SOUTH KOREA Trends and Developments Contributed by: Tom Kwon, Jung-Ho Ryu, Steve Kim and Philje Cho, Lee & Ko
Practical strategies for future transactions In light of these stricter rules, parties should obtain a contemporaneous, arm’s length valuation, prepared in accordance with the CITL and relevant enforcement guidance, to establish an objective benchmark prior to closing. In acquisition transactions, parties should also confirm that the agreed consideration falls within the 30% “safe harbour” range relative to fair market value, to reduce the risk that the differential will be recharacterised as taxable Other Income and to miti - gate unexpected tax exposure. In addition, a proactive review of the applicable tax treaty is strongly recom - mended, to assess whether, and to what extent, Korea may assert taxing jurisdiction under the expanded interpretation.
in Korea” as “Other Income”. Under that prior frame - work, the Tax Tribunal had held that gains realised from an acquisition at below-market value did not fall within the ordinary meaning of a “gift”, and therefore were not taxable under the Other Income category. The new regulations close this loophole by specify - ing that such price differences fall within the scope of taxable “Other Income”, starting from 1 January 2026. Tax treaty considerations The impact of this amendment depends on the appli - cable tax treaty. While many of Korea’s tax treaties grant the exclusive right to tax “Other Income” to the country of residence, certain treaties (such as those with the US, the Netherlands and Singapore) allow for taxation by the source country; accordingly, Other Income would be taxable in Korea if it is deemed to have a Korean source.
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