Korea-Tax reform bill of 2017 enacted

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Korea enacted the tax reform bill of 2017 on 20 December 2016 which was approved by the National Assembly on 2 December 2016.

According to the Tax Reform of 2017 domestic merged brother-sister companies would be considered as tax free if and only both of them are wholly owned by the same parent company and this will effective from 1 January 2017.

Previously domestic companies other than small and medium-sized enterprises and certain other companies (like companies which are under court receivership) were subject to a limitation on utilization of net operating losses (NOLs) to 80% of taxable income. The tax reform bill of 2017 further extended to cover domestic branches of foreign companies and this became effective from 1 January 2017

The 2017 tax reform also includes draft CbC reporting rules and according to which ultimate Korean parent of a multinational consolidated group will be required to provide the CbC reporting if the revenue of the consolidated group for the preceding year exceeds KRW1 trillion (US$900 million). The report will have to be filed within 12 months after the end of the relevant fiscal year and from 2018 this report will be exchanged between which have adopted multilateral agreement on the exchange of CbC reports. This CbC reporting requirements will be effective for CbC reports filed on or after 1 January 2017.

The tax reform extended the due date for filing the Master file and Local file further to 12 months from the end of the fiscal year.  Also, according to the tax reform transactions which are already covered by an advance pricing agreement would be exempt from inclusion in the Local File. This new requirement of Master file and Local file will be effective for the Master File and Local File submitted to the Korean tax authority on or after 1 January 2017.

The 2017 Tax Reform also modifies the method for determining the payroll increase amount and dividend amount to compute the accumulated earnings tax with the aim to encourage companies to increase their spending in investments and payroll and this effective for fiscal years beginning on or after 1 January 2017.

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