Category: Banking & Financing

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그림 67When a foreign incorporated company does a business in Korea, it is very fundamental to determine whether the company is a domestic or a foreign corporation for Korean tax purposes.  A major difference in tax liability is that, in principle, a foreign corporation is liable for taxes only on the incomes generated in Korea rather than a worldwide income.

In this regard, the Corporate Tax Ac of Korea(“CTA”) defines a “domestic corporation” as a corporation with its headquarter, main office, or actual business management place located in Korea, and a “foreign corporation” as an organization which has its head office or principal place of business in a foreign country.  What makes distinguishing domestic corporation for a foreign corporation under CTA difficult and challenging is the meaning and application of the term of “actual business management place” set forth in CTA.  For example, in a case decided by the Supreme Court of South Korea in 2016, a Singapore incorporated company had challenged the Korean tax authority’s decision that its actual business management place was in Korea.

The Singapore company had a wide variety of international business portfolio and among them was a trading foreign issued corporate bonds including a Korean corporate bond.  The Korean tax authority decided that the company’s actual business management had taken place in Korea after finding the facts that the company had a liaison office in Korea, one of the directors was residing in Korea and financial documents relating to the Korean business was stored and managed in Korea.  And this (more…)

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In September 2012, Chung & Partners successfully advised a Korean real estate development company(the “Company”) in connection with a project financing for the land acquisition, development and construction of commercial building to be built in downtown Seoul.  The financing package enabled our client to receive funds in the amount equivalent to USD 140,000,000.  Thanks to this transaction, the Company has successfully launched the project.

Our attorney Mr. Wonil Chung acted as counsel for the Company and provided legal advice on every aspect of the deal from structuring to documentation.

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Let’s assume a creditor has a monetary claim against a debtor in Korea but the debtor refuses to pay it.  The creditor would proceed to file a lawsuit to get a judgment to collect his claim.  Unfortunately, however, the chances are that knowing the complaint was filed, the debtor would try to conceal or transfer his assets to evade from the liability under judgment.  This shows why provisional attachment is highly required to secure the judgment effectively.

Read More: Korean Lawyer Explains Debt Collections In South Korea – Overview

Provisional attachment is a judicial measure available to anyone who has a monetary claim to lock down certain assets.  It, depending on the type of court order, prevents the debtor from selling assets or enables the creditor to secure his interest in the debtor’s asset regardless of the sale by the debtor, until the court issues a judgment on the merit.

The creditor can, and usually does, seek a provisional remedy before she files a complaint on the merit.  So, this is a very powerful weapon for the creditor.  For example, as many Korean creditors do, if the creditor succeeds in putting a provisional attachment on the debtor’s bank account, the debtor would not be able to use the money and could face several penalties regarding its banking/financing transactions with the bank.  This could heavily deteriorate the ability for a small com­pany to con­duct business, which makes the debtor (more…)

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It is reported that Mr. Matthew Deakin, the president of the HSBC Korea, said on last Wednesday that HSBC Holdings Plc had no plan to acquire a local Korean bank for now.  Last year, HSBC walked away from the deal with the Lone Star, a U.S. private equity fund, which provided HSBC the right to buy 51 percent stake of Korea Exchange Bank due to the global financial crisis and continued legal disputes surrounding the 2003 purchase of the bank by Lone Star Funds. (Here is a related previous post)

Things have changed.  The Seoul Central District Court in last November ruled the purchase legal, and as the financial markets are now stabilizing.  But Mr. Deakin, at the press conference which took place for the purpose of introducing the bank’s new Emerging Markets Index, said “right now, we have no interest in any acquisition of Korean banks”.

Here is a related news article.

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Recently there are so many lawsuits being filed against domestic and foreign banks in Korea with regard to the bank’s irresponsible fund sale.  The Korean fund buyers are alleging the losses in the funds which are still on-going were caused by the fund-sellers’ not informing sufficient information on the risk and possibilities of losses when they put the money to the funds.

As a matter of law, Korean court has ruled that the banks have legal duties to inform the customer sufficiently of the structure of the investment such as fund or option transaction and the risk of possible losses when they solicit the customers for investments.  If they neglect that obligation, it constitutes a breach of contract and (more…)

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It was reported that Financial Supervisory Service(FSS) of South Korea had signed a MOU on Government Guarantees of Banks’ External Debt with 18 domestic banks on November 14.  The MOU was comprised of Part 1 on “Government guarantees of banks’ external debt” and Part 2 on “Extending support to the real economy and management rationalization”.  SC First Bank Korea and Citibank Korea signed only Part 2 of the MOU with the FSS.

