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Newsletter | July 2016, Issue 2
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General Tax Consulting Practice Group
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Supreme Court Delineates Factors to Determine the “Place of Effective Management” under the Corporate Income Tax Law
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Recently, the Supreme Court opined that under the Corporate Income Tax Law (“CITL”), the “place of effective management” means the place where important management and commercial decisions are actually made to carry on a company’s business. The Court also noted that important management and commercial decisions, in this context, mean, among other, making decisions and managing the company’s long-term strategy regarding policy, finance, investment, management and disposal of main assets and core activities for generating income.
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Kim & Chang successfully served as legal counsel for the appellant in this case.
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Background
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Article 1 of the CITL defines the term “domestic company” as a company having its headquarters, main office or a place of effective management in Korea. Therefore, even if a company is established in a foreign country, it can be regarded as a domestic company under the CITL, as long as its place of effective management is located in Korea.
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The Korean tax authorities imposed tax on the appellant, arguing that since its place of effective management is located in Korea, the appellant should be viewed as a domestic company.
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On appeal, the Supreme Court ruled that the tax imposition against the appellant should be cancelled on the grounds that its place of effective management was not located in Korea.
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In rendering its decision, the Supreme Court offered its own interpretation on the definition and criteria for finding a place of effective management, which goes beyond those mentioned in the CITL.
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Specifically
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The Supreme Court delineated the following criteria as factors for determining the place of effective management. Further, the Court suggested that a comprehensive consideration of the factors should be made based on the overall circumstance.
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Place at which the board of directors or similar decision-making meetings are usually held;
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Place at which the chief executive and other senior executives normally work;
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Place from which high-level managers perform daily management tasks; and
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Place at which accounting system is accessed daily and is maintained
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