The National Assembly of Korea passed the Tax Reform Bill of 2016 on 2 December 2015. The bill was enacted on 15 December 2015 and certain Enforcement Decrees are expected to be approved by the Government in the near future.

According to the current tax law the net operating losses can be carried forward for 10 years to compensate the taxable income without any condition limitation. The tax reform bill introduces an annual deductibility limitation of 80% of taxable income.  However, companies classified as small and medium sized and certain companies specified under the Enforcement Decree of Corporate Income Tax Law (CITL ED) including companies under court receivership will fall within the 80% limitation.

The amended bill will be effective for periods beginning on or after 1 January 2016.

The sunset clause providing tax credits for investments in research and development (R&D) facilities will be further extended for another three years, but the applicable tax credit rates will be reduced for those extended years. The energy saving facilities will not be affected by this, but the applicable tax credits will be reduced for investments made in 2016.

The amended tax law introduces new documentation requirements for certain multinational companies, in line with the Organization for Economic Co-operation and Development’s guidance on Transfer Pricing Documentation and Country-by-Country reporting issued as part of the Base Erosion and Profit Shifting (BEPS) project. The new reporting requirement will be applicable to domestic corporations which have transactions and assets exceeding specific thresholds and foreign corporations with a permanent establishment in Korea.

Failure to comply with the reporting standard will result in a noncompliance penalty of KRW10 million.

The amended law will become effective for periods beginning on or after 1 January 2016.