Do46017-11838 (Law No. 67.02)
When a domestic corporation enters into a service contract with a foreign corporation having no domestic place of business and pays the price, where the service is requested to a foreign corporation in favor of cost reduction and time reduction without information or know-how on industrial and commercial knowledge and experience, the price for the service is not the royalty income, but the personal service income.
When a domestic corporation enters into a service contract with a foreign corporation with no domestic place of business and pays the consideration therefor, if the service is a service provided by a technician of a foreign corporation with professional knowledge or skills in the technical field without information or know-how on industrial and commercial knowledge and experience as referred to in Article 93 subparagraph 9 of the Corporate Tax Act, and at the request of a foreign corporation with a view to cost reduction and time reduction, the payment for the service is not the royalty income pursuant to Article 93 subparagraph 6 of the Corporate Tax Act and Article 132 (5) of the Enforcement Decree of the Corporate Tax Act.
【Domestic Source Income】
1. A summary of the contents of inquiry;
· Conclusion of a service contract with a foreign corporation with no domestic place of business;
- The services are rendered domestically by a person with professional knowledge or skills in the technical field without information or know-how on industrial and commercial knowledge and experience, but at the request of a foreign corporation in favor of cost reduction and time reduction, in return for the services rendered by a person with professional knowledge or skills in the technical field.
· Contents of the services are the research and interpretation of the tasks required by the domestic company, and domestic corporations are the form of receiving reports.
2. Materials on the contents of questioning;
(a) relevant tax laws and regulations (law, enforcement decree, enforcement rule, basic rules);
【Domestic Source Income】
Domestic source income of a foreign corporation shall be classified as follows:
6. Income generated domestically from the provision or use of human services as prescribed by the Presidential Decree;
○ Corporate Tax Act Article 132 【Scope of Domestic Source Income】
(5) For the purpose of subparagraph 6 of Article 93 of the Act, the term “personal services as prescribed by the Presidential Decree” means those falling under any of the following subparagraphs:
1. Services provided by movie and drama actors, musicians, and other public performers (the amended on December 31, 1998);
2. Services provided by the professional athletes (with December 31, 1998); and
3. Services provided by an attorney-at-law, certified public accountant, certified architect, surveyor, patent attorney, and other free professionals (amended by December 31, 1998);
4. Services provided by persons of professional knowledge or special skill in the fields of science, technology, business management and other fields, making use of such knowledge or skill (this shall be December 31, 1998).
(b) Similar cases.
○ National Day 46017-781 ( December 23, 1995)
o Terms of contract
- The company requested the software development company of Australia to develop the original distance communication network management system (tmn) software (tmn, tmn e, tmnmanaer).
- The management system for long-distance telecommunications networks is a technology possessed domestically through joint development with four domestic companies, including us.
- The software has been developed domestically, but its cost is so excessive that it is relatively low for foreign specialized enterprises to develop it.
- A developer shall develop software on the basis of the designs and respact as required by us.
The place of development of the same software shall be Australia.
· The development costs of the software will be borne by us.
·all rights, such as the use, sale, intellectual property rights, etc. of software the development of which is completed, are owned by the Parties.
· The head of family-based development business entity shall conduct tring with us free of charge for three months after the completion of development.
o Contents of questioning
The purpose of this paper is to ask a foreign software developer who has no permanent establishment in the Republic of Korea for the development and manufacture of the software desired by the importer at the expense and responsibility of the importer and to ask whether the cost of such payment corresponds to the royalty income from domestic source if the importer subsequently acquires the comprehensive right to the software.
In cases where a domestic corporation requests the development of s/www related to the system for the management of the long distance communication network (tmn), which is domestically developed and owned by it, and acquires a comprehensive right to s/www completed on the basis of the design and the like requested by a domestic corporation, the cost paid to a domestic corporation is exempt from taxation in the Republic of Korea, as personal service income, unless there is a domestic permanent establishment, as it falls under business income under Article 7 of the Korea-U.S. Tax Convention.