On December 31, 2023, South Korea implemented the 2024 Tax Reform Bill (the 2024 Tax Reform) after approval from Korea’s National Assembly on 21 December 2023. The 2024 Tax Reform will take effect for fiscal years starting on or after 1 January 1, 2024. Notably, the supplementary rules for income inclusion, or the Undertaxed Profits Rule (UTPR), will be delayed by one year and will go into effect on 1 January 2025.
The key features of the new and amended tax laws:
Revision of the global minimum tax rule
The 2024 Tax Reform introduces new and additional Global Anti-Base Erosion (GloBE) rules. These rules complement the existing Korean GloBE regulations in accordance with the Adjustment of International Taxes Act (AITA) and the OECD’s Pillar Two GloBE rules and related administrative guidance. Furthermore, they incorporate the legislative developments of other OECD member countries in relation to Pillar Two. To enforce these changes, new Enforcement Decrees (EDs) to the AITA will be enacted on 29 December 2023 and will take effect on 1 January 2024.
The new EDs offer specific guidance on the AITA, including detailed requirements on definitions and the scope of the GloBE rules, calculating GloBE income or loss and covered tax, transitional country-by-country reporting safe harbor, and GloBE information return requirements that were addressed in the OECD/Inclusive Framework (IF) Administrative Guideline (AG). Additional aspects of the GloBe rules were provided in the July 2023 issue of the OECD/IF AG that have not been implemented yet. These include a UTPR safe harbor and a QDMTT safe harbor.
Amendments to the document submission requirement for international transactions
Under current AITA provisions, taxpayers obligated to file master/local files are exempted from the requirement to submit transfer pricing (TP) documents such as the statement of international transactions, the summary income statement of foreign related parties, and the report on the arm’s-length pricing method.
Under the 2024 Tax Reform, taxpayers obligated to file master/local files must be provided with relevant TP documents within six months from the end of the fiscal year unless specific waiver conditions are fulfilled.
