All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

South Korea: Recent developments on the implementation of US FATCA in South Korea



John Kwak

Hoan Ku Lee

The Foreign Account Tax Compliance Act (FATCA) requires financial institutions located outside the US to pass information about the accounts of US customers to the US tax authorities, the Internal Revenue Service (IRS). The legislative intent of FATCA is to reduce overseas tax evasion by US citizens. To facilitate an efficient implementation of the FATCA, the US government has entered into, or is in the process of negotiating, intergovernmental agreements (IGAs) with various jurisdictions.

As for Korea, the Korean government has reached an agreement with the US on the final text of the IGA and is expected to officially execute the IGA by the end of this year. In the meantime, however, the Korean government on June 24 2014 released the "Implementation Regulation pursuant to the Agreement Between the Government of the United States of America and the Government of the Republic of Korea to Improve International Tax Compliance" (the Implementation Regulation) to provide specific domestic laws to assist Korean financial institutions in complying with the FATCA that takes effect from July 1 2014.

The promulgation of domestic laws or regulations that would enforce domestic financial institutions to comply with the IGA seems to be inevitable considering the fact that there is no other practical way to mandate the domestic financial institutions to adhere to the obligation imposed on the government via the IGA. This is especially true for jurisdictions that have entered into a Model 1 IGA which requires the domestic financial institutions to directly report FATCA related information to the government.

However, there are only a few countries including the UK that have actually promulgated its own domestic laws and regulations relating to the implementation of the FATCA rules in accordance with their relevant IGAs. Most jurisdictions, even the ones that have already entered into an IGA, lack such domestic laws or regulations.

Considering the difficulties many jurisdictions may have as to passing new laws specifically addressing the FATCA before the execution of the relevant IGAs, the US government stated in Annex I of the Model 1 IGA, which was released on June 6 2014, that reporting financial institutions may rely on the alternative procedures stipulated by the Model 1 IGA drafted by the US authorities for those jurisdictions that neither have an IGA or domestic implementation regulation in force.

However, rather than leaving the domestic financial institutions to rely on the alternative methods, the Korean government released the Implementation Regulation to facilitate domestic financial institutions to comply with the FATCA related obligations.

For countries that have passed relevant domestic laws after their execution of the IGAs, the relevant implementation regulations for such countries are formed in the way in which the provisions of the domestic laws refer to the specific provisions of the IGA (especially with regards to Annex I and II). When considering the fact that IGAs also have binding legal effects in their own jurisdictions, such reference to specific provisions of the IGA in the domestic laws seems natural for purposes of avoiding any conflict that may arise between the two contracting countries with regards to the meanings or interpretations of the IGA.

However, in the case of Korea, the Implementation Regulation was promulgated into law before the execution of the Korea-US IGA. Therefore, instead of referring to the specific provisions of the IGA, the Implementation Regulation reflected the content of the negotiations that took place with respect to the Korea-US IGA. To avoid potential conflicts that may arise from the different meanings or interpretations given in Korea's domestic laws when compared with the IGA that is to be executed in the future, the Implementation Regulation explicitly states that the IGA shall supersede the provisions in the Implementation Regulation in the event of a conflict.

The IGAs allow the relevant governments to permit its financial institutions to use the definitions and due diligence procedures provided in the US Treasury Regulations to the extent that such application would not frustrate the purpose of the IGAs. This suggests that the definitions and due diligence procedures provided in the US Treasury Regulations may only be permissively used in lieu of the definitions and procedures used in the IGAs, even if the US. Treasury Regulations were preferable for the relevant financial institutions. For this purpose, the UK had taken the route of explicitly stating the applicable language of the relevant US Treasury Regulations in its own domestic implementation regulations whereas Germany, in its draft regulations, comprehensively allows the use of the meanings given in the US Treasury Regulations. For Korea, the Implementation Regulations resemble the ones adopted by the UK by partially permitting the use of certain meanings and due diligence procedures provided in the US Treasury Regulations such as the scope of a depositary account, the use of the Industry Classification Code (applicable to pre-existing entity account), and the applicable currency exchange rates.

Most terminologies that are used in the FATCA or IGA are terms that are newly introduced for many of the jurisdictions that have entered into an IGA with the US. For this reason, to avoid the potential confusion that may arise in the lack of guidance or explanation for the terminologies used with respect to the FATCA or the IGA, many countries including the UK have put much effort into the conceptualisation of the FATCA related terminologies into their own local language and terminologies in their domestic implementation regulations.

This is also the case with Korea where the Implementation Regulation includes the conceptualisation of certain FATCA terms such as 'financial institution', 'cash value insurance', and 'accounts excluded from financial account' analogising them with similar concepts that were previously in place in the Korean domestic laws.

A consistent implementation of the FATCA in various jurisdictions outside the US is inevitably a daunting task considering the numerous domestic laws that are unique to each jurisdiction. That said, it is of critical importance for the governments of Model 1 jurisdictions to prepare laws and regulations that would provide a clear guidance to the financial institutions that are striving to comply with the FATCA rules, and eliminate the potential chaos that could be created especially in the beginning phase of implementing FATCA related rules and procedures. In this sense, by providing the Implementation Regulation even before the execution of the Korea-US IGA, Korea seems to be a noteworthy jurisdiction for those jurisdictions that are seeking exemplary guidelines in complying with the FATCA that is effective from July 1 2014.

John Kwak ( and Hoan Ku Lee (

Lee & Ko

Tel: +82 2 772 4000


More from across our site

This week European Commission officials consider legal loopholes to secure minimum corporate taxation, while Cisco and Microsoft shareholders call for tax transparency.
The fast-food company’s tax settlement with French authorities strengthens the need for businesses to review their TP arrangements and documentation.
The full ALP model will be adopted through a new TP regime, which is set to boost the country’s investments and tax certainty.
Tax professionals have called on the UK government to reconsider its online sales tax as it would affect the economy at the worst time.
Tax professionals have called on companies to act urgently to meet e-invoicing compliance targets as the EU plans to ramp up digitisation.
In the wake of India’s ambitious 25-year plan for economic growth, ITR has partnered with leading tax commentators to discuss what the future will look like for India and for the rest of the world.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree