Is your overseas business legal? Legal risk analysis of the global settlement structure.
Article posted in 2025-02-14 11:40:29 | VEAT
Law firm Veat informed the company operating a workforce intermediary platform (hereinafter referred to as the “Customer”) about the legal risks related to the settlement structure, designed to attribute revenue generated outside of South Korea to the overseas subsidiary.
Check elements related to overseas subsidiary establishment and operation
Many companies considering global market entry review the strategy of establishing an overseas subsidiary and operating it as a separate entity from the domestic business. However, when creating a settlement structure that attributes revenue generated outside of South Korea to the overseas subsidiary, it is essential to review legal risks in advance and minimize them.
Law firm Veat conducted a legal review of generally overlooked aspects related to the overseas subsidiary settlement structure, focusing on the following issues for the Customer.
① Possibility of denial of inappropriate transactions and tax risk analysis
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Corporate Income Tax Act Article 52 (Denial of inappropriate transactions) ① The tax office or regional tax office with jurisdiction over the tax base may calculate the income of a domestic corporation even if the calculation of the corporation’s actions or income is recognized as reducing the corporation's tax burden due to transactions with related parties. In this case, the tax office or regional tax office shall calculate the income of each business year of the corporation without regard to the calculation of the corporation’s actions or income (hereinafter referred to as “inappropriate transaction”). |
The settlement structure that establishes an overseas subsidiary and attributes revenue to that subsidiary may be considered to be subject to the provision denying inappropriate transactions under the Corporate Income Tax Act (anti-tax avoidance provision). The tax office may adjust the calculation of income for the transaction to ensure proper taxation if it deems that a specific transaction reduces the corporation's tax burden.
In addition, a review of the tax office’s recent press releases on overseas tax evasion revealed a risk of being deemed tax evasion in international transactions. If a company is interpreted as avoiding corporate tax by utilizing an overseas subsidiary, there is a high probability of becoming the target of a tax office investigation, so a cautious approach is necessary.
② Review of whether it is an electronic payment transaction agent
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Electronic Financial Transaction Act Article 28 (License and registration of electronic financial business) ② The following businesses shall be registered with the Financial Supervisory Service. However, this shall not apply to banks and other financial institutions designated by Presidential Decree.
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If the company performs the role of agency or mediation for settlements between the Customer and the overseas subsidiary in this settlement structure, it may be subject to various obligations under relevant laws, such as registration with the Financial Supervisory Service as an electronic payment transaction agent under the Electronic Financial Transaction Act.
Violating the registration obligation under the Electronic Financial Transaction Act may be subject to criminal punishment such as imprisonment for less than 3 years or a fine of 20 million won, so it is recommended to receive a thorough review by an expert regarding whether the Electronic Financial Transaction Act has been violated.
③ Legal review of terms of use and personal information
The content of the terms of use and privacy policy, and the consent form for the collection and use of personal information differ according to the laws governing each country. Therefore, it is essential to revise and localize the terms of use, privacy policy, etc. used by the overseas subsidiary to comply with the regulations of each country.
Law firm Veat has provided support for revising terms of use, drafting consent forms for the collection and use of personal information, and revising privacy policies to comply with country-specific regulations, helping the Customer operate businesses without legal problems overseas.
Law firm Veat’s differentiated legal advice related to overseas subsidiary establishment and operation!
As can be seen in this case, legal risks in the process of establishing and operating an overseas subsidiary are diverse, and thorough review in advance is necessary. Law firm Veat is a law firm that deeply understands the legal issues arising in the global expansion process of IT and startup companies. Based on this understanding, Law firm Veat has provided customized solutions to help customers grow steadily in overseas markets whenever they wish to expand their business scope to international transactions.
Therefore, if you need a legal review related to overseas subsidiaries and international transactions, please contact Law firm Veat at any time. Law firm Veat will provide you with legal advice tailored to your specific circumstances.
This case study can also be viewed on the Law firm Veat blog below.
- Is your overseas business legal? Analysis of legal risks in global settlement structures
Thank you. Law firm Veat