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Korean Tax Newsletter (June, 2009)

Revisions to the Tax Laws

Presidential Decree (“PD”) of the Corporate Income Tax Law (“CITL”)

Tax exemption for foreign companies on interest income and capital gains from national bonds and monetary stabilization bonds

As reported in our May newsletter, foreign companies may be eligible for a tax exemption on interest income and capital gains from national bonds and monetary stabilization bonds by submitting an application for the exemption. According to 8 June 2009 revisions to the PD of the CITL, in principle, a foreign company receiving such income should submit an application to the payor company. The payor in turn should file the application with the tax authorities by the ninth day of the month following the date the income is paid to the foreign company, along with the tax residence certificate issued by the competent authority of the country where the recipient is resident.

Development from the Tax Authorities

Withholding tax on interest received by financial companies

Under current law, Interest on bonds, etc. received by a financial company is exempt from withholding tax. However, according to published information, the Ministry of Strategy and Finance and the National Assembly reportedly intend to abolish the exemption. If the plan comes to fruition, interest income of a financial company from bonds/securities issued by governments, domestic companies and foreign companies, certificates of deposit, beneficiary certificates of investment trusts, notes, etc. would be subject to withholding tax as from 2010.

Report of business close-down

Currently, taxpayers or their agents are required to report the closing, suspension, etc. of a business by physically going to the office of the tax authorities. However, on 26 June 2009, the National Tax Service announced that the closing of a business, etc. may be reported electronically on the Korean government’s “Hometax” site (www.hometax.go.kr), instead of going to the tax office. In this case, taxpayers should submit relevant supporting documents, such as the original copy of the certificate of business registration, to the tax office via courier. The new rules apply as from 26 June 2009.

Recent Tax Rulings and Cases

Valuation of shares in unlisted company (Jaesan-251, 2009.01.21)

In calculating the value of shares of an unlisted company under the formula provided in the Inheritance and Gift Tax Law, the currency swap assets/liabilities held by the unlisted company should be included in the net asset value where the unlisted company holds a currency swap contract for hedging foreign exchange risks in relation to which valuation gains/losses are not recognized for corporate income tax purposes.

Income tax deduction for Special Purpose Vehicles (SPVs) in liquidation (Jaebeobin-258, 2009.03.17)

Where a corporate restructuring real estate investment company, which is an SPV under Article 51-2 of the CITL, disposes of its real property during a liquidation procedure, any capital gains from the disposal of the real estate would not constitute taxable income of the fiscal year, but instead would constitute liquidation income. Further, if the company distributes all of its income (including income from the disposition of the real property in the process of liquidation) by distributing residual assets, the distribution amount would be deducted from the liquidation income or taxable income of the fiscal year.

If you have any questions concerning the items in this month’s newsletter, please contact your tax advisor at Deloitte Anjin LLC or the following tax professionals:

Seung Chan Park
+82 (2) 6676-2422
separk@deloitte.com
Young Pil Kim
+82 (2) 6676-2432
youngpkim@deloitte.com
Seong Ran Hong
+82 (2) 6676-2442
sehong@deloitte.com

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