The MOU is to increase credit lines by improving foreign-currency liquidity, move forward with the disposition of non-core foreign-denominated assets, and diversify sources of banks’ foreign liquidity. Contingency plans were also included to prevent risk to the guarantee.

To provide relief to holders of household debt, the maturity date and the interest-only and payment-option will be extended. Borrowers wanting to convert their variable interest rate loans to fixed will have their e (more…)

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Last week, the Korean government announced that it would initiate a reviewing process for the approval of the KEB sale soon.  Interestingly enough, today it was reported also that before the government’s announcement, Lone Star Fund had sent an official letter to the Korean government regarding the government’s approval issue on the long-waited sale of Korea Exchange Bank(KEB) from Lone Star Fund to HSBC bank.  Lone Star Fund and HSBC had entered into the stock purchase agreement and the deadline of the agreement is coming at the end of this July.  It was reported that Lone Star Fund stated in that problematic letter that if the Korean government kept delaying the approval, the fund would file a lawsuit domestically and internationally against the Korean government for the compensation of damages by the sale’s deferment(here is a news article).

Well, someone, especially western people, can say that there would be no problem in sending a letter to the other party noticing potential legal disputes.  However, it is quite unusual in Korean legal culture that a private enterprise warns the government stating otherwise it would sue the government.  Of course, it is legally acceptable and in some cases, a statutory right of a private enterprise, to file a lawsuit against the government, but culturally it is not common to take this kind of open and public action to press the government hard in Korea.

By the way, as a matter of law, the fund would be permitted to file a lawsuit to a Korean court, however, the chances are that the fund would not win the case.  Under Korean law, in order for the fund to win the case, the fund must prove there has been an unlawful act of the Korean government in delaying the approval.  But, the approval itself is a right, not an obligation, of the government provided by the law and there have been lawsuits affecting the validity of the ownership of KEB by the fund, which have made the Korean government hold the approval procedures (more…)

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Today just a few hours ago, the Seoul High Court sentenced partly not guilty to the head of U.S. private equity fund Lone Star’s South Korean operations (Lone Star Advisory Korea).

Last February Seoul Central District Court had sentenced all guilty and had detained Mr. Paul Yoo, the head of Lone Star Advisory Korea, for stock rigging and misappropriation charges. Also, the court had ordered Korea Exchange Bank and LSF-KEB Holdings SCA, a Belgium-based unit that holds Lone Star’s stake in KEB, to pay 25 billion won ($26.50 million) each in fines, saying both secured unfair profits as a result of the stock-rigging.

The defendants all had appealed and the Seoul Court today reversed and amended the lower court’s ruling, saying “as the Lone Star Fund did actually discuss a capital decrease in a meeting of the board of directors, there had been no falsehood in its reporting of possible capital decrease to the public and therefore no stock price manipulating”.

Also, the High court found not guilty in Mr. Paul Yoo’s tax evasion charge and also found not guilty in 2 out of 4 misappropriation charges against Mr. Paul Yoo.  Finally, the court sentenced  2 and a half year of imprisonment to Mr. Paul Yoo, however, suspended the execution for 3 years.  Mr. Paul Yoo Has been released out of prison today by the court’s decree(see the photo). (more…)

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Finally the National Tax Service ruled in favor of Hana Bank in its 1.8 billion tax evasion case.  On February, NTS forced Hana Bank to pay up to 1.7 trillion won ($1.8 billion) in penalty taxes for unfair corporate income tax evasion in the course of a merger with the Seoul Bank back in 2002(Here is my previous post on this case).  Hana bank appealed and NTS ruled on June 6 that the merger was not a reserved merger so the bank do not need to pay the penalty.  The NTS will return the 198.3 billion won Hana Bank paid (more…)

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It was reported that a former senior executive at the Korean unit of Lehman Brothers, a U.S. investment banking firm, was arrested for conspiring in one of the biggest stock price manipulations in Korea.  Seoul Central Prosecutors Office said on May 5 it had arrested a 41-year-old former executive director at Lehman Brothers’ Seoul Office. (more…)