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Tax Alert - Expanded Scope of PE


According to the 2018 Tax Reform Proposal of Korean Ministry of Strategy and Finance, the scope of permanent establishment (PE) in Korea may expand. This 2018 Proposal reflects the updates to Article 5 of OECD Model Tax Convention.


[Current Rule]

The definition of PE does not include a fixed place solely for:

(i) the purposes of purchasing goods or merchandise for the foreign company; (ii) the purposes of storing goods or merchandise belonging to the foreign company; and (iii) the purposes of maintaining a stock of goods or merchandise belonging to the foreign company for processing by another company.


[Proposed Rule]

The 2018 Proposal a fixed place would constitute a PE if any of the following conditions are met:

(i) if such fixed place or other place constitutes a PE of the foreign company or its related party, and the activity of such fixed place is complementary to the business activity carried on by the PE of the foreign company or its related party; or (ii) the overall activity resulting from the combination of the activity of the fixed place carried on by the foreign company or its related party constitutes a complementary function and is not of a preparatory or auxiliary character.

Also, the Proposal expands the definition of PE to an agency PE, if such agency is a person in Korea, who is authorized to conclude contracts on behalf of a foreign company and continuously plays the principal role leading to the conclusion of contracts without material modification, even if the person has no legal authority to conclude contracts.


If you need details or have any inquiry regarding this topic, please contact our International Desk below.


Office: +82 2-3014-6004

Email: Kitae Park, Partner kt.park@ghilin.com;

Alex Yun, Manager yj.yun@ghilin.com;

Luna Kim, Manager sh.kim@ghilin.com



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