(2nd LD) S. Korean firms at joint park fail to meet North's accounting deadline

(ATTN: CLARIFIES tax exemption; ADDS Seoul's insurance raise)
By Kim Hyun
SEOUL, May 22 (Yonhap) -- Scores of South Korean firms operating at an industrial
complex in North Korea failed to submit their yearly accounting reports to the
North by the March deadline due to procedural restrictions, officials said
Friday.
North Korea requires South Korean businesses operating at the joint complex in
its border town of Kaesong to report their annual business performances.
"North Korea has been telling the (South Korean) management office in Kaesong to
submit the books quickly," Unification Ministry spokeswoman Lee Jong-joo said.
According to North Korea's Code of the Act and Regulations for the Kaesong
Industrial Zone, South Korean firms that have invested more than US$1 million in
the joint park or whose yearly sales revenue has surpassed $3 million have to
submit their accounting reports to North Korea by the end of March.
Among the 106 firms operating at the park, 62 fall under the requirement, and so
far about a third of them have presented their audit reports to the North, Lee
said.
Officials explained there are technical difficulties in meeting the deadline.
Only two South Korean auditors -- currently Deloitte Anjin LLC and Fine
Management & Accounting Corp. -- can cross the border for the audit inspection
according to the North Korean law, which was implemented at the outset of the
park's development in 2002.
Such a delay in reporting has been a regular annual occurrence, ministry
officials and businesses said.
The audit process was further delayed this year as North Korea banned border
traffic three times in March in protest to South Korea's military exercise with
the United States, they said.
Those who fail to present their audit results are subject to a $10,000 fine, and
those who file a falsified report can be fined up to $5,000. No firms have faced
such charges yet.
There has been speculation that North Korea suspects accounting manipulation by
South Korean firms to delay paying taxes. The businesses investing in Kaesong are
currently tax-exempt in North Korea, though their immunity expires five years
after they break even. The joint park opened in 2004.
"North Korea may suspect that the companies are hiding their revenue," said Lee
Im-dong, a director at the Kaesong Industrial Council that represents businesses
investing in the zone. "But we receive the audit inspection and have nothing to
hide."
Officials say the two Koreas may consider increasing the number of commissioned
South Korean auditors to meet the deadline when government-level talks are held.
The two Koreas have been trying to set up official talks, but discussions broke
down due to an agenda difference.
South Korea calls on the North to release its fellow countryman who was detained
at the Kaesong park in March on charges of criticizing the North's political
system.
North Korea refuses to discuss the detained worker, saying official talks should
deal with operational issues, such as wages and land fees.
Amid the deadlock, Pyongyang sent a letter to Seoul last week, saying it has
scrapped all inter-Korean accords on the joint park and would unilaterally set
new terms.
The North Korean announcement prompted conservative calls in Seoul for the
government to consider a pullout from the complex.
Seoul plans to increase its insurance plan to 7 billion won ($5.6 million) from
the current 5 billion won to cover compensations for the firms' losses in case
the complex is closed.
The government and the firms have invested $26.86 million to develop the park,
according to the ministry.
The Kaesong complex, just an hour's drive from Seoul, is the last surviving
reconciliatory project between the two Koreas, with other ventures -- tourism
programs to the North's attractions -- all suspended last year due to unraveling
political relations.
More than 40,000 North Koreans work at Kaesong for the South Korean firms
producing clothes, utensils, electronic equipment and other labor-intensive
goods. Their output reached $250 million last year.
hkim@yna.co.kr
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