 |
Ladies and Gentlemen,
Over the past several years,
the Korean Government has made
significant efforts to improve
Korea's tax environment from
the perspective of foreign investors.
Three particularly noteworthy
improvements include:
(i) the reduction of individual
income tax burden for the expatriates
working in Korea;
(ii) reduction of corporation
income tax rates; and
(iii) expansion of tax incentives
for foreign investors.
While these developments certainly
represent a step in the right
direction, the Committee views
that there are several additional
areas where the Korean government
can make significant improvements.
These include:
(i) fostering a tax environment
that is more conducive to the
international competitiveness
of the Korean companies including
foreign invested companies operating
in Korea;
(ii) increasing the transparency
and consistency of the tax rules
and their enforcement; and
(iii) reasonableness in regulation
of transfer prices charged in
intercompany transactions.
First, for improvement of the
international competitiveness
of the companies operating in
Korea that includes not only
the Korean companies but also
the foreign invested companies,
the Committee recommends (i)
introduction of the consolidated
tax return system so as to alleviate
and rationalize tax cost of
business enterprises, (ii) expansion
of the current 5 year carryover
of net operating loss to 10
or more years to eliminate taxation
on nonexistent income and (iii)
further improvement and expansion
of the current tax free corporate
reorganization rules to allow
companies to freely transform
their business structures to
effectively compete.
Second, to secure transparency
and certainty in tax matters
from the perspective of the
entrepreneurs, the Committee
recommends more proactive implementation
of the current Advance Pricing
Approval (APA) system by the
National Tax Service (NTS).
Specific recommendations to
improve the APA program include
(i) expeditious review and approval
within twelve months of the
unilateral APA's by the NTS,
(ii) providing taxpayers with
the option to freely choose
between the transfer pricing
audit or APA and (iii) ability
to rollback the results of a
unilateral APA to past open
years. Enforcement of the suggested
expansion and expeditious administration
of the APA system by the Korean
government in this utmost important
area of transfer pricing would
significantly increase the satisfaction
and respect of the foreign investor
community in the Korean tax
system because it will significantly
improve the ability of taxpayers
to predict future tax obligations.
By expanding and increasing
the efficiency of the APA program,
the Korean government would
significantly improve its service
to taxpayers without sacrificing
any of its tax revenue.
Also, it is suggested that the
NTS further strengthen its current
efforts to minimize the gap
between tax legislation and
actual enforcement of legislation.
The Committee frequently receives
complaints from the member companies
which are under tax audit regarding
the disruptive nature of tax
audits and the perceived lack
of regulatory basis underlying
proposed tax assessments. Much
of these, the Committee believes,
would be alleviated through
efforts of increased communication
between the tax authority and
the taxpayers.
Third, transfer pricing has
become the most significant
tax issue affecting companies
engaging in transactions with
affiliates. The Committee is
concerned that the current enforcement
is made in a highly incoherent
manner through the inconsistent
application of rules on the
same set of intercompany transactions.
The current Korean tax laws
will apply inconsistent different
set of rules to intercompany
transactions depending on whether
they are domestic or crossborder,
regardless of the actual nature
of the transaction (i.e. Article
4 of the International Tax Coordination
Law, Article 52 of the Corporation
Tax Law and Articles 24, 26
and 27 of the same Law). Also,
while correlative adjustments
are permitted on transfer pricing
adjustment made on crossborder
transactions, they are not allowed
on domestic intercompany transactions,
which results in unfair double
taxation on the same income.
Such inconsistent legislation
and enforcement of the tax rules
undermines the Korean government's
efforts to foster a business
friendly tax environment.
In conclusion, it is recommended
by the Committee that the Korea
Government continue and further
strengthen its efforts to increase
business friendly tax environment
through afore-mentioned measures
to increase international competitiveness,
transparency, predictability
and reasonableness of its tax
system.
Thank you. |
|
Back
