The move came only weeks after the National Tax Service began investigation in the Texas investment company over whether it failed to pay any capital gains after it sold the high-rise Star Tower building.

In a separate move, the city government will focus on whether the Singaporean investment agency has failed to pay provincial taxes said Kwon Oh-do, director of the city government's tax bureau. The tax probe will be conducted as soon as July with the Gangnam Ward Office, which has a right to collect local taxes, he said.

Officials at the Government of Singapore Investment Corporation (GIC) in Singapore did not reply immediately to questions submitted by the Korea Herald,

Critics have called for local tax authorities to build up a legal framework to promote legitimate foreign investment, which has played a pivotal role in the Asia's third-largest economy.

A recent series of tax probes into foreign investment has only dampened the foreign investment sentiment and provoke an outcry among the foreign community, which claims that Korea is discriminating foreign investment, they said.

The Government of Singapore purchased the Star Tower building in the affluent southern area in Seoul in December for around 950 billion won worth of shares of the company which owns the building from a Texas-based private investment fund.

In a property transaction through stock transfer instead of cash, the acquirer doesn't have to pay local taxes and GIC is estimated to have saved around 43 billion won (US$43 million) local taxes, tax experts say.

In the case of the transaction through stock transfer, if an acquirer has more than a 51 percent stake, it is subject to taxes, according to the local tax regulations.

Two separate subsidiaries of GIC acquired Lone Star's stakes in the building. They had stakes of 50.01 percent and 49.99 percent, the Seoul official said.

Local tax experts doubt whether the city government will able to find any legal ground to ask GIC to pay the deferred taxes.

"Under the current law, you may be able to bring the issue on the alleged tax evasion but it won't be easy to prove that it has failed to abide by any regulations," said a local tax expert who wants to be unnamed for the story. He used to work for Samil Pricewaterhouse Coopers, which has provided legal advice service for GIC.

He said it's imperative for the local tax authorities to find any loopholes in the local tax regulations and prevent any tax evasion in the future. "It's more important to build up a legal framework to support the legitimacy of collecting taxes," he said.

The Seoul city government will ask the central government to revise the law to prevent foreign companies from avoiding paying taxes via stock takeover, Kwon said.

A local news report that foreign companies evade taxes in the real estate transaction via stock swap has prompted the city government to investigate the case. Kwan admitted that it'll be hard to find the evidence of tax evasion as the investment agency has not failed to seek professional legal advice and abide by local regulations, said Kwon.

"It is a difficult task to find irregularities since the GIC did not seem to have evaded tax but avoided paying taxes in a legal boundary," Kwon admitted.

He, however, said the city government cannot just ignore the allegations considering the public antipathy towards the alleged tax evasion by foreign funds.

GIC, the global manager of the city state's foreign reserves, has aggressively expanded into the Korean property market since 1999 by acquiring six high profile office buildings downtown in Seoul.

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