SOUTH KOREA Law and Practice Contributed by: Je-Heum Baik, Chang Hee Lee, Maria Chang and Min Kim, Shin & Kim
Shin & Kim 23rd Floor, D-Tower (D2) 17 Jongno 3-gil, Jongno-gu, Seoul,
South Korea, 03155 Tel: +82 2 316 4114 Fax: +82 2 756 6226 Email: shinkim@shinkim.com Web: www.shinkim.com
1. Sources and Principles 1.1 Domestic Sources of International Tax Law The Constitution of the Republic of Korea constitutes the supreme source of law, and two constitutional principles are particularly relevant to international tax - ation. Article 59 establishes the “no taxation without law” principle, requiring National Assembly legislation for any tax imposition. This restricts the government from taxing foreign entities without clear statutory backing. Supplementing this, Article 6 (1) grants con - stitutional treaties the same legal standing as domes - tic law. Consequently, tax treaties generally supersede domestic statutes to the extent that the lex specialis principle applies. International taxation in Korea is primarily governed by the Law for the Coordination of International Tax Affairs (LCITA), as well as the Corporate Income Tax Act (CITA) and Individual Income Tax Act (IITA). The LCITA specifically regulates transfer pricing, thin capi - talisation, controlled foreign corporation rules and the mutual agreement procedure (MAP). Meanwhile, the CITA and IITA provide the underlying definitions for Korean-sourced income and permanent establish - ments, filling gaps where treaties are silent. Korea’s commitment to preventing double taxation is reflected in its 95+ bilateral tax treaties. While largely based on the OECD Model, the network includes UN Model-influenced treaties and is currently being mod - ernised through the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, or Multilateral Instru -
ment (MLI), to ensure alignment with contemporary international standards. 1.2 Hierarchy of Sources Tax treaties generally prevail over domestic law, unless specifically overridden by the latter. Article 6 (1) of the Constitution provides that treaties concluded and promulgated under the Constitution have the same legal effect as domestic legislation. While tax treaties generally prevail with respect to sub - stantive taxing law, procedural matters – such as fil - ing obligations, payment methods and penalties – are typically governed by Korean domestic law. Moreover, domestic tax law continues to apply where a particular category of income is not covered by an applicable tax treaty. 1.3 OECD Model/United Nations Influence on Treaty Practice Korea’s tax treaty practice generally aligns with the OECD Model Tax Convention, particularly in the more recent treaties. Korea’s treaty policy has evolved through distinct phases, transitioning from a source- based approach consistent with the UN Model Tax Convention to a residence-based approach reflect - ing the OECD Model as the Korean economy has matured. During the 1970s and 1980s, when Korea was primarily a capital-importing country, it favoured the UN Model in order to preserve broader source- country taxing rights. Most significantly, the US tax treaty – signed in 1976 – remains in force, its provi - sions still governed by language now half a century old. Following Korea’s accession to the OECD in 1996, the OECD Model has served as the primary framework
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