[Abstract]

A Study of the Problems and Improvements on Current Partnership Taxation in PEF

Kim Su Sung

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In order to attract foreign investment in Private Equity Fund (hereafter referredto as ‘PEF’), domestic investors of PEF as well as foreign private equity investors need to be granted various tax incentives. With regard to such purpose, by providing tax concessions through amendment of tax law, investment of pension funds overseas and the funds necessary for the domestic PEF have been recruited in a timely manner. Such law amendment is expected to contribute significantly to investment promotion of the PEF. However, some of this amendment may cause tax issues that might be reverse discrimination when viewed from the viewpoint of domestic institutional investors compared to pension funds overseas.

The recent amendment allows all the PEF operating profit to be levied based on dividend income taxation while overseas pension funds are left completely out of taxation. This is the exceptional taxation of corporate partnership taxation due to a grant of tax breaks, which causes lose fairness between domestic funds and overseas pension fund invested in the PEF. The amendment is to lower their tax revenue within the country as well as to leak national wealth to outside of the country, such as the Lone Star Funds case.

To ameliorate this problem, the special tax treatment control law, 18 of Art. 100, should solve the reverse discrimination between domestic pension fund and the overseas pension fund. And international PEFs should not to receive exceptional taxation in applying the tax benefits of partnership companies.

This study is to look into problems and improvement measures on the taxation for domestic investment promotion of domestic PEF as well as foreign PEF, and to search measures minimizing taxation difference between foreign and domestic PEFs and further to look at problems in the taxation system causing loss to domestic investors due to taxation measures applied for the purpose of investment promotion of PEF. Therefore, this study is to achieve taxation fairness for domestic PEF through the taxation balance between domestic institutional investments and overseas pension funds, and also has significance in suggesting a measure that domestic PEF investment is activated again.

▶ Key Words：PEF, private equity fund, partnership taxation, conduit-theory, limited partner

** Published on December 2014
** Full article available in Korean only
** Download here → 6-1 A Study of the Problems and Improvements on Current Partnership Taxation in PEF_김수성.pdf