Korea: Tax reform proposal for 2023, changes to Pillar Two and transfer pricing documentation rules
The Ministry of Economy and Finance announced tax reform proposal for 2023, which includes proposed changes to Pillar Two global minimum tax rules.
Tax reform proposal for 2023, changes to Pillar Two, transfer pricing documentation rules
The Ministry of Economy and Finance (MOEF) on 27 July 2023 announced the tax reform proposal for 2023, which includes proposed changes to the Korean Pillar Two global minimum tax rules and acceleration of the deadline for submitting certain transfer pricing documentation.
Pillar Two rules
The Korean global anti-base erosion (GloBE) rules were enacted and added to Section 5 of the International Tax Coordination Law (ITCL) in December 2022. Korea was one of the first few countries to codify the GloBE rules in its domestic legislation. The GloBE Rules are aligned with the OECD Pillar Two Model Rules and include the income inclusion rule (IIR) and the undertaxed profits rule (UTPR). Under the currently enacted tax law, both rules are to be effective for fiscal years beginning on or after 1 January 2024.
The 2023 tax reform proposal would postpone the effective date of the UTPR to fiscal years beginning on or after 1 January 2025. The effective date of the IIR would remain unchanged, starting from fiscal years beginning on or after 1 January 2024.
In addition, the proposal would incorporate certain elements of the model rules and commentary that were not included in the original enactment of the GloBE rules under the ITCL in December 2022 and would adopt key elements of the administrative guidance published by OECD in February and July of 2023.
However, the proposal does not fully incorporate the model rules and the administrative guidance, such as the transitional UTPR safe harbor included in the July administrative guidance. It is anticipated that these gaps will be addressed through amendments to the Enforcement Decree and the Enforcement Regulation of the ITCL.
Read an August 2023 report [PDF 735 KB] prepared by the KPMG member firm in Korea
Acceleration of deadline for certain transfer pricing documentation
The 2023 tax reform proposal would accelerate the deadline for applicable taxpayers to submit a Master file and a Local file to six months (from 12 months) following the end of the fiscal year.
In addition, taxpayers that may have been exempted from the requirement to submit the statement of international transactions, the summary income statement of a foreign related party or the report on arm’s length pricing method because certain transaction thresholds were exceeded, would no longer be exempted.
These changes are proposed to become effective for fiscal years beginning on or after 1 January 2024.
Read an August 2023 report [PDF 376 KB] prepared by the KPMG member firm in Korea
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