Samil Commentary Korean Tax Update

Transcription

1 Samil Commentary August 31, 2017 OECD releases Secretary-General Report to G20 Leaders Increased Penalties for Violating the Foreign Exchange Transaction Law MOSF Announces a Plan to Reshuffle its Organization Rulings Update OECD releases Secretary-General Report to G20 Leaders On 5 July 2017, the OECD released its Secretary-General Report to the G20 Leaders ( Report ) which provides the update on the latest developments in the international tax agenda and system. The Report highlights a progress in each relevant area, including the automatic exchange of financial account information and future plans. Provided below is a brief summary of the Report. Recent Move to Implement BEPS Package: In November 2015, G20 including Korea endorsed the 15 elements of the package to address BEPS and have taken steps for the implementation of the BEPS package. In 2016, the OECD established the Inclusive Framework on BEPS including the peer review mechanisms for the four BEPS minimum standards (in the areas of harmful tax practices, tax treaty abuse, CbCR requirements for transfer pricing, and improvements in cross-border tax dispute resolution). The Inclusive Framework has now 100 countries participating in the Framework. Automatic Exchange of Information: G20 and the OECD developed the Standard on Automatic Exchange of Financial Account Information in 2014, reflecting a consensus that the tax transparency is imperative to tackle tax avoidance. The Standard requires all members (with certain exceptions) to commit to its implementation in time to commence such information exchanges in 2017 or A total of 101 jurisdictions have now committed to this time table. They include 50 jurisdictions including Korea which are undertaking first exchanges with 46 jurisdictions in September 2017 and 51 jurisdictions to launch exchanges in 2018.

2 Way Forward: It is likely that the international coordination to prevent tax avoidance will continue to be reinforced at the G20 level. In particular, business operations became feasible without any physical presence and the transactions of digital goods and services are getting more prevalent today. Against this backdrop, the tax issues such as double nontaxation and allocation of taxing rights are gaining a global attention. It is expected that there will be a full-scale discussion on the taxation of the digital economy. Specifically, G20 has a plan to prepare and publish a related report in the first half of Increased Penalties for Violating Foreign Exchange Transaction Law The Customs Service announced that the penalties under the Foreign Exchange Transaction Law (FETL) were scaled up in amount as follows, effective as of July 18, Penalty for the FETL violation will be capped at KRW100. Below is the summary of the increased penalties by each type of the FETL violation: Types of FETL violation Current Before Article 32 Paragraph 1 of the FETL Failure to comply with reporting requirements for foreign exchange (brokerage) business or capital transactions, etc. Article 32 Paragraph 2 of the FETL Violation of payment procedures, failure to perform reporting for import/export of means of payment, etc. Article 32 Paragraph 3 of the FETL Failure to perform the post-reporting of capital transaction, or of false information, etc. Article 32 Paragraph 4 of the FETL Failure to comply with the reporting requirement for the closing of an authorized business or failure to report or submit the required documents, etc. KRW100 KRW50 KRW30 KRW10 KRW50 KRW10 Penalties can be reduced by up to 50% (adjusted from by 20%), to the extent of 75% of the penalty amount, if there are reasons for such reduction as specified under the FETL such as voluntary reporting of non-compliance, small and mid-sized enterprises and other minor mistakes. NA NA The Customs Service stated that the increase in penalties shows the government s attempt to encourage exporters and importers to voluntarily comply with foreign exchange transaction regulations. MOSF Plan to Reshuffle its Organization On 17 August 2017, the Ministry of Strategy and Finance ( MOSF ) released the revised enforcement rules for organizational reshuffling (draft) to get public comments for 5 days Samil PricewaterhouseCoopers Page 2

3 from August 17 to August 21, The planned reshuffling would be the rearrangement of the MOSF organization without an increase in the number of staffs. Below is the summary of the revised rules for the scheduled reorganization: The Bureau of Economic Structural Reform (comprising four divisions) will be created to address the deep-rooted and structural problems of our economy, such as unemployment, bipolarization, low fertility rate, aging society and high living costs (for house and education, etc.). The existing Fiscal Policy Bureau will be expanded and reorganized to the Fiscal Innovation Bureau (comprising six divisions) to drive fiscal reforms vigorously. The existing Future and Social Policy Bureau will be replaced by the Long-term Strategy Bureau (four divisions) to be tasked with setting national visions and formulation of long-term economic policies to promote social economy and so on. The internal operation system will be put in place the knowledge sharing system and IT system for home working, etc., thereby enhancing work efficiency. The Tax Treaties Division will be incorporated into the International Tax Division under the Tax and Customs Office. Rulings Update Whether a nominal trustor of contract is subject to acquisition tax Under the Local Tax Law, a person acquiring certain types of assets (e.g. real estate) should be subject to acquisition tax. Also, even in a case where a person has not duly registered the acquired assets in accordance with relevant laws and regulations, the person should be deemed to acquire such assets under the Local Tax Law if a substantive condition for the acquisition of a title to the assets such as the payment of purchase price is satisfied. The Supreme Court decided that in case where real estate was acquired by the nominal trustees (individuals including the representative director of the trustor company) from the seller of real estate by way of a nominal trust of contract executed with a nominal trustor company and the real estate was registered in the name of the nominal trustees according to relevant laws, the trustor should not be subject to acquisition tax on such real estate since the trustor should not be deemed to actually acquire the real estate even though the trustor paid the purchase price. The grounds for the Court decision include the following: the nominal trustees were considered to execute a sales and purchase contract for the real estate (mostly consisting of farmland which could not be bought by a company) in their own names by directly becoming a party to the contract according to the nominal trust agreement with the trustor company which could not acquire the real estate under laws, and there were no particular circumstances to conclude that the trustee executed such sales and purchase contract with the intention to directly attribute the legal effects of the contract to the trustor company. (Daebeop2012du 28414, ) Whether the deduction rules for company car expenses applies to the cars arranged for a foreign company s employees seconded to Korea Samil PricewaterhouseCoopers Page 3

