수동적 동업자와 고정사업장

Abstract

In this article, we have discussed and proposed alternatives for the taxation of partnership whose partners are both (i) non-resident or foreign entities and (ii) passive partners under the current partnership taxation rules of the Special Tax Treatment Control Act. The current rules provide, where a partnership has a permanent establishment (“PE”) in Korea, that a partner who is not a passive partner is to be regarded as also having a PE in Korea, while a passive partner is to be regarded as having no PE in Korea. As such, taxation on each passive partner is completed through an income tax withholding on a gross revenue allocated by and received from the partnership. Under the partnership taxation rules, a partnership is to be regarded as a non-resident or a foreign corporation when calculating the amount of income allocated to its non-resident or foreign corporation partners. Currently, there is no clear provision under the Korean tax law stipulating the method of calculating the amount of income allocated to passive partners for which two contrasting views may exist. One view is that the income of partnerships should be calculated in aggregate, taking into account all the revenue earned and expenses incurred by the partnership considering the fact that the partnership has a PE in Korea. This approach is problematic in that such aggregate income calculation method conceptually does not go well with a separate withholding taxation method and also in that neutrality in taxation may not be secured because different tax effects would result under this view compared with the cases where such partners operates their businesses individually. Another view is that the income of the partnership allocated to its passive partners should be considered and calculated separately by type of income generated at the partnership level as long as passive partners are regarded as not having a PE in Korea. This view may seem reasonable in that taxation on passive partners are completed through an separate income tax withholding rather than normal tax filings which considers all the Korean source revenue and expenses attributable to a PE in Korea. However, in that the income of passive partners and that of non-passive partners should be calculated separately and differently, this view does not match with the current partnership taxation rules which provide no difference between passive partners and non-passive partners in the calculation of the partnership income allocated to non-resident partners or foreign corporation partners. Both of the above views would raise issues, and the selection between these two would be a matter of policy. However, in case where a partnership income allocated to passive partners is calculated in aggregate taking into account all the revenue earned and expenses incurred by the partnership, the passive partner should, in principle, be taxed in the same way as non-passive partners who has a PE in Korea in connection with the partnership. On the other hand, to tax the passive partners through a separate withholding taxation, calculation method of the partnership income allocated to passive partners shall be designed in line with the separate withholdingtaxation system.