I had a meeting a couple of month ago with the CEO of a mobile game company. He was in his early thirties, and the cadre of his staffs mostly in their late 20s and early 30s joined him in the meeting.
The company develops gaming apps sold from both Apple App Store and Google Play and had two blockbusters that led the company to accomplish a revenue size exceeding KRW 14 billion within the two-year time frame.
Encouraged by this huge feat of success, the company decided to test its luck from an offshore location with a slightly different business model: the game publishing business. The CEO wanted to help third-party game developers with marketing their games from the offshore market where legal restrictions are much less stringent than in Korea.
The meeting was held to probe for any key tax issues that may arise both when they set up a business (a branch or a subsidiary) in the target country and when they try to reap the fruits of their investment by means of dividends, royalties or interests.
During the first thirty minutes of the meeting, the discussions were going nowhere; a lot of redundant, disorganized questions were strewn away, and nobody seemed to understand the answers that my colleagues and I were providing them. The biggest problem was that there was no consensus among the CEO and his staff on what the short- and long-term objectives should be and how the company should go about accomplishing them.
They all had ambition, reasonable expertise and experience in their own field and passion for their business, but one thing was critically lacking: a well-structured business plan.
The gaming industry has been burgeoning during the last decade or so in South Korea, fueled mostly by the nation's globally competitive smart phone industry and the government's consistently generous investments in IT infrastructure (e.g., introduction of 5G) and other related service industries. There have been twice or thrice as many cases of failures as the cases of success, and the successful companies usually tend to speculate over the dreams of selling their apps overseas. And when they do, the smart ones think about tax.
So they come to people like us, tax advisers, line up their questions and expect us to provide simple answers thinking that tax is no more than a black-and-white matter. What they usually don't realize are the followings:
So if you are either one of the gaming business CEOs or a staff working for a gaming company and have tax-related questions or assistance concerning your company's investment or business model, I would like to suggest that you first prepare a draft business/investment plan with all the basic elements (e.g., short- and long-term objectives, company status, investment structure, financing options, etc.) laid out before you seek any assistance from your tax advisers. That way, you are more likely to get the kind of answers and attention you would require from your advisers and to be able to protect yourself from any malpractices.
- that the tax law is usually very complex and therefore contains lots of grey areas that are the source of uncertainties; there is no one-size-fits-all type of solution;
- that an exercise of tax planning requires, just like any plans in life, some sort of algorithm by itself; in other words, it needs a carefully thought-out strategy which would go hand-in-hand with a specific business model; and
- that most tax authorities around the world are focusing on, and taking concerted actions nowadays in developing/amending international standards of taxation so as to effectively assess taxes on the incomes generated by e-commerce/online businesses (e.g., OECD BEPS action plan #1).
So if you are either one of the gaming business CEOs or a staff working for a gaming company and have tax-related questions or assistance concerning your company's investment or business model, I would like to suggest that you first prepare a draft business/investment plan with all the basic elements (e.g., short- and long-term objectives, company status, investment structure, financing options, etc.) laid out before you seek any assistance from your tax advisers. That way, you are more likely to get the kind of answers and attention you would require from your advisers and to be able to protect yourself from any malpractices.
