The ETS Web site describes the role its Korean branch plays, which tax authorities may be looking at if they decide to investigate whether the Korean operation should Lee Ki-su, president of Korea University, and Hong Seung-yong, CEO of the uni- be subject to taxation. / Related Column on Page 7 |
Experts Say Taxation Decision Is in Authorities’ Hands
By Kang Shin-who
Staff Reporter
Korean tax authorities can consider imposing taxes on the U.S-based Education Testing Service (ETS) for its income from administering the TOEFL test here, the Korea Institute of Public Finance said Tuesday.
Accountant Koo Ja-eun of the tax research institute told The Korea Times that the ETS case merits a closer look by the National Tax Service (NTS).
``If ETS Korea plays a role in TOEFL marketing, it should be subject to taxation on its TOEFL sales in Korea,'' Koo said. ``We can compare this to how ETS pays taxes in Korea for its other popular test, TOEIC.''
Currently, the American test provider is exempted from taxes on its TOEFL income, although it earns more than $21 million in test fees here annually. Korea is the largest TOEFL market for the nonprofit organization. The income was calculated by multiplying the test fee by the number of test takers.
In the case of TOEIC, ETS relies on YBM-Sisa to administer the exam in Korea. YBM pays taxes on the income and royalties to the test developer.
According to an NTS official, the tax authority had been unaware of the ETS office, which opened in 2007, and its business activities.
Under the tax law, foreign organizations, regardless of whether they are profit or nonprofit, have to pay income tax if they operate through a domestic business outlet.
Regarding the tax exemption, the test provider said in an email to The Korea Times that ``ETS does not have any offices outside of the United States. Rather we have a subsidiary, ETS Global BV, which operates branches in select countries.''
``The Korean branch of our ETS Global BV is similar to those around the world in that they undertake marketing and promotion of our products but are not part of the test delivery or operational process for these exams. Still, the ETS Global BV Korean branch is taxable and pays all applicable taxes to the Korean government.''
However, the reply from the American organization contradicts information on its Web site about its branches' roles.
A former PR agent for the test organizer told The Korea Times that Lee Yong-tak, country manager of ETS Korea, plays point-person for ETS in the field and his word is taken seriously by its headquarters.
Tax experts say whether a company or organization has a decision maker or not in Korea is critical for taxation.
In the meantime, the test organizer is exempted from valued added tax (VAT). Regarding this, ETS said, ``Based upon our understanding of Korean tax laws, and confirmed by our tax advisors, we are not required to collect VAT from test takers for the TOEFL and GRE programs. These programs are used by international universities outside of Korea, for the purposes of admitting talented Korean students to study abroad.''
The TOEFL and GRE are broadly used for admission to Korean universities. Company and NTS officials said they need to look into the VAT exemption of the test provider.
kswho@koreatimes.co.kr
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yistory@koreatimes.co.kr
