12 August 2026 Korea's 2026 tax reform proposals would implement key elements of the OECD Pillar Two Side-by-Side Package - As part of its 2026 tax reform proposals, the Republic of Korea on 11 August 2026 proposed amendments to its Global Minimum Tax rules to implement key elements of the OECD/G20 Inclusive Framework's January 2026 Pillar Two Side-by-Side Package.
- Most of these rules will generally apply to fiscal years beginning on or after 1 January 2026, while certain amendments will apply by reference to Global Anti-Base Erosion Information Return filings or local Top-up Tax allocation filings submitted on or after 1 January 2027 or the effective date of the amended Enforcement Decree.
- Taxpayers should review the proposals to determine their impact on their Korean operations.
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The 2026 tax reform proposals would amend the Republic of Korea's Global Minimum Tax rules under the Adjustment of International Taxes Act (AITA) to incorporate key elements of the Organisation for Economic Co-operation and Development/Group of 20 (OECD/G20) Inclusive Framework's January 2026 Side-by-Side Package, other than the one-year extension of the Transitional Country-by-Country Reporting (CbCR) Safe Harbour, which had already been introduced through the amendment of the Presidential Decree of the AITA in February 2026. The proposals would introduce the: - Side-by-Side (SbS) Safe Harbour
- Ultimate Parent Entity (UPE) Safe Harbour
- Substance-Based Tax Incentives (SBTI) Safe Harbour
- Simplified Effective Tax Rate (ETR) Safe Harbour
The proposals would also extend the end date of the Transitional Undertaxed Profits Rule (UTPR) Safe Harbour for groups using 52-week or 53-week fiscal years. Separately, the proposals would include Qualified Domestic Minimum Top-up Tax (QDMTT) paid in a foreign jurisdiction within the scope of foreign taxes potentially eligible for the Korean foreign tax credit. The proposals are expected to be finalized within one or two months and subsequently enacted during the year-end regular session of the National Assembly. This Alert summarizes the key proposals related to Korea's Global Minimum Tax. For more information on other proposals, see EY Global Tax Alert, Korea announces 2026 tax reform proposals, dated 12 August 2026. Introduction of Side-by-Side Package into Global Minimum Tax rules The 2026 tax reform proposals would introduce key elements of the OECD/G20 Inclusive Framework's Side-by-Side Package into the Global Anti-Base Erosion (GloBE) rules under Korea's AITA. The amendments would generally apply if the GloBE Information Return (GIR) filing or local filing is submitted on or after 1 January 2027, subject to the specific effective dates provided for the Safe Harbours that the amendments would incorporate. (For background, see EY Global Tax Alert, OECD releases Side-by-Side Package on Pillar Two Global Minimum Tax: Detailed review, dated 16 January 2026.) Details regarding the Side-by-Side Package elements in the 2026 Proposals are outlined below. Each of the safe harbors below is an annual election that a multinational enterprise group (MNE Group) may make. 2026 Proposals | Details | SbS Safe Harbour | If an MNE Group elects to apply the SbS Safe Harbour and its UPE is located in a jurisdiction recognized by the OECD/G20 Inclusive Framework as having a qualified SbS regime (i.e., a regime that (1) has an eligible domestic tax system (2) has an eligible worldwide tax system, and (3) provides foreign tax credits (FTCs) for QDMTT paid in foreign jurisdictions), the Top-up Tax under the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) would be deemed to be zero for Korean IIR and UTPR purposes. For a jurisdiction recognized based on an assessment of tax regimes in existence as of 31 December 2025, the SbS Safe Harbour would generally apply to fiscal years beginning on or after 1 January 2026. For a jurisdiction recognized based on an assessment of tax regimes that were not in existence until a later date, it would generally apply from the fiscal year following the year in which the jurisdiction is recognized by the OECD/G20 Inclusive Framework. | UPE Safe Harbour | For Constituent Entities (CEs) located in the UPE jurisdiction, the UTPR Top-up Tax attributable to that jurisdiction would be deemed to be zero, provided that