• Korea's 2023 tax reform proposals were announced on 27 July 2023, including additional global minimum tax rules to reflect the OECD BEPS 2.0 Pillar Two.
• These rules, outlined in this Alert, will be effective for fiscal years beginning on or after 1 January 2024, unless otherwise specified.
• One proposal would delay the effective date of the Undertaxed Profit Rule for 12 months, until 1 January 2025.
• Taxpayers should review the rules to determine their impact on Korean operations.

AITA

The 2023 Proposals

Effective date

UTPR is effective for fiscal years beginning on or after 1 January 2024

UTPR is proposed to have a 12-month delay

Effective starting from the fiscal year beginning on or after 1 January 2025

Provides special rules for additional statutes of limitations for certain circumstances (e.g., mutual agreement, refund claim)

In addition to current AITA rules, extends the statutes of limitations to one year from the date the tax authority becomes aware of the change if the effective tax rate (ETR) of the GloBE is changed

Effective starting from the fiscal year beginning on or after 1 January 2024

Defines "Entities" as (i) Corporations or (ii) arrangements such as partnerships or trusts with separate accounting

Excludes the government from the definition of Corporations

Defines "Group" as (i) a group of companies connected to each other through ownership or control, or (ii) a company that has one or more permanent establishments in a country other than the country in which the company is located

Excludes from the definition of "Group" a company with only a stateless permanent establishment (PE)

Defines a PE as (i) a domestic place of business defined under the Korean Corporate Income Tax Law (CITL), or (ii) a place of business similar to a domestic place of business located in a foreign country

Clarifies the definition of a PE in accordance with the OECD Model Rule

Defines an Ultimate Parent Entity (UPE) as (i) directly or indirectly owning a controlling interest in another entity, and (ii) not being owned by another entity

Adds the head office of the Group to the definition of UPE, while excluding the sovereign wealth fund from the definition of UPE

None

Introduces applicable foreign exchange rate for conversion into local KRW currency from the euro-based consolidated revenue test amount (i.e., €750 million) in accordance with the OECD/G20 Administrative Guidance

Permits all excluded entities to be selected as constituent entities

Permits only arbitrarily excluded entities to be selected as constituent entities

Excludes the net profit or loss of the PE when calculating the GloBE income or loss of the head office

In addition to current AITA rules, provides that if the head office's domestic taxation includes the loss of the PE, the head office's GloBE income or loss calculation also includes the loss of the PE

Introduces adjustment method for GloBE income or loss amount when a decision or rectification is made after GloBE reporting

Adds adjustment methods for GloBE income or loss due to increases or decreases of adjusted covered tax

Introduces a top-up tax calculation method in the area where ETR exceeds 15%

Adds top-up tax calculation method under new scenarios where the top-up tax percentage exceeds 15%

None

Introduces new requirements for recognition of qualified domestic minimum top-up tax (QDMTT) where the top-up tax of the GloBE is exempted for a parent entity in accordance with the OECD/G20 Administrative Guidance

A UTPR top-up tax allocation method is introduced

Introduces supplemental rules on the allocation method according to the UTPR top-up tax for each constituent entity

Effective starting from the fiscal year beginning on or after 1 January 2025

Introduces allocation method per country for the top-up tax amount under the UTPR

Requires allocation to other jurisdictions if certain constituent entities do not bear additional top-up tax amounts under UTPR

Introduces special rules for restructuring

Adds special rules for restructuring if the country where the constituent entity is located allows adjustments to the tax book value as FMV

Effective starting from the fiscal year beginning on or after 1 January 2024

Introduces special rules for investment constituent entities

Excludes tax-transparent entities from the application of special rules for investment constituent entities

Introduces rules on allocation amount when applying the tax allocation method of investment constituent entities

Introduces supplemental rule indicating that the amount of allocation includes both actual and deemed allocation amount

Excludes Groups in the early stages of overseas expansion from UTPR for five years

Provides a five-year application period for Groups in the early stages of overseas expansion, running from the time UTPR is first applied (i.e., 1 January 2025)

Effective starting from the fiscal year beginning on or after 1 January 2025

Introduces rules on GloBE information reporting and payment

Introduces a penalty tax exemption and reduction provisions related to GloBE top-up tax filing and payment obligation GloBE during the transitional period:

1. Penalty exemptions on non-filing or filing for understated tax or overclaimed tax refunds
2. 50% reduction of interest for the delayed/underpaid tax payment

Introduces penalty exemption provisions for errors in the submission of the GloBE information report during the transitional period, subject to conditions

Effective starting from the fiscal year beginning on or after 1 January 2024