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Multinationals To Suffer As A Result Of Korean Tax Rulings

by Robert Lee, Tax-News.com, London

12 December 2001


Recent reports have indicated that foreign companies are likely to suffer a double blow as a result of recent Korean tax rulings on permanent establishments and transfer pricing.

Under amended Korean corporate tax laws, multinational companies which establish a subsidiary operation in the country may now face the classification of the Korean entity as a dependent agent permanent establishment, which would result in any operating income being taxed under the country's corporation tax rules.

According to the Korean National Tax Service, a subsidiary based in the country will be deemed a permanent establishment if it gathers investment information which is essential to the parent organisation's decision making. However, according to tax experts, this approach is unusual, and may draw resistance from the countries with which Korea has established tax treaties.

Additionally, as a result of a Ministry of Finance and Economy ruling which has given the Tax Service the power to utilise a broader definition of 'related parties' when making transfer pricing adjustments, more multinational companies may now find themselves caught in Korea's tax net.

'Until now, enforcement has been a little lax because of inaequate resources but things are starting to change,' explained Don Yang, partner with the Seoul branch of international consultancy firm Deloitte and Touche.


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