Transfer Pricing Reform In Korea

A U.S. NASDAQ listed company requested information concerning a specific transfer price scheme, amongst other issues, in Korea. The company has recently decided to enter the Korean market after having successfully entered the Japanese and other Asian markets. For obvious reasons, I can’t answer the question here, but a brief description of recent amendments to the law may be of interest to those that have considered global transfer price issues. The transfer pricing rules underwent a major change a couple of the years back. In 2006, the Law for the Coordination of International Tax Affairs (LCITA) and a Presidential Enforcement Decree were amended. The Law and Decree were amended in order to codify the “substance over form” rule, encourage investment overseas by Korean companies, improve the application of the “arm’s length principle,” to discourage treaty shopping, and to clarify the numerous ambiguities that have developed, since the enactment of the

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Bank Antipathy To Foreigners

This article appeared in the Korea Times on Feb. 20, 2008. By Sean Hayes President-elect Lee Myung-bak’s plan to make Korea a more hospitable place for foreigners is a welcome development for many of us long-term residents of Korea; however, the plan will fail unless private enterprises follow suit and realize that foreigners play an integral part in the Korean economy. I have been writing legal Q&A column for this and other papers for over five years. I receive more complaints and questions about the banking sector than any other area combined. The complaints are real and the questions are because of the banks seeming incapability of understanding and explaining bank rules and government regulations. Since I came to Korea more than 10 years ago, I have seen little development in the consumer banking sector and my bank, Kookmin Bank, has even deteriorated. Bank employees are ill informed, incapable of

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No American Law Firms in Korea – YET

Posted by:  Sean Hayes (Chair, Korea Practice Group at IPG)[email protected] _____________________ The KOR-EU FTA passed and thus British law firms will be able to setup shop in Korea over a five-year three-stage phase-in period.  All of the leading British firms have begun building relationships with an eye to formal partnerships.  KOR-US FTA, however, has stalled because of opposition of some prominent lawmakers in the liberal parties even though the two FTAs are very similar in scope. The following article is an interesting article on the intention of an American law firm in the Korean market and shows that local firms have nothing to fear and will benefit from these firms’ focus on quality, profitability per attorney and equitable management. Full Disclosure: We have not had a meeting with the firm mentioned in the article. _________IPG is engaged in projects for companies, entrepreneurs and individuals doing business in Bangladesh, Cambodia, China, Korea, Laos,

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Avoid Moral Hazard

Avoid Moral Hazard By Sean HayesAppeared in the Korea Times on January 8, 2008 President-elect Lee Myung-bak, during the campaign, pledged to create a 7 trillion won fund, managed by a presidential body, to assist in alleviating difficulties being felt by credit delinquents. The fund is equal to 5 percent of the ordinary annual budget of 2007. It has been estimated, by the Financial Supervisory Commission, that 3 million individuals are in default on loans and an additional 4 million individuals, because of past defaults, are unable to obtain credit. The fund, in part, will be used to restructure debts and create micro-credit banks. President-elect Lee, according to reports in this and other news sources, may also force companies to delete negative information from credit reports. We hope President-elect Lee won’t fall into this populist trap. He has many bold fiscally sound plans that are needed to lead this country

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Uncaging Korean Tiger

Uncaging Korean Tiger Appeared in the Korea Times on Nov. 28, 2007 By Sean Hayes The Nordic Tiger has been uncaged. Iceland has joined Hong Kong, Russia, Georgia, Macedonia, Slovakia, Ukraine, and a number of other countries, by adopting a flat tax on individuals and also drastically cutting corporate taxes, estate taxes, and capital gains taxes. Iceland has moved from a sleepy nation in the middle of the frigid North Atlantic to one of the world’s richest nations. The drastic cut in taxes has unleashed the Nordic Tiger and now places Iceland 10th in the Economic Freedom of the World’s rankings up from 26th in the 1990s. The move from a “progressive” personal income tax, which penalizes the most productive, to a flat personal income tax, coupled with the drastic cut of the corporate tax rate from 50 percent in the late 1980s to 18 percent today has drastically increased

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REAL ESTATE INVESTMENT COMPANY ACT (old)

REAL ESTATE INVESTMENT COMPANY ACT (Amended as of January 14, 2005)(New Law in effect on Oct, 2007)CHAPTER I GENERAL PROVISIONS Article 1 (Purpose) The purpose of this Act is to contribute to the development of national economy by prescribing the matters concerning the establishment of a real estate investment company, the management methods of assets thereof and the protection of investors therein to provide citizens at large with more opportunities to invest in the real estate as well as to vitalize the sound investment therein. Article 2 (Definitions) The definitions of terms used in this Act shall be as follows: 1.The term “real estate investment company” means any company that is incorporated pursuant to Article 5 mainly for the purpose of investing its assets in real estate and managing invested assets, which falls under each of the following items: (a) The self-managed real estate investment company: The company that has

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Korean Foreign Investment Promotion Act (Enforcement Decree)

ENFORCEMENT DECREE OF THE FOREIGN INVESTMENT PROMOTION ACT INTRODUCTION Details of Enactment and Amendment – Enactment: This Decree was enacted on November 14, 1998, following the enactment of the Foreign Investment Promotion Act, as the Presidential Decree No. 15931, in order to prescribe the matters mandated by the same Act and the matters necessary for the enforcement thereof. – Amendment: This Decree has taken its present form after going through thirteen amendments, including the latest amendment made on March 8, 2005, since its enactment. Main Contents – When a foreign capital invested company purchases a State-owned property, the purchase price may be paid in installments for up to twenty years or the time period for its payment may be extended for up to one year, and for the purchase of a publicly owned property, an installment purchase or an extension of payment period may be allowed pursuant to the municipal