the UPE jurisdiction is recognized by the OECD/G20 Inclusive Framework as having a qualified UPE regime that includes an eligible domestic tax system. The UPE Safe Harbour would not affect the application of the IIR or QDMTT. It would apply to fiscal years beginning on or after 1 January 2026. | SBTI Safe Harbour | The amount of Covered Taxes reduced as a result of corporate income tax (CIT) incentives when computing Top-up Tax or QDMTT may be added back to Covered Taxes to the extent these incentives qualify as an SBTI. A qualified SBTI generally is a tax benefit calculated by reference to qualifying expenditure incurred or the volume of qualifying production. The SBTI amount is determined depending on the type of the relevant incentive, as follows: - The amount of the tax credit claimed that reduced Covered Taxes
- The amount of the excess tax deduction claimed × the applicable CIT rate
- The amount of exempt income × the applicable CIT rate
- The amount of qualifying income subject to a preferential tax rate × (the applicable CIT rate — the preferential tax rate)
The amount added to Covered Taxes is limited to 5.5% of the greater of: - Eligible payroll costs
- Depreciation expense relating to eligible tangible assets
If a five-year election is made, the amount added to Covered Taxes is instead limited to 1% of the carrying value of eligible tangible assets. The SBTI Safe Harbour would apply to fiscal years beginning on or after 1 January 2026. | Simplified ETR Safe Harbour | The Simplified ETR Safe Harbour would be available for a jurisdiction if the MNE Group did not have Top-up Tax or QDMTT for that jurisdiction for any fiscal year beginning within the 24-month period preceding the first day of the relevant fiscal year. The MNE Group may use Simplified Income and Simplified Taxes instead of undertaking the full GloBE Income and Adjusted Covered Taxes computations. The Top-up Tax or Korea QDMTT for that jurisdiction would be deemed to be zero if either (1) the Simplified ETR is at least 15%, or (2) the Simplified Income is zero or less. However, Additional Current Top-up Tax or Additional Current Korea QDMTT would be excluded from the Top-up Tax or Korea QDMTT to be deemed zero for purposes of the Simplified ETR Safe Harbour. The Simplified ETR Safe Harbour would apply to fiscal years beginning on or after 31 December 2026. |
Refinement to application period for Transitional UTPR Safe Harbour The 2026 tax reform proposals would extend the Transitional UTPR Safe Harbour period from fiscal years ending on or before 30 December 2026, to fiscal years ending on or before 3 January 2027. This amendment is intended to ensure that MNE Groups with 52-week or 53-week fiscal years are not excluded from the Transitional UTPR Safe Harbour solely due to differences in fiscal year-end dates. The proposed refinement would apply if the GIR filing or Local filing is submitted on or after the effective date of the amended Enforcement Decree. Inclusion of QDMTT as a creditable foreign tax for FTC purposes The 2026 tax reform proposals would expand the scope of taxes eligible for the Korean FTC by including QDMTT paid overseas. As a result, QDMTT paid in a foreign jurisdiction may be creditable against Korean CIT, subject to the applicable Korean FTC requirements and limitations. The amendment would apply to foreign taxes for which the tax liability is determined, or for which the relevant return is filed, on or after the effective date of the amended Enforcement Decree. MNE Groups with activities in Korea should consult with knowledgeable tax professionals to review and consider whether their group structures, UPE jurisdictions, incentive arrangements, Korean operations and foreign QDMTT circumstances may qualify for the proposed safe harbors or Korean foreign tax credit treatment. Further, depending on their particular circumstances, groups should assess related compliance, filing and modeling implications for fiscal years beginning in 2026 and later. | * * * * * * * * * * | | Contact Information | For additional information concerning this Alert, please contact: Ernst & Young Han Young, Seoul Ernst & Young LLP (United States), Korean Tax Desk, New York Ernst & Young LLP (United States), Asia Pacific Business Group, New York | | Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor |
Document ID: 2026-1727 |
