SOUTH KOREA Law and Practice Contributed by: Young Joon Chun, Kyu Dong Kim, Yong Whan Choi and Hyeon Jeong, Yulchon LLC
9.13 Approach to Digital Services Taxation According to the Ministry of Economy and Finance, the Korean government has proactively adopted OECD BEPS recommendations and will follow the OECD’s long-term plan on digital taxation. With respect to whether Korea will adopt an interim unilateral measure like the UK’s digital services tax, the Korean govern - ment clearly indicated that a prudent approach should be taken by analysing any impact on related industries and tax revenue. As discussed in 9.2 Government Policy and Objec- tives Approach , the Korean tax law provisions relating to Pillar Two became effective for fiscal years com - mencing on or after 1 January 2024, but the imple - mentation of the UTPR (Undertaxed Payment Rule) was deferred to 1 January 2025. Korea’s QDMTT will apply for fiscal years commencing on or after 1 Janu - ary 2026. 9.14 Offshore IP Provisions Korea has not introduced any general provisions deal - ing with the taxation of offshore IP that is deployed in Korea. However, where a tax treaty that Korea has concluded determines the source of royalties based on the location of the use of such royalties, certain IP (eg, patents) that is registered outside Korea but deployed in Korea can be subject to Korean tax.
In light of this tax reform, additional scrutiny is expect - ed on the TP of intangible assets. 9.11 Country-by-Country Reporting and Transparency Provisions According to the OECD’s CbC Reporting Compilation of Peer Review Reports (Phase 1), Korea has indicated that measures are in place to ensure the appropri - ate use of information in all six areas identified in the OECD Guidance on the appropriate use of information contained in CbC Reports. In other words, Korea uses CbC Reports to assess high-level TP risks and other BEPS-related risks. As of February 2025, Korea exchanges CbC Reports with 108 countries. Korea does not make information received from other jurisdictions available to the pub - lic. Since CbC Reports provide substantial informa - tion to the tax authority that could be used to assess whether companies have BEPS-related issues, these reports may trigger aggressive tax audits and tax assessments. 9.12 Digital Economy Businesses Korea has already amended the VAT Law by intro - ducing an extraterritorial VAT regime for electronically supplied services. Under this regime, a foreign entre - preneur who supplies certain electronic services in Korea bears the obligation to report and pay VAT. For this purpose, “electronic services” includes the supply of electronic goods, such as: • game/audio/video files or software;
• advertising posting services; • cloud computing services;
• intermediary services enabling the lease/use/con - sumption of commodities or facilities in Korea; and • the supply of goods or services in Korea.
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