The Korean economy has managed to recover quickly from the global financial downturn. "Korea was able to avoid a technical recession and recovered faster than other developed countries," said Henry An of Samil PwC.
However, the economy has felt the ...
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The Korean economy has managed to recover quickly from the global financial downturn. "Korea was able to avoid a technical recession and recovered faster than other developed countries," said Henry An of Samil PwC.
However, the economy has felt the effects of the global economic climate. "Korea is an export driven economy, so when the Eurozone continues to struggle with recovery and the global economic outlook remains uncertain, that will necessarily have a negative impact on Korea," added An.
Under this environment, practitioners have noticed increased tax audit activity. "Tax audit is increasing this year. Preparation of taxpayers will be needed," said Lee Jung Hee from Deloitte.
Practitioners across the board have noticed more Korean companies have been expanding abroad. "With that, there are a lot of implications from a Korean tax perspective normally not seen for investments made in Korea by foreign or Korean companies," said WH Baik of Kim & Chang.
"Lots of Korean companies find the economic market saturated. They are looking for growth in areas that are less developed than Korea, and the view is that growth is outside of Korea for companies," said Baik.
The National Assembly enacted revisions to the tax laws on December 31 2011. Among the changes was the introduction of a new corporate income tax bracket. Businesses reporting a corporate tax base of W200 million ($176,228) or less were subject to an 11% corporate tax. There was also a middle income tax bracket of 22% for corporations with a tax base of between W200 million and W20 billion ($176.3 million).
While these categories remain the same, the change introduces a new bracket for businesses reporting a corporate tax base of more than W20 billion who will be subject to 24.2% corporate tax applicable for the fiscal year commencing January 1 2012.
New documentation requirements are also introduced for the application of tax treaties. Failure to comply with the new requirements will cause domestic tax to be applied under a provision that is applicable from July 1 2012.
In light of increased cross-border activity, the government has introduced procedures to harmonise the customs and transfer pricing laws. Under the regime now, taxpayers are exposed to the risk of domestic double taxation. "The government has recognised the difficulties that MNCs doing business in Korea have had balancing transfer pricing and customs compliance. With the introduction of the correlative adjustment request procedures from July 1 2012, taxpayers now have a mechanism to achieve virtual transfer pricing and customs harmonisation,"said An.
Under the new rules, a taxpayer now has the means to apply for a refund for overpaid customs duties or corporate income tax. A Pricing Review Committee has been established to examine situations where the National Tax Service or Korea Customs Service denies a taxpayer's request for correlative adjustments.
"While it will likely be challenging for taxpayers to obtain a refund of corporate tax or customs duties, the introduction of such a process is certainly a welcome development and still represents a major accomplishment," said An.
The future of tax in Korea is uncertain. "There is a presidential election at the end of the year, the outcome of which will greatly influence the direction of the tax policies for the next few years," said In-Hwa Chung from Shin & Kim.
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