29 July, 2012
Recent Korean tax trends, tax rulings, and permanent establishment conditions include the following:
Recent tax cases
Concerning the transfer of an intangible asset (i.e., a patent) that is registered, used and consumed outside of Korea to a foreign corporation that does not have a permanent establishment (PE) in Korea, the court found that the transaction would not be subject to value added tax (VAT) under Article 1 of the VAT law. The case identifying information is: Buga-437 (17 April 2012)
Concerning the uneven capital increase of a foreign corporation, the court found that the "denial of unfair transaction" rule will be applied in accordance with Article 52 of the corporate income tax law. The case identifying information is: Bubin-267 (13 April 2012)
Concerning an operating lease agreement entered into by an agent on behalf of the lessee, the lessor is to issue an invoice listing the lessee as a service recipient for VAT purposes. The case identifying information is: Bubgyububin2012-98 (17 April 2012)
Permanent establishments
The conditions for Korean permanent establishments (PEs) include:
An ordinary PE exists when a foreign corporation has a fixed place through which it conducts all or part of its domestic business.
A deemed PE exists when a foreign corporation—without any fixed place through which it conducts domestic business—operates its business in Korea through a person authorized to repeatedly enter into contracts on behalf of the foreign corporation or a similar person.
Other tax developments
Korea’s National Tax Service (NTS) on 17 May 2012 began an investigation of illegal private money lenders (i.e., loan sharks). As a result of the investigation, a total tax of KRW 159.7 billion (approximately U.S. $139.4 million) has been assessed from illegal money lenders who were found to have extorted extremely high interest rates (e.g., 360%) from borrowers and used "inhumane approaches" to collect on the loans, including physical violence and threats.
The NTS also implemented a reward system for “exemplary taxpayers” who are now able to obtain loans under favorable terms (e.g., collateral-free, low interest rate loans, etc.) through an agreement with Shinhan Bank. The NTS aims to provide direct support to exemplary taxpayers.
This article was supplied by KPMG.