Sudan-South Korea / Double Tax Treaty: Plea for Ratification
The Deputy Foreign Minister for Economic Affairs Yun Kang-Hyeon has discussed cooperation with Sudan's Undersecretary Abdel-Ghani Elnaim stressing the importance of creating an investment friendly environment in Sudan to enhance Korean presence in Sudan.
To this token Yun stressed the need for the speedy ratification of the South Korea-Sudan Double Tax Convention (shortly, DTC) signed on 10 September 2004 but not yet ratified.
The relevant DTC fits the OECD Model. Some remarkable differences, however, are worth to notice.
The definition of resident as per Article 4(1) DTC shall be assessed considering the “domicile, residence, place of head or main office, place of management, or any other criterion of a similar nature”. Notably – unlike the OECD Model – the “place of head or main office” shall be considered.
The list of permanent establishments as per Article 5(2) DTC – stemming from both the OECD and the UN Models – includes also “drilling rig and working ships”.
The so-called construction clause, according to which a permanent establishment exists to the extent that a certain minimum time threshold is achieved, widens to “assembly” and “supervisory activities” fitting the UN (and not the OECD) Model approach.
The so-called service permanent establishment shall exist if the employee or other personnel are engaged in the other State for “a period or periods aggregating more than six months within any twelve-month period”.
The so called ‘agency’ clause fits the UN Model and (unlike the OECD Model) holding that an ‘agency’ PE exists if an agent “of an independent … is acting in a Contracting State on behalf of an enterprise of the other Contracting State” and “has, or habitually exercises … an authority to conclude contracts in the name of the enterprise” or “has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise”
As for withholding taxes (‘WHT’) on so called passive income; (i) WHT on dividend is either 5% (on substantial holdings) or 10% (all other cases); (ii) WHT on royalties is 10%; and (iii) WHT on interests is 10% where the recipient is the ‘beneficial owner’ of such income.
However, interest derived by the Government of the other Contracting State including political subdivisions and local authorities thereof, the Central Bank of that other State or “any financial institution performing functions of a governmental nature” shall be exempt from tax in the first-mentioned State.
The “Central Bank and financial institution performing functions of a governmental nature” means: (i) the Bank of Korea; (ii) the Korea Export-Import Bank; (iii) the Korea Development Bank; (iv) the Korea Export Insurance Corporation; and (v) such other financial institution performing functions of a governmental nature as may be specified and agreed upon in letters exchanged between the competent authorities of the Contracting States; (vi) the Bank of Sudan; (vii) Bank of Khartoum; (viii) the Sudanese Development Corporation; and (ix) such other financial institution performing functions of a governmental nature as may be specified and agreed upon in letters exchanged between the competent authorities of the Contracting States.
Author: Roberto Scalia - Chairman of the JIACC Tax Commission