4 The Ministry of Strategy and Finance ruled that in case where a Korean company assists or arranges that a foreign company s employees seconded to Korea can use cars during their secondment, such cars should not fall under the meaning of company cars (whether owned or leased) according to Article 27-2 (1) of the Corporate Income Tax Law which limits the deductible amount for the company car expenses such as fuel, parking, rental, etc. (MOSF, Corporate Tax Policy Division-879, ) Whether the loan transaction between the Korean companies owned by the same foreign investor is subject to thin capitalization rule Under the Law for Coordination of International Tax Affairs ( LCITA ), generally, the thin capitalization rule should apply when a Korean company has borrowings from an overseas controlling shareholder ( OCS ) that exceed two times its equity (or six times in case of a company engaging in financial industry). However, according to Article 15 of the LCITA, the borrowing by a Korean company from a third party (not OCS) should be treated as direct borrowing from its OCS, thereby subject to the thin capitalization rule if the following requirements are met: i) there has been the prior agreement between the Korean company and its OCS in advance of borrowing from the third party and ii) the Korean company and its OCS have in fact determined the terms and conditions of the borrowing transaction. For the inquiry as to whether the thin capitalization rule should apply to the loan transactions between the domestic companies owned by the same Chinese investor, the National Tax Service ( NTS ) issued the tax ruling stating that the loan transaction should not be subject to the thin capitalization rule under Article 14 of the LCITA as the Korean company making loans does not fall within the OCS of the other Korean company under the LCITA. However, the NTS further stated in the tax ruling that the thin capitalization rule should apply if the borrowing is guaranteed by the OCS of the Korean company executing the borrowing transaction (including payment guarantee by the OCS such as provision of collateral, in substance) or if the requirements under Article 15 of the LCITA are met. (Seomyeon-2016-Kookjeseweon-6057, ) Whether to pay corporate local income tax for job creating tax credit recaptured The Seoul Metropolitan Government issued the tax ruling as to whether a company should file and pay corporate local income tax under the Local Tax Law for the tax year when the company s job creating tax credit claimed for that year is recaptured under the Special Tax Treatment Control Law. Specifically, in case where a company claimed a job creating tax credit in 2013 and later, was subject to the partial recapture of the tax credit in 2015 due to a decrease in the number of full-time employees within two years from the end of the year when the tax credit was claimed, the Government interpreted in its tax ruling that as long as there was no change in the company s corporate local income tax base while the company had to pay additional corporate income tax because of the tax credit recapture without any change in its corporate income tax base, the company should not be subject to file and pay corporate local income tax (Seoulseje-10028, ) Samil PricewaterhouseCoopers Page 4

5 For more information, please contact: International Tax Services Alex Joong-Hyun Lee Domestic Tax Services Jung-Il Joo Sun-Heung Jung Financial Tax Services In-Hee Yoon Sang-Do Lee Yeon-Gwan Oh Youngsuk Noh Taejin Park Sang-Woon Kim Young-Sin Lee Hye-Won Choe Hoon Jung Michael Kim Dong-bok Lee Chong-Man Chung Hyun-Chang Shin Chang-ho Jo Il-Kyu Cha Nam-Gyo Oh Young-Ok Kim Chul-Jin Hwang Jin-Ho Kim Min-Soo Jung Chan-Woo Chung Bok-Suk Jung Hyungsuk Nam Dong-Jin Nam Seungdo Na Sung-Wook Cho Transfer Pricing & International Trade Heui-Tae Lee Henry An Won-Yeob Chon Junghwan Cho Global Mobility Services (GMS) Younsung Chung Corporate Administrative Services (CAS) Jina Park Inheritance & Gift Tax Services Hyun-Jong Lee Nonprofit Corporation Service Center YoungSun Pyun Small and Midsize Enterprise and Startups Service Center Bong-Kyoon Kim Knowledge & Innovation Han-Chul Cho Samil Infomine/ Samil Academy Sang-Keun Song Mirah Kang Samil Tax Corp. Nam-Bok Jo PwC Customs Service Sang-Tae Moon Stay current and connected. Our monthly newsletters and ad hoc alerts keep you updated on Korean tax laws as well as significant business regulatory developments. Please send an if you like to subscribe or want to add someone to the mailing list to: The information contained in this publication is for general guidance on matters of interest only and is not meant to be comprehensive. The application and impact of laws can vary widely based on the particular facts involved. For more information, please contact your usual Samil PwC client service team or professionals listed above. C 2017 Samil PricewaterhouseCoopers. All rights reserved. Samil PricewaterhouseCoopers Page 5