South Korea: Korea Signs Multilateral Convention To Implement Tax Treaty Related Measures To Prevent BEPS

Last Updated: 26 June 2017
Article by Kyung Geun Lee, John Dryden and Sun Young Lee

On June 7, 2017, Korea signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting ("Multilateral Instrument" or "MLI") at a signing ceremony hosted by the OECD in Paris.

The purpose of the MLI is to enable jurisdictions to swiftly modify their bilateral tax treaties to implement measures under the BEPS Project endorsed by G20 Summit held in November 2015. A total of 68 jurisdictions (including 33 OECD members, China, and India) signed the MLI. However, the United States did not participate in the signing. A particular bilateral tax treaty will only be amended by the MLI where both parties are signatories to the MLI and have made a notification that the MLI applies to the treaty. Tax treaties between MLI signatories will be automatically updated without separate bilateral negotiations.

Among Korea's 91 tax treaties, 45 tax treaties1 will be affected by the MLI. The main content of the MLI and the MLI provisions adopted by Korea is as follows.

I Main Content of MLI and MLI Provisions Adopted by Korea

Articles 1 and 2 of the MLI prescribe the scope of application, and Articles 3 to 26 prescribe the content of the BEPS Project to be reflected in tax treaties covered by the MLI. Korea has adopted only the following minimum standards under the BEPS Project: "Purpose of a Covered Tax Agreement" (Article 6); "Prevention of Treaty Abuse" (Article 7); "Mutual Agreement Procedure" (Article 16); and "Corresponding Adjustments" (Article 17).

Minimum Standards under the BEPS Project

Content of MLI Provisions

Article 6 Purpose of A Covered Tax Agreement

  • A Covered Tax Agreement shall be modified to include the following preamble text:
    • "Intending to eliminate double taxation with respect to the taxes covered by this agreement without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance"

Article 7 Prevention of Treaty Abuse

  • A benefit under the Covered Tax Agreement shall not be granted if obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit

Article 16 Mutual Agreement Procedure

① (i) Where a person considers that the actions of one or both of the Contracting Jurisdictions result or will result for that person in taxation not in accordance with the provisions of the Covered Tax Agreement, that person may present the case to the competent authority of either Contracting Jurisdiction

(ii) The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Covered Tax Agreement

② (i) The competent authority shall endeavor, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting Jurisdiction

(ii) Any agreement reached shall be implemented notwithstanding any time limits in the domestic law of the Contracting Jurisdictions

③ (i) The competent authorities of the Contracting Jurisdictions shall endeavor to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Covered Tax Agreement

(ii) They may also consult together for the elimination of double taxation in cases not provided for in the Covered Tax Agreement

Article 17 Corresponding Adjustments*

  • Where a Contracting Jurisdiction includes in the profits of an enterprise of that Contracting Jurisdiction – and taxes accordingly - profits on which an enterprise of the other Contracting Jurisdiction has been charged to tax in that other Contracting Jurisdiction and the profits so included are profits which have accrued to the enterprise of the first-mentioned Contracting Jurisdiction if the conditions made between the two enterprises had been those which have been made between independent enterprises, then that other Contracting Jurisdiction shall make an appropriate adjustment to the amount of the tax charged therein on those profits

Article 17 is a best practice (corresponding adjustment by tax treaty) which is one of the means to implement the minimum standards (each jurisdiction is required to implement a corresponding adjustment by domestic law or tax treaty).

Accordingly, once the MLI comes into effect for Korea's tax treaties, a tax treaty benefit will be denied where one of the principal purposes of an arrangement or transaction is to obtain the benefit. Also, where a taxpayer encounters taxation which is not in accordance with the intended application of the tax treaty provisions, the taxpayer can present the case to the competent authority of each jurisdiction.

When signing the MLI, Korea has adopted only the minimum standards mandatorily required to be implemented, and if necessary, will consider the possible application of the other BEPS measures contained in the MLI that are not minimum standards. The other MLI provisions are as follows.

  •  (Article 3) Transparent Entities
  •  (Article 4) Dual Resident Entities
  •  (Article 5) Application of Methods for Elimination of Double Taxation
  •  (Article 8) Dividend Transfer Transactions
  •  (Article 9) Capital Gains from Alienation of Shares or Interests of Entities Deriving Their Value Principally from Immovable Property
  •  (Article 10) Anti-abuse Rule for Permanent Establishments Situated in Third Jurisdictions
  •  (Article 11) Application of Tax Agreements to Restrict a Party's Right to Tax Its Own Residents
  •  (Articles 12 to 15) Artificial Avoidance of Permanent Establishment Status
  •  (Articles 18 to 26) Mandatory Binding Arbitration

II. Domestic Procedures

Korea will ratify the MLI in accordance with its domestic procedures. The MLI will enter into force three months after five jurisdictions have deposited their instrument of ratification with the OECD. Each of Korea's 45 tax treaties, which will be modified by the MLI, will take effect three months after both Korea and its bilateral treaty partner have deposited their instrument of ratification to the OECD.

III. Responsive Measures

With the signing of the MLI by a large number of jurisdictions, tax issues for companies carrying out cross-border transactions have become more complicated and difficult, because the relevant tax law, the applicable bilateral tax treaty, and the MLI should be comprehensively reviewed. Accordingly, before carrying out cross-border transactions or making international investments, it is recommended that companies accurately examine tax issues with the help of international tax experts, thereby reducing unexpected risks.

Footnotes

1 The MLI is expected to apply to tax treaties entered into between Korea and the following jurisdictions (please note that the position of Korea's bilateral treaty partners has not been reflected yet and that the below list of jurisdictions can be changed depending on domestic ratification by Korea and its bilateral treaty partners): Belgium, Bulgaria, Canada, Chile, China, Colombia, Croatia, Denmark, Egypt, Fiji, Finland, France, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Kuwait, Latvia, Lithuania, Luxembourg, Malta, Mexico, Netherlands, New Zealand, Pakistan, Poland, Portugal, Romania, Russia, Serbia, Slovak Republic, Slovenia, Republic of South Africa, Spain, Sweden, United Kingdom, Uruguay.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions