SOUTH KOREA Trends and Developments Contributed by: Dong Shin Lee, Wankyu Jeon, Irene Y. Kim and Young Woong Park, Yoon & Yang LLC
Introduction Korea – one of the first countries to codify Pillar Two (Global Minimum Tax Deal) – is now brac - ing for considerable uncertainty as the Trump administration declares Pillar Two to have “no force or effect” in the USA. In October 2021, Korea joined hands with other members of the OECD/G20 Inclusive Frame - work on BEPS on a two-pillar solution to reform the international tax rules, addressing the tax challenges arising from the globalisation and digitalisation of the economy. The second pillar of this solution (Pillar Two) introduces a glob - ally co-ordinated and comprehensive system of minimum taxation that ensures that large multi - national enterprise groups pay a minimum effec - tive tax rate of 15% on their income in respect of every jurisdiction where they operate. Korea has always been at the forefront of the implementation of Pillar Two. As early as Decem - ber 2022, Korea codified the main elements of Pillar Two into its laws, making it the first country to sign into law the global minimum tax rules, and further amplified these laws through amend - ments in December 2023. Alongside this legisla - tion, the Korean government also swiftly prom - ulgated the enforcement decrees, which further solidified the legal framework for the implemen - tation of Pillar Two in much detail. As a result, the Pillar Two income inclusion rules (IIR) became effective as of 1 January 2024. The Undertaxed Profit Rule (UTPR), originally set to take effect on 1 January 2024, was allowed a one-year delay to keep pace with other major countries and became effective as of 1 Janu - ary 2025. Under these timelines, the first of the information returns was expected to be filed by the later of:
• 15 months (18 months for any transition year) after the end of the relevant fiscal year; or • 30 June 2026. The relevant tax would be payable by the appli - cable filing date. Like many other jurisdictions, Korea is now brac - ing for considerable uncertainty as President Donald Trump has decided to withdraw the USA from global tax agreements. Along with the slew of executive orders signed by President Trump on his first day back in the White House on 20 January 2025 was a presidential memorandum declaring that the commitments made under the Pillar Two agreement have “no force and effect” in the USA. With this directive effectively remov - ing the USA from the global tax agreement on Pillar Two, businesses and other stakeholders subject to taxation in Korea should closely moni - tor the developments and potential ripple effects on the overall global tax agreements and the rel - evant Korean legislation. Practical Considerations: How to Select Comparable Companies When Domestic Companies are Selected as a Tested Party Article 8 of the Adjustment of International Taxes Act (AITA) provides for several transfer pricing methods, as follows: • comparable uncontrolled price method (CUP); • resale price method (RPM); • cost-plus method (CPM); • transactional net profit margin method (TNMM); • profit split method (PSM); and • other reasonable methods. Article 6 of the Enforcement Rule provides that, to assess comparability, factors such as the fol - lowing should be analysed:
335 CHAMBERS.COM
Powered by FlippingBook