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Convention Signed at Seoul June 4, 1976; Ratified …

UNITED STATES - REPUBLIC OF korea INCOME TAX CONVENTIONC onvention Signed at Seoul June 4, 1976; Ratification Advised by the Senate of the United States of America July 9, 1979; Ratified by the President of the United States of America July 25, 1979; Ratified by the Republic of korea December 16, 1976; Ratifications Exchanged at Washington September 20, 1979;Proclaimed by the President of the United States of America October 23, 1979;Entered into Force October 20, EFFECTIVE DATE UNDER ARTICLE 31: 1 JANUARY 1980 TABLE OF ARTICLESA rticle 1---------------------------------Taxes CoveredArticle 2---------------------------------Genera l DefinitionsArticle 3---------------------------------Fiscal DomicileArticle 4---------------------------------Gener

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Transcription of Convention Signed at Seoul June 4, 1976; Ratified …

1 UNITED STATES - REPUBLIC OF korea INCOME TAX CONVENTIONC onvention Signed at Seoul June 4, 1976; Ratification Advised by the Senate of the United States of America July 9, 1979; Ratified by the President of the United States of America July 25, 1979; Ratified by the Republic of korea December 16, 1976; Ratifications Exchanged at Washington September 20, 1979;Proclaimed by the President of the United States of America October 23, 1979;Entered into Force October 20, EFFECTIVE DATE UNDER ARTICLE 31: 1 JANUARY 1980 TABLE OF ARTICLESA rticle 1---------------------------------Taxes CoveredArticle 2---------------------------------Genera l DefinitionsArticle 3---------------------------------Fiscal DomicileArticle 4---------------------------------Genera l Rules of TaxationArticle 5---------------------------------Relief from Double TaxationArticle 6---------------------------------Source of IncomeArticle 7---------------------------------Nondis criminationArticle

2 8---------------------------------Busine ss ProfitsArticle 9---------------------------------Perman ent EstablishmentArticle 10--------------------------------Shippi ng and Air TransportArticle 11--------------------------------Relate d PersonsArticle 12 -------------------------------Dividends Article 13--------------------------------Intere stArticle 14--------------------------------Royalt iesArticle 15--------------------------------Income from Real PropertyArticle 16--------------------------------Capita l GainsArticle 17--------------------------------Invest ment or Holding CompaniesArticle 18--------------------------------Indepe ndent Personal ServicesArticle 19--------------------------------Depend ent Personal ServicesArticle 20--------------------------------Teache rsArticle 21--------------------------------Studen ts and TraineesArticle 22--------------------------------Govern mental FunctionsArticle 23--------------------------------Privat e Pensions and

3 AnnuitiesArticle 24--------------------------------Social Security PaymentsArticle 25--------------------------------Exempt ion from Social Security TaxesArticle 26--------------------------------Diplom atic and Consular OfficersArticle 27--------------------------------Mutual Agreement ProcedureArticle 28--------------------------------Exchan ge of InformationArticle 29--------------------------------Extens ion to TerritoriesArticle 30--------------------------------Assist ance in CollectionArticle 31--------------------------------Entry into ForceArticle 32--------------------------------Termin ationNotes of Exchange---------------------of June 4, 1976 Letter of Submittal---------------------of 14 August, 1976 Letter of Transmittal-------------------of 3 September.

4 1976 The Saving Clause -------------------Paragraph 4 of Article 4 TAX Convention WITH THE REPUBLIC OF KOREAMESSAGEFROMTHE PRESIDENT OF THE UNITED STATESTRANSMITTINGTHE Convention BETWEEN THE UNITED STATES OF AMERICA AND THE REPUBLICOF korea FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OFFISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND THEENCOURAGEMENT OF INTERNATIONAL TRADE AND INVESTMENT, Signed ATSEOUL JUNE 4, 1976, TOGETHER WITH A RELATED EXCHANGE OF NOTESLETTER OF SUBMITTALDEPARTMENT OF STATE,Washington, August14, PRESIDENT,The White House.

5 THE PRESIDENT: I have the honor to submit to you, with a view to its transmission to the Senatefor advice and consent to ratification, the Convention between the United States and the Republic ofKorea for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect toTaxes on Income and the Encouragement of International Trade and Investment Signed at Seoul June 4,1976, together with a related exchange of notes. The Convention with korea is similar, in all essential respects, to other tax conventions entered intoby the United States in recent years, such as the Convention with Iceland which entered into force lastyear.

6 The Convention establishes maximum rates of withholding tax in the source country on incomepayments flowing between the two countries. The rate of withholding tax on portfolio dividends islimited to 15 percent, while on dividends paid by a subsidiary to a parent corporation the rate of taxmay not exceed 10 percent. The maximum rate of withholding tax on interest is 12 percent except thatinterest derived by the Government of one of the Contracting States or by its local authorities orinstrumentalities is exempt from withholding at the source.

7 Royalties are subject in general to a 15percent maximum rate of tax. However, the tax on literary and artistic royalties, including motion pictureroyalties, is limited to 10 percent. The provisions of the Convention dealing with the taxation of business and personal service incomeare essentially the same as in our other recent conventions as are those dealing with definitional andadministrative matters. For example, a resident of one country will not be subject to tax in the othercountry on business profits unless those profits are attributable to a permanent establishment which theresident maintains in the other country.

8 Similarly, for business visitors from one country temporarilypresent in the other, the host country may tax his income only if certain tests in terms of time spent oramounts earned are met. One unusual provision of the Convention is found in Article 25, which provides a special exemptionfrom United States social security taxes for Korean residents who are temporarily present in Guam. Asimilar exemption is provided in the Internal Revenue Code for Philippine residents temporarily presentin Guam.

9 The Koreans argued that the Philippine exemption provides an unfair advantage to Philippineresidents and the firms which hire them and asked that a similar exemption be written into theConvention for Korean residents. The Convention provides that Korean residents will be exempt fromsocial security taxes only so long as the statutory exemption is in effect for Philippine residents. Thisprovision has the approval of the Department of Health, Education and Welfare. The Convention and exchange of notes will enter into force on the thirtieth day following theexchange of instruments of ratification.

10 It shall have effect with respect to withholding taxes and withrespect to the special exemption from social security taxes to amounts paid on or after the first day ofthe second month following the date on which the Convention enters into force. With respect to othertaxes it shall have effect for taxable years beginning on or after January 1 of the year following the dateon which the Convention enters into force. Once in force, the Convention will remain in effect for aminimum of five years and indefinitely thereafter subject to the right of either party to terminate it bygiving six-months' notice for that purpose pursuant to the provisions of the Convention .


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