On October 1 2008, the National Tax Service of Korea (NTS) introduced the Advance Tax Ruling System (ATR) to allow taxpayers to obtain binding tax rulings before completing a transaction. The purpose of the ATR is to reduce uncertainties arising from the interpretation and application of tax laws and regulations, thereby improving the predictability of business activities in Korea.
The salient features of the ATR are: (i) the Korean tax authorities are required to provide binding rulings; (ii) the identities of the enquiring taxpayers must be disclosed; (iii) the enquiring taxpayers must base their requests for rulings on transactions that are likely to occur (this must be supported by documentation and other information); and (iv) the rulings of the Korean tax authority must be made public after removing specific details, such as the identity of taxpayers and other sensitive information.
Though the ATR is new and untested, it represents an improvement over the old system. Under the old system, rulings were not binding and requests for rulings were made on an anonymous basis, often during the planning stages, which usually resulted in responses that lacked clarity and adequate guidance.
Any business registered in accordance with the VAT Act, the Corporate Income Tax Act or the Individual Income Tax Act, or a non-resident or foreign corporation without a place of business in Korea, may apply as long as it is directly involved in a specific transaction that gives rise to Korean tax issues.
All transactions are eligible for review under the ATR other than the following:
- transactions that do not raise Korean tax issues for the applicant;
- hypothetical transactions;
- transactions that may potentially violate other laws; and
- transactions where the applicant resides in a jurisdiction that the NTS determines is not cooperative (exchange of information between the competent authorities is difficult).
The following types of inquiries are ineligible:
- inquiries related to determination of facts and circumstances;
- inquiries about only a part of multiple transactions or transactions in combination; and
- inquiries made for the avoidance or evasion of taxation.
An applicant must file an application for advance tax ruling along with supporting documentation to the chief commissioner of the NTS. The request must be filed before the pertinent due date for the tax in question. Once a request is filed, the Korean tax authority must provide a ruling if the request satisfies the requirements mentioned above. At present, no period has been announced within which the tax authority must provide its ruling.
A sanitised version of the final ruling will be made public on the National Tax Law Information System. Applicants will be given the right to request a delay in the public release, if necessary.
Tae Kyoon Kim