Korea releases draft Pillar Two rules

July 2022

The proposed rule

As part of 2022 tax reform, the Korean Ministry of Strategy and Finance (MOSF) announced, on July 21, the introduction of draft domestic legislation for a global minimum tax. Korea’s summary draft rules, released in Korean, correspond closely to the OECD’s Pillar Two Model Rules, which was led by the OECD / G20 and has been agreed upon by 141 countries in the Inclusive Framework. Detailed legislation is expected in December.

According to the proposed rules, if a multinational company incurs an effective tax rate (ETR) lower than the Korean minimum tax rate (15%) in a specific jurisdiction, the taxpayer would have to pay the difference between the tax calculated at that lower ETR and the tax calculated at the 15% minimum rate. The draft rules include an Income Inclusion Rule and ‘Supplementary rules for income inclusion’ (known as the UTPR in the OECD Model Rules). Both rules are proposed to be effective for tax years beginning on or after January 1, 2024. Importantly, the UTPR effective date in the draft EU minimum tax Directive has shifted to 2025 (effectively), but Korea’s UTPR appears to maintain a 2024 effective date for now.

The draft rules do not include a Qualified Domestic Minimum Top-up Tax (QDMTT). However, it is possible that the detailed legislation expected in December might include a QDMTT.

Actions to consider: Potentially in-scope entities should consider how to prepare for the possible implementation of Pillar Two rules in Korea. In addition to reviewing the group structure and estimating a potential ETR impact, entities should be considering whether their current systems and processes will be able to capture, catalog and process the required data.

Applicable taxpayers

  • Korea’s proposed rules would apply to multinational company groups whose consolidated revenue is €750 million or more in two or more of the last four fiscal years. 
  • In principle, the ultimate parent company (at the time of preparing the consolidated financial statements) should be obliged to pay any tax owed. Partially owned intermediate companies (e.g., a third party that directly or indirectly owns 20% or more), would be liable for their own portion of the tax payment, if applicable.
  • The following entities are excluded from the definition of a constituent company:
    • Government agencies, international organizations, non-profit organizations, and pension funds
    • Investment funds and real estate investment schemes that are the final parent company
    • Companies directly or indirectly owned by the entities listed in the first two bullet points above.

Filing and due date

  • The effective date would be for fiscal years beginning on January 1, 2024 and thereafter. 
  • The filing due date would be 15 months after the last day of the fiscal year. However, for the first year, the due date would be 18 months after the last day of the fiscal year).
  • If the fiscal year ends in December, the first year would be the year 2024, and the first due date of the filing and payment would be due June 30, 2026.
  • For accounting purposes, it is expected that the financial auditor will require the global minimum tax to be reflected in corporate tax expenses and relevant liabilities in the financial statements from the review of the first quarter of 2024. 

Contact us

Doug McHoney

International Tax Services Global Leader, PwC US

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