Disclosure Requirements – South Korea – KGBs and MSBs
Disclosure Category: 1
According to Articles 132-3 and 132-4 of the Enforcement Decree of the Corporate Tax Act, Articles 179-3 and 179-4 of the Enforcement Decree of the Income Tax Act, Article 6-14 (3) of the Financial Investment Business Regulations, Articles 5-1 (2) and (3) of the Enforcement Rules of the Financial Investment Business Regulations, and Article 7-39 (4) of the Foreign Exchange Transactions Regulations, Clearstream Banking S.A. (“CBL”) falls under a legal obligation of disclosure to the Korean National Tax Service, Financial Supervisory Service, Bank of Korea and the Korea Securities Depository (collectively “the Korean authorities”) in the case of holdings of Korean government bonds (KGBs) and monetary stabilisation bonds (MSBs).
Consent
In order to comply with the regulations as mentioned above, clients holding KGBs and MSBs or entering into transactions in KGBs and MSBs, are deemed to consent to the required legal disclosure. Such consent includes the appointment of the requestor (for example, the KSD, as appropriate) as attorney-in-fact of such clients, under power of attorney to collect from CBL the required information to be disclosed.
Disclosure requirements
Clients are advised that, under local regulations, the Korean authorities are entitled to require CBL, through KSD, on request and/or on a regular basis, to disclose information or documents relating to the beneficial owners (including but not limited to the identity of the beneficial owner and qualified foreign intermediary or intermediaries (QFI or QFIs) above the beneficial owner in the custody chain) of KGBs and MSBs held in the omnibus account maintained by CBL at the KSD.
The following information will be disclosed and reported on a monthly basis on behalf of any beneficial owner who settles or safekeeps KGBs and MSBs via CBL:
a. holdings per beneficial owner
b. redemptions and income paid, per beneficial owner
c. settled internal and external transactions per beneficial owner
d. name, address, investor type and taxpayer identification number of the beneficial owner
e. name and taxpayer identification number of the qualified foreign intermediary (QFI) immediately above the beneficial owner in the custody chain
The above-mentioned information will be reported by the third business day of the following month, based on the activities of the beneficial owner in the previous month.
Background and legal basis
The monthly disclosure for KGBs and MSBs is made in accordance with Articles 132-3 and 132-4 of the Enforcement Decree of the Corporate Tax Act, Articles 179-3 and 179-4 of the Enforcement Decree of the Income Tax Act, Article 6-14 (3) of the Financial Investment Business Regulations, Articles 5-1 (2) and (3) of the Enforcement Rules of the Financial Investment Business Regulations, and Article 7-39 (4) of the Foreign Exchange Transactions Regulations.
Under these regulations, the Korean authorities are entitled to require CBL, through KSD, on request and/or on a regular basis, the disclosure of any data, information or document related to KGBs and MSBs held in the omnibus account maintained by CBL at the KSD. This obligation of disclosure covers, without being limited to, the identity and holdings of clients and/or beneficial owners of such recorded positions.
Sanctions
CBL will not be responsible for the availability and/or timeliness, correctness or completeness of the information provided by its clients or underlying beneficial owners when preparing such disclosure reporting. Additionally, CBL will also not be responsible for any penalties or sanctions or associated costs that could be imposed upon CBL due to a client's failure to comply with one or more disclosure requirements. Such penalties, sanctions or associated costs will be automatically passed on to the failing client. The client undertakes to hold CBL harmless and to indemnify CBL from any loss, claim, liability or expense asserted against or imposed upon CBL as a result of the client failure, whatever the failure, to comply with these disclosure requirements.
According to Article 132-2(4)3 of the Enforcement Decree of the Corporate Tax Act and Article 179-2(4)3 of the Enforcement Decree of the Income Tax Act, the NTS may revoke a QFI approval in case of breach with the obligations.
Whilst according to Article 6-25(2) of the Regulations on Financial Investment Business, the FSC may issue a remedy order or have the FSS take necessary measures, such as cancellation of the beneficial owner’s investment registration certificate in case of breach with the obligations.
Finally, according to Articles 19(1), 19(2), 32(3)1, 4-2 (3) and 4-2 (4) of the Foreign Exchange Transactions Act, the Ministry of Economy and Finance may, in case of breach with the obligations:
- issue a warning;
- suspend or restrict foreign exchange transactions within one year (if the breach with the obligations occur more than twice within 5 years);
- impose an administrative fine of up to KRW 30 million; and/or
- suspend payments.