What is the definition of beneficial owner in Korea?

In Korea, the concept of a "beneficial owner" is crucial in determining the application of tax treaties, particularly concerning royalty income. Generally, the beneficial owner of income is the entity that ultimately benefits from and controls the income, rather than a mere intermediary or conduit.

Key considerations for determining beneficial ownership include:

• Control and Use of Income: The entity must have the power to use, enjoy, and dispose of the income. This involves assessing whether the recipient has genuine control over the income and is not legally or contractually obligated to transfer it to another party.
• Substance over Form: Tax authorities look beyond the legal form of transactions to the economic substance. If an entity is merely a "conduit company" or a "shell company" with no real economic activity or decision-making power, it may not be considered the beneficial owner.
• Discretionary Power: The recipient should possess discretionary power over the income, meaning they can decide how to use or distribute it without being subject to the control of another entity.

For instance, in cases involving royalty payments, if a foreign company receives royalties but is merely a conduit for its parent company, the parent company might be considered the beneficial owner, and the tax treaty between Korea and the parent company's country of residence would apply, rather than the treaty with the intermediary's country.