When receiving gifts of money or other property, the party should check any tax issues involved. When the gifts cross the national borders or involve foreign parties, it becomes more complicated. It could entail an additional filing with a government of a foreign country where the foreign party resides. Today, we are going to introduce what report and tax liability the parties should take care of and under what condition, when a U.S. resident receives a U.S located house as a gift from his Korean resident parent.
Report to the Bank of Korea
According to Article 7-46 and 7-44 of Foreign Exchange Transaction Regulation(FETR), when a resident of Korea gifts a real property, which is even located abroad, to any non-resident, the Korean resident(devisor) should report the transaction in advance to the Bank of Korea.
The nationality of the parties doesn’t matter here. Only the place of residence does matter. The Korean Tax authority (National Tax Service) has an internal rule to apply to decide who is a resident and who is not.
When 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…)
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…)
On April 17, Seoul Central Prosecutors’ Office announced that it has started an investigation whether British American Tobacco Korea(“BAT Korea”), which has the largest shares in Korean tobacco markets, had done illegal lobbying activities in order to downscale the Seoul Regional Tax Service’s probe into its 2006 tax evasion case. Last year, Seoul Regional Tax Service discovered that BAT Korea evaded taxes on 108.2 billion won ($109.35 million) of profit and other tax evading issues come out. BAT Korea (more…)
This morning one news article got my eyes on. The news reported that Hana Bank, one of the largest bank in Korea, is expected to be forced 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.
According to the news, the Ministry of Finance and Economy has ruled that the merger between Hana Bank and Seoul Bank involved illegal tax evasion. The MFE regarded the merging of two Banks as a “reversed merger”, which means a company in the red, Seoul Bank, pretends to be purchasing Hana Bank, which was in the black, when in fact it was other way round. By doing so, Hana Bank, the actual acquirer, could save corporate income taxes.
Korea’s financial authority approved the merger between Hana and then-struggling Seoul in 2002. Hana Bank is objecting to MFE’s decision. Hana bank said it completed the deal based on the government’s guidelines Hana Bank also commented (more…)