Items	EUCCK's Proposal	Comment
Eligibility of tax exemption for foreign investment through a domestic holding company	In essence, the economic substance of direct foreign investment in a domestic company and indirect investment through a domestic holding company are the same and therefore indirect investment through a holding company should be also eligible for the same tax benefits. Hence, it is recommended that the corporate tax exemption under STTCL also be made available to indirect foreign investment through a domestic holding company.	Since the issue is a policy matter, it should be consulted with the Ministry of Knowledge and Economy or the Ministry of Strategy and Finance.
Scope of entertainment expenses (or business promotion expenses)	It is recommended that a clear definition of the scope of entertainment expenses be provided in relevant laws on the principle of taxation by law. Considering the practices in other developed countries, it is recommended that the scope of entertainment expenses be limited to those expenses incurred for customers purely for recreational purposes (i.e., provision of meals, drinks or other similar entertainment activities for customers).	The issue is a tax policy matter that includes tax law revision. Therefore, the issue should go to the Ministry of Strategy and Finance. Regarding the issue, overseas countries' legislative cases and the influence of possible policy changes on companies have to be taken into consideration and then the decisions should be made from policy perspective.
Withholding tax issues on Korean Source Income Earned by Foreign Investors	In the absence of prior guidance, it is recommended that the Korean tax authorities respect the legal substance of past investment structures. Retroactive enforcement of a new law may seriously undermine the foreign investment climate in Korea and run counter to the government’s financial hub initiatives, which are aimed at inducing more foreign investment by creating investment friendly environment in Korea. Although the Korean tax authorities recently implemented an advance ruling system, NTS has expressed that the determination of beneficial ownership is not a subject they would provide any answer though the new ruling scheme. It is recommended that the Korean tax authorities work towards providing a workable guideline on the concept of beneficial ownership and some mechanical tests that can be applied to the concept of the “substance over form” principle to facilitate the determination of whether or not a foreign investor will be considered as a beneficial owner of income and thus can take advantage of treaty benefits.	The provision of substance over form under the Adjustment of International Taxes Act was not something that was newly created. The provision was something that the NTS performed consistently through the principle of substance over form and wrote into law. The NTS has applied the substance over form rule to tax treaties previously and does not unfairly exclude the rule from applying to tax treaties regarding past transactions. Since tax treaties aim at preventing international double taxation, tax avoidance and tax evasion, each country can deal with activities that are abusing tax treaties by putting proper provisions or principles in its domestic law (§1, 7∼7.1, Commentaries on the OECD Model Tax Convention). Therefore, the rule of substance over form, which is a principle of Korea's domestic tax law, does not conflict with tax treaties (§1, 9.2, Commentaries on the OECD Model Tax Convention). In applying the substance over form rule, beneficial ownership is decided by taking into consideration the substance of a transaction. Therefore, it is not easy, in reality, to come up with clear guidelines. Currently, discussion is underway at the OECD on how to interpret the concept of beneficial ownership and the criteria to decide beneficial ownership. If an international standard is set up, the NTS will review the possibility of adopting it.
Definition of “use” in determining royalty income from Korean sources	When determining the place of use under Corporate Tax Law and current tax treaties, the meaning of ‘use’ is not concrete. It is not clear whether the place of use means the place of production or place of consumption. Therefore we recommend that clear definition of “use within Korea” regarding the royalty income be established to enable the practical application of the treaty benefit.	When an IP is used in the place of production, the place of production is regarded as the place of use, regardless of where the place of consumption for the product is.
Taxation of class B income earned by a non-resident individual	There should be a clear guideline on how to tax the class B income earned by non-resident individuals, if they are actually subject to pay tax in Korea under IITL and any applicable tax treaty. If implementation of a clear guideline is not feasible, the tax law may exclude it from the scope of income subject to pay tax in Korea to eliminate confusion.	Earned income is withheld in advance and subject to global taxation. The Article 124 of the Income Tax Act was revised on Dec. 26, 2008 to allow the provision for residents to apply to the reporting and payment of a non-resident's earned income.
Securities Transaction Tax on Restructuring	For the purpose of encouraging corporate restructuring, some exceptions (though limited) may have to be allowed to exempt STT. Currently under the relevant tax rulings, it is interpreted that the exemption of STT is available to some reorganizations between domestic companies. But it is not clear whether the answer would be the same for internal restructuring among non-resident related parties. So it is recommended that the tax authorities provide a clear guideline on this matter in a way that does not discriminate foreign companies against Korean domestic companies.	An act of leaking any trade secret like any person’s technological information shall be punished by “Unfair Competition Prevention and Trade Secret Protection Act”.
Double taxation of dividends received by a Korean parent from a Korean shareholder	Increase the DRD for registered holding companies from 80% to 95% provided 40% or more of the shares of the underlying are owned (and leave it at 100% when 100% is owned). Increase the DRD for regular Korean companies not qualifying as registered holding companies from 30% to 80% provided 40% or more of the shares of the underlying subsidiaries are owned (and leave it at 100% when 100% is owned). If it is difficult to implement this at first for all Korean parent companies, then add it first as a tax exemption provision under the Tax Incentive Limitation Law for foreign invested companies to encourage foreign companies to establish Korean holding companies and to permanently reinvest profits in Korea. This will decrease the remittance of dividends abroad (helping to encourage long-term investment and decreasing foreign exchange volatility). This will also help to streamline Korea’s taxation of dividends to be more closely aligned with other OECD countries and major trade partners, making Korea more competitive. This will help to encourage the use of Korea as a regional hub or holding company location.	We will consider business effect factors, legislative cases of other countries and other comprehensively, and then make a policy decision. Holding company is permitted the higher DRD, considering the regulations of “the Monopoly Regulation and Fair Trade Act”(shortly Fair Trade Act) and for a reason that dividend income from its subsidiary company is the major income of it. Increasing the DRD will be based on the research of effect on tax revenue and other countries’ cases, and considered with simplification of double taxation adjustment system between corporations, in the mid to long run. Tax reduction or exemption only for foreign investment company‘s DRD is unfair in taxation system.