Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

May 22, 2019
2019-5661

Korea issues tax ruling clarifying interest withholding tax exemption on foreign currency denominated bonds

Executive summary

Korea’s National Tax Service (the NTS) issued a tax ruling (the Ruling)1 clarifying the conditions under which interest on foreign currency denominated bonds (FX bonds) can be exempt from withholding tax, if the FX bonds meet the overseas issuance criteria. The NTS ruled that the term “overseas issuance” would mean a series of actions related to FX bonds issuance that occurred overseas.

Detailed discussion

Under the Korean tax law, interest on FX bonds is exempt from Korean withholding tax if issued by the Korean Government, local government or domestic corporations and the FX bonds are issued overseas.

The taxpayer, a Korean corporation, was contemplating the raising of operating funds through the issuance of FX bonds. The taxpayer requested a tax ruling from the NTS to determine whether the FX bonds would be viewed as issued overseas if major activities including subscription for the issuance of the FX bonds and underwriting of the FX bonds were undertaken overseas.

The NTS ruled that interest on the taxpayer’s FX bonds would be exempt from Korean withholding tax when received by the foreign bond holders, since the bond issuance activities to be undertaken by the taxpayer would meet the overseas issuance criteria. Under the Ruling, the term “overseas issuance” would apply to FX bonds when the investor of the FX bonds is a nonresident or foreign corporation (excluding a foreign corporation having a permanent establishment in Korea) and the series of activities associated with the issuance of the FX bonds, such as registration and approval of investment, payment process, investment offering, investor attraction, private placement, transfer, underwriting, subscription offering, contract conclusion, among others, take place overseas.

Endnotes

1. The ruling was issued on 11 March 2019.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Han Young, Seoul
  • Kyung Tae Ko | kyung-tae.ko@kr.ey.com
  • Jeong Hun You | jeong-hun.you@kr.ey.com
Ernst & Young LLP (United States), Korean Tax Desk, New York
  • Shuck Il Cho | shuckil.cho@ey.com
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
  • Chris Finnerty | chris.finnerty1@ey.com
  • Kaz Parsch | kazuyo.parsch@ey.com
  • Bee-Khun Yap | bee-khun.yap@ey.com
Ernst & Young LLP (United States), International Tax Services, New York
  • Paul Kim | paul.kim1@ey.com

ATTACHMENT

 
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 2023, Ernst & Young LLP.

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

 

"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

 

Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct