On 26 July 2021, South Korea’s Ministry of Economy and Finance (MOEF) has issued an overview of the proposed Tax Revision Bill 2021 to support new industries and employment, as well as inclusive growth. The Tax Revision Bill 2021 includes the following main proposals regarding CIT & transfer pricing rules which will generally become effective for fiscal years beginning on or after 1 January 2022.:

Changes in transfer pricing

Allowed loss-making businesses in comparable transactions depending on the current economic circumstances of the COVID-19 pandemic.

For the calculation of non-deductible interest current 30% EBITDA interest limitation rule provides an ordering that denies the deduction of the higher rate interest first when the restriction applies. The Bill proposes ordering rules for the non-deductible part of interest:

  • the most recent borrowing date takes precedence when same interest rate is applied; and
  • the non-deductible portion is bifurcated based on the ratio of the borrowed amounts if the interest rate and borrowing date are the same.

Moreover, the Tax Revision Bill introduces a new rule that the deductible amount of interest is deemed to be nil if the amount of EBITDA is negative.

Changes in corporate income tax (CIT)

  • Reduce tax evasion via controlled foreign company (CFC) by raising tax rates from 15% to 17.5% and taxing the amount transferred to trust funds;
  • Incentivize on R&D and facilities investment in national strategy technologies, such as semiconductors, batteries and vaccines by giving them extra support. Technologies as carbon emissions reduction technologies and phase 3 clinical trials for biosimilars will be eligible for up to 40 percent R&D investment tax cut;
  • Extend the capital gains tax deferral for all-inclusive exchange of shares to the end of 2023, as well as the capital gains tax deferral given when reinvesting in ventures;
  • A tax reduction of up to 10% for investment in equipment for intellectual properties;
  • Provide tax incentives for moving headquarters outside the Seoul metropolitan area, 100 % income tax cut for 7 years and 50% cut for 3 more years;
  • Provide the startup tax reduction of 50%-100% for 3 more years until the end of 2024.
  • Extend the tax reduction for corporate contributions to employees’ social security insurance until the end of 2024.