government provides benefits to companies that move to provincial areas," Lee said. "To prevent such policies from being abused, benefits should be granted going forward based on the actual workforce size and the extent to which facilities and equipment have been relocated."
He stressed that "there should be no room for companies to merely go through the formality of relocating headquarters while only enjoying the benefits."
Still, Lee noted that companies should not be blamed for taking advantage of the system. "It's not right to criticize companies that utilized it. They did so because the system was designed in a way that allowed it," he said, pointing to the flawed design of the policy itself.