SOUTH KOREA Law and Practice Contributed by: Young Joon Chun, Kyu Dong Kim, Yong Whan Choi and Hyeon Jeong, Yulchon LLC
• where the taxpayer fails to fulfil its tax compliance obligations under the relevant tax law; • where the taxpayer is suspected of entering into false transactions, such as transactions without valid documentation or disguised/fictitious transac - tions; • where detailed information on the taxpayer’s tax evasion is reported; or • where the NTS has evidence of omissions or errors in the tax return. Upon completion of a tax audit, written notice of the audit results is provided. In the event of any objec - tions, the taxpayer can request a Review of Adequacy of Tax Imposition (RATI) within 30 days of the receipt of such notice (before the final tax assessment is issued). 9. BEPS 9.1 Adoption of BEPS Recommendations Korea has adopted most of the 15 BEPS action plans recommended by the OECD through amending rel - evant domestic laws and treaties, as follows: • BEPS Action 1 (digital economy) – in 2015, Korea introduced a new provision in the VAT Law that imposes VAT on applications provided in offshore open markets, and in 2019 it expanded the scope of the extraterritorial VAT regime for electronically supplied services; • BEPS Action 2 (hybrid mismatch arrangements) – the Korean government introduced rules to neutral - ise the effect of hybrid mismatch arrangements in 2018; • BEPS Action 3 (CFC rules) – Korea expanded the scope of CFCs in 2017; • BEPS Action 4 (interest deductions) – Korea intro - duced a new interest deduction limitation rule in 2018; • BEPS Action 5 (harmful tax practices) – in 2019, the Korean government abolished the CIT exemp - tion previously available to foreign-invested com - panies; • BEPS Action 6 (treaty abuse) – Korea adopted relevant provisions when entering into or amend - ing tax treaties, and participated in the Multilateral
Convention to Implement Tax Treaty Related Meas - ures to Prevent BEPS (MLI); • BEPS Action 7 (permanent establishment status) – Korea broadened its definition of permanent establishments in 2019; • BEPS Actions 8 to 10 (transfer pricing) – in 2019, Korea amended TP rules relating to the substance- over-form principle and intangibles; • BEPS Action 11 (BEPS data analysis) and BEPS Action 12 (disclosure of aggressive tax planning) – the Korean government is considering legislative changes; • BEPS Action 13 (transfer pricing documentation) – in 2016 and 2017, Korea revised the Korean TP regulations to require certain multinational com - panies that engage in cross-border related-party transactions to file a Master File, a Local File and a Country-by-Country (CbC) Report; • BEPS Action 14 (dispute resolution) – in 2017, Korea allowed non-residents and foreign compa - nies that do not have a place of business in Korea to request a MAP in Korea; and • BEPS Action 15 (MLI) – Korea signed the MLI in 2017, which took effect in September 2020. 9.2 Government Policy and Objectives Approach The Korean government has implemented a tax reform to boost economic growth through adopting the OECD BEPS measures. For instance, in alignment with the OECD recommendations, Korea strength - ened anti-avoidance measures on BEPS Action 7 to prevent abusive business structures that might erode Korea’s tax base. Korea announced a tax law amendment proposal in July 2022, which included the introduction of Pillar Two provisions that are generally in line with the OECD Guidelines. The National Assembly approved the tax law amendment proposal in December 2022, and the Pillar Two provisions became effective for fiscal years commencing on or after 1 January 2024. The Korean Pillar Two legislation is generally consistent with the OECD Model Rules, Commentary and Administrative Guidance. Pillar One is likely to affect only two or three Korean multinational enterprises, given the higher profit -
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