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Korean Foreign Investment Promotion Act

FOREIGN INVESTMENT PROMOTION ACT INTRODUCTION Details of Enactment and Amendment – Enactment: This Act was enacted on September 16, 1998 as Act No. 5559, repealing the previously enforced Foreign Investment and Foreign Capital Inducement Act, in order to widely ease the regulations and restrictions on investment by foreigners and expand the tax incentives therefor, and to reorganize from all sides the systems related with foreign investment such as designation of foreign investment zones. – Amendment: This Act has taken its present form after going through the amendments of 3 occasions (excluding the amendments by other Acts) since its enactment. Those matters concerning tax benefit which were provided in this Act are provided in the Restriction of Special Taxation Act by the amendment (on May 24, 1999) of the Government Organization Act resulting in the alteration of government organization. Main Contents – Any foreigner who intends to make an investment in

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Visa for Investors in Korea (D-8 Visa): KRW 100,000,000 Minimal Investment

In order to ensure that the visa is issued in a timely manner and not turned down (difficult to overturn a determination of immigration without litigation) it is advisable to hire an attorney when applying for a D-8 Investment Visa.  The following was drafted by KOTRA (http://english.kotra.or.kr/wps/portal/dken)___________________________Visa for Business Investors (D-8) The visa can be issued for: Specialists engaged in business management, production or technological sector of an FDI company supported by the Foreigner Investment Promotion Act (not including those recruited in Korea). “Specialists” refers to the following: Executives: Those primarily responsible for the organizational management within a business organization, exercising a wide range of rights in the decision making process, and only generally supervised and directed by the Board of Directors and shareholders as the highest ranking members of the organization (not those directly engaged in the provision of the service). Senior Managers: Those responsible for the establishment and execution of

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Korean Investment Visa for Foreigners

Foreign investor’s visa Question: I am a foreigner and I am thinking of starting a small business in South Korea. Is it possible to get a visa or do I need to be sponsored by a Korean company or partner? Foreign investors are eligible to obtain a D-8 residence visa provided they meet certain criteria. To qualify, an employee of a foreign company or an individual must establish a company in Korea or enter into a joint partnership with a Korean firm and invest over 50 million won in the project. The types of foreign investment generally allowed are foreign direct investment (FDI), portfolio establishment, branch establishment, legal entity establishment, factory establishment, real estate acquisition and investment in infrastructure. However, the kind of business does not matter as long as the company acquires a registration certificate of foreign investment from either a Korean bank or the Korea Trade-Investment Promotion Agency

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Prospects dim for capital market law

The Korea Herald along with many Korean language papers on March 2, 2007 reported that the proposed consolidation of the bank, insurance, and security laws is unlikely to pass because of opposition from banks, some prominent lawmakers, and academics. A plan to consolidate government acts related to banks, insurance and securities firms could hit a snag amid controversy over allowing brokerages to engage in banking transactions for customers. Several lawmakers, academics and banks are opposing the idea, arguing that it would give banking business to securities firms. They say securities firms are currently exempted from banking regulations, such as the restrictions on the ownership of non-financial corporations, reserve requirements and the 8 percent BIS (Bank for International Settlements) capital ratio. Authorizing brokerages to process payments should be dealt with separately from the capital market consolidation act, they insist. Observers say that if the bill fails to pass the National Assembly

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Government Investigating Credit Card Commissions

Donga Ilbo Feb. 23, 2007 There are reports of widespread discontent over the way credit card issuers charge merchants commission fees. South Korea’s financial regulatory body has begun to investigate the issue. “We commissioned the Korea Institute of Finance to find out what costs credit card issuers face. We are going to assess whether each card issuer charges fair commissions to merchants. Then we will propose a standard for card issuers to levy a commission,” said an official from the Financial Supervisory Service (FSS) on February 22. The Ministry of Finance and Economy will use the standard to persuade card issuers to lower excessive commission fees. It remains to be seen if card issuers cut their commission charges in line with the FSS, however. Merchants pay an average of 2.2 percent of total card transactions as commission to non-bank card issuers. That figure rises to 2.37 percent when they pay

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Bill Sought to Limit FDI in Key Sectors

Korea Times Feb. 22, 2007 By Kim Yon-seStaff ReporterA group of lawmakers and policymakers are moving to legislate a law aimed at placing restrictions on foreign investment in some key industries. The move is aimed at blocking takeover attempts in the weapons, energy and steel sectors and other high technology areas that have some comparative advantages.The Ministry of Commerce, Industry and Energy (MOCIE) is reviewing the bill in consideration of national security concerns. Last year, Rep. Lee Sang-kyeong of the governing Uri Party came up with the bill, representing a group of lawmakers from the ruling and opposition parties. Lee stressed the need for legislation modeled after versions in other countries including the U.S. Exon-Florio Act in which foreign direct investment must undergo prior screening by the Committee on Foreign Investment. The purpose of the scrutiny is intended to determine whether a foreign firm’s acquisition of a U.S. firm threatens

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First foreign listing likely delayed to June

Korea Herald Feb. 21, 2007 First foreign listing likely delayed to June The listing of the local stock exchange’s first foreign company will likely be in June at the earliest, the Korea Exchange said yesterday. Huafeng Textile International Group, which is already listed in Hong Kong, filed an application in December for a secondary floatation on Korea’s main bourse. Lee Young-tak, chairman and CEO of Korea Exchange, said in January that he expected the firm to be listed as early as March.“The application is still under review. Any decision will likely be made late next month,” said an official at the KRX. Given that the listing process usually takes two to three months, the much-anticipated debut of a foreign firm on the local stock market is likely in June at the earliest, KRX officials said.Huafeng Textile is a middle-sized fabric processor based in Shishi city in China’s Fujian province, with

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