[Abstract]

Analysis on the Implication as to Korean Court’s Future Decision Caused by the OECD’s Changes in Its Position on the Permanent Establishment

Lee, Kyung Geun 
 

Bloomberg case and Newbridge Capital case being regarded as important for the purpose of determination of permanent establishment (“PE”) have given significant impacts on the decisions of Tax Tribunal on other similar cases or public rulings issued by Ministry of Strategy and Finance as well as other similar Court cases. Further, those cases have been generally viewed as playing the role of refraining Korean tax authorities from leaning toward expanding tax bases in the perspective of a source country and thereby making Korea’s domestic rules on the determination of PE, as a whole, in line with OECD guidance.

Recently, OECD initiated and put forward a global project of preventing “Base Erosion and Profit Shifting (BEPS)” and, as a consequence, issued its final reports on 15 Action Plans in last October. Particularly, in its 7th Report on “Preventing the Artificial Avoidance of PE Status”, the OECD proposed the amendment of the OECD Model Tax Convention and its Commentary to the direction of reinforcing the PE determinant factors (i.e., changing the rules to make a foreign enterprise maintain a PE in a source country more easily than before if it is an abusive case). It is highly likely that the OECD Model Tax Convention and its Commentary will be revised soon in this line, which then will be more consistent with Korean tax authorities’ aggressive position incidentally. Further, it is also expected that the Court's attitude will be tilted toward tax authority’s persistent argument that a case similar to either Bloomberg case or Newbridge Capital case, currently being treated as not constituting a PE, should be judged as having a PE in Korea in the future. However, it is likely that this change will take place only after Korean tax treaties are modified following the amendment of the OECD Model Tax Convention and its Commentary. On the other hand, it should be also noted that there is a certain limit in the estimation on the position of the Court to be leaned toward soon to be revised tax treaties and the OECD Model Tax Convention (and its Commentary) because, in Korea, the OECD Model Tax Convention and its Commentary are not treated as having legal sources by themselves.

▶ Key Words：permanent establishment, determination criteria, OECD Model Tax Convention, Base Erosion and Profit Shifting (BEPS), court’s judgment

** Published on January 2016
** Full article available in Korean only
** Download here →8-2 Analysis on the Implication the OECD Changes in Its Position on the Permanent Establishment.pdf