Presidential Decree No. 36128 introduces wide-ranging amendments to its international tax framework, including enhanced transfer pricing rules, stricter interest deduction limits, updated CFC provisions, and the implementation of the OECD’s Global Minimum Tax, alongside expanded reporting and compliance obligations.

RF Report

Korea (Rep.) has published Presidential Decree No. 36128, partially amending the enforcement Decree of the International Tax Adjustment Act, in the Official Gazette on 27 February 2026.

The Decree introduces sweeping updates to its international tax framework, significantly revising the enforcement rules under the International Tax Adjustment Act. The amendments align domestic rules more closely with global standards, strengthening transfer pricing requirements, tightening interest deduction limitations, refining controlled foreign corporation (CFC) provisions, and implementing the Global Minimum Tax under OECD Pillar Two.

The decree also enhances reporting obligations and administrative cooperation, signalling a broader effort to curb base erosion and profit shifting while improving transparency in cross-border transactions.

Key provisions include:

  1. Transfer pricing and arm’s length principle

The decree establishes the “normal price” (arm’s length price) as the standard for transactions between residents and foreign related parties.

  • Pricing Methods: It defines several methods to determine the normal price, including the Comparable Uncontrolled Price Method, Resale Price Method, Cost Plus Method, Transactional Net Margin Method, and Profit Split Method.
  • Specific transactions: Detailed rules apply to loans (calculating normal interest rates), cash pooling (integrated liquidity management), services (including a 5% margin for low-value-added services), and intangible assets (based on future cash flows and relative contributions).
  • Documentation: Taxpayers must submit reports such as the Master File (Integrated Enterprise Report), Local File (Individual Enterprise Report), and Country-by-Country Report (CbCR) depending on their revenue and transaction volume.
  1. Limitations on interest deductions

To prevent tax base erosion through excessive debt, the decree limits the deductibility of interest paid to foreign controlling shareholders:

  • Thin Capitalisation: Interest on debt exceeding two times (or six times for financial firms) the paid-in capital from a foreign controlling shareholder is treated as a dividend and is not deductible.
  • Income-based limitation: Net interest expenses exceeding 30% of adjusted taxable income are also non-deductible.
  • Hybrid financial instruments: Interest on instruments treated as debt in Korea but as equity in the recipient’s country is non-deductible if it is not taxed in the recipient’s country within a certain period.
  1. Controlled Foreign Corporation (CFC) rules

Undistributed earnings of a foreign corporation located in a low-tax jurisdiction may be deemed as dividends to its Korean shareholders.

  • Threshold: This applies if the actual tax burden in the foreign country is 15% or less of the actual generated income.
  • Exemptions: Entities with active business operations or those whose annual generated income is KRW 200 million or less may be exempt from these rules.
  1. Global minimum tax (GloBE Rules)

A significant portion of the decree covers the implementation of the Global Minimum Tax (Pillar Two), targeting multinational enterprise (MNE) groups with consolidated revenues of EUR 750 million or more.

  • Key mechanisms: It implements the Income Inclusion Rule (IIR), where the parent company pays a top-up tax for low-taxed subsidiaries, and the Undertaxed Payments Rule (UTPR) as a backstop.
  • Calculation: The Effective Tax Rate (ETR) is calculated per jurisdiction. If the ETR is below the 15% minimum rate, a top-up tax is imposed on the “excess profit” (GloBE income minus a substance-based income exclusion).
  • Domestic top-up tax: Korea also implements a Qualified Domestic Minimum Top-up Tax (QDMTT) to ensure it has the primary right to tax low-taxed income arising within its borders.
  1. Reporting and administrative cooperation
  • Asset reporting: Residents must report foreign financial accounts if the balance exceeds  KRW 500 million. They must also report foreign direct investments, overseas real estate, and overseas trusts.
  • Exchange of information: The decree facilitates the automatic exchange of financial information and crypto-asset transaction information with treaty partners.
  • Mutual Agreement Procedure (MAP): Procedures are established for resolving international tax disputes through consultation between national tax authorities and, if necessary, arbitration.
  1. Penalties

The decree specifies fines and penalties for non-compliance:

  • Failure to submit international transaction reports (Master/Local files) can result in fines up to  KRW 30 million per report.
  • Failure to file Global Minimum Tax information can result in a fine of KRW. 100 million
  • Violations of foreign financial account reporting can lead to fines up to 10% of the unreported amount

Earlier, the Ministry of Economy and Finance released the 2025 tax law amendment proposal, on 31 July 2025, which includes corporate tax hikes, AI investment incentives, and new international tax rules.