ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Review of the Allocation of Personal Income Tax Authority Regarding the Government Functions of SOEs

  • Seon, Chang Hee Independent Researcher
  • Cho, Hyeongtae School of Business Administration, College of Business Administration, Hongik University

Asian Tax Journal Vol. 25 No. 4 (2024), pp. 103-129

Abstract

SOEs(State Owned Enterprises) often serve as a quasi－agent under the structure of citizen－governmentpublic institution to efficiently provide public goods or services to the citizens, and the trend of such domestic SOEs expanding overseas has been increasing. The OECD Model Convention recognizes the taxation rights of the country where the organization paying salaries is located by exempting from source country taxation salaries paid by political subdivisions, etc., that perform governmental functions. This study points out the uncertainty of personal income tax of employees of public institutions performing governmental functions being taxed in the foreign source country. It criticizes the insufficiency of current tax treaties and authoritative interpretations in allocating taxing rights for personal income tax using governmental functions, highlighting the need for improvements. Given that the majority of personnel costs of SOEs are covered by national finances, particularly taxes, the taxes on these employment incomes should return to our national finances. If the taxing rights for these personal incomes are not secured due to unrecognition of governmental functions, it could lead to inefficient management of national finances. The current tax treaties of the Korean government are outdated and even predate the establishment of many public institutions, creating opacity in recognizing governmental functions and securing taxing rights for the overseas personnel of these institutions. Additionally, SOEs like the Korea International Cooperation Agency(KOICA), which are regularly involved in foreign aid projects, are not even listed as organizations performing governmental functions in tax treaties. There are also concerns about the ambiguous application of reciprocity and potential issues with the foreign tax credit carryover for SOE employees returning home after a period of overseas assignment. To solve these issues, it is necessary to disclose and manage information such as the dispatch personnel and personnel cost status of SOEs abroad through standard public disclosures. The government, as the party responsible for securing taxing rights, should actively engage in mutual agreements to recognize more public institutions’ governmental functions and secure domestic taxing rights for their overseas personnel.

Keywords

  • SOEs
  • Government Function
  • Personal Income Tax
  • Taxing Authority
  • Tax Treaty

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Asian Tax Journal

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