ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Study on the Tax Strategy of a Cultural Contents Publisher33)

  • Sang Hee Kim University of Seoul Graduate School of Taxation

Asian Tax Journal Vol. 18 No. 6 (2017), pp. 53-83

Abstract

As the export of cultural content has grown, the dispute of double taxation has arisen frequently between the cultural content exporters and the Taxation Office. The export of content primarily follows the way of the distribution of profits to a developer according to a contract between the developer and an exporter. As the exporters received the pay from the overseas in a lump sum, and then they distribute profits to the developers. In this case, there was the controversy about the range of foreign source income that can affect the foreign tax credit limit. Most of these tax disputes have been judged that the foreign source income should be the deducted amount from the amount of income received outside to the relevant expense. The Ministry of strategy and finance revised the Corporate Tax Act Enforcement Decree in the early 2013 and modified the concept of foreign source income that was uncertain. As a result, cultural content exporters who have calculated the foreign source incomes with existing way are burdened by high taxation as the foreign tax credit limit has reduced due to the revision of the Corporate Tax Act. This case study analyzed the tax planning, adopted by a popular online game publisher A, to correspond with the revision of the Corporate Tax Act from the perspective of the effective tax strategy and the issue of foreign tax credit payment regulation through the same case. In the end of 2013, the company A conducted a tax strategy by transferring the overseas distribution rights to a subsidiary company B. The result of the tax strategy, the company reduced the tax approximately KRW 189 billion over the next ten years by increasing the foreign tax payment credit and it is analyzed that the company postponed the taxation of asset transfer gains due to the transfer of the overseas distribution rights. The transferor company B also had the benefit of the tax effects around KRW 46.8 billion by calculating depreciation expense of the transfer of overseas distribution rights. On the other hand, the company A has incurred non－tax costs, such as legal and accounting consultation costs that arisen in the middle of the process of the transfer of overseas distribution rights. As a result of the tax strategy, the company bore the risk of trading related to the tax law enforcement between taxable profit and accounting profit. In conclusion, this strategy is meaningful that the revision of the Corporate Tax Act has rearranged the range of the foreign source income clearly as the amount of income from overseas, but there seems to be an issue, there is no double taxation adjustment by redefining the range of the foreign source income without consideration of the method of taxation.

Keywords

  • effective tax strategy
  • foreign tax credit
  • in－kind contribution
  • foreign source income

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Asian Tax Journal

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