Korea (Rep. Of)
The Tax Authority of Korea introduced new forms for country-by-country (CbC) reporting and for the advance notification for recognizing the company of a multinational group as the “reporting entity.”
A Master file as well as a Local file will have to be submitted by all domestic corporations and foreign corporations with Korea-source income with Sales revenue exceeds KRW 100 billion (approximately U.S. $89 million) and the volume of cross-border related-party transactions exceeds KRW 50 billion (approximately U.S. $44.4 million) for fiscal years beginning on or after 1 January 2016. Both files have to be filed with the head of the tax office having jurisdiction over the place where the tax payment is remitted, within 12 months from the fiscal year-end.
The CbC report is required to be submitted by ultimate parent company when the earlier year’s consolidated sales revenue exceeds KRW 1 trillion.
The tax authority also updated the rules on the arm’s length interest rate applicable for loan transactions between a resident and a foreign related-party. The new rules set forth the arm’s length interest rate for lending and borrowing involving a Korean resident taxpayer to a foreign related party.
The Double Taxation Agreement (DTA) between Kenya and Korea (Rep.) was entered into force for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income on 3 April 2017. This treaty will apply from 1 January 2018.
Korea (Rep.), Singapore Competent authority agreement on automatic exchange of information enters into force
The Competent Authority Agreement on Automatic Exchange of Information (2016) between Korea (Rep.) and Singapore entered into force on 27 February 2017. The agreement is expected to make sure Korea (Rep.) and Singapore will be able to begin from 2018, the automatic exchange of financial account information related to taxable periods or charges to taxes beginning on or after 1 January 2017 according to the OECD Automatic Exchange of Information Agreement (2014) (MCAA), on the basis of the Council of Europe – OECD Convention on Mutual Administrative Assistance in Tax Matters (1988), as amended by the 2010 protocol.
Korea (Rep.) -Competent authority agreement on automatic exchange of information with Hong Kong signed
Korea (Rep.) has signed the Competent Authority Agreement on Automatic Exchange of Information with Hong Kong on 23 January 2017. The agreement stipulated details about the types of information that will be exchanged and the timing of the exchange in accordance with the OECD Automatic Exchange of Information Agreement provision of 2014.
This Agreement provides for the effective exchange of information regarding tax matters between the tax authorities including automatic exchange of information which is necessary for the exchange of financial account information based on the international standards formulated by the OECD, and is expected to contribute to the prevention of international tax evasion and tax abuse.
The government of the Czech Republic on 16 January 2017, authorized the negotiation of a new Income Tax Treaty with the Republic of Korea. When signed, in force and effective, the new treaty will replace the existing Income Tax Treaty (signed in 1992).
The Ministry of Strategy and Finance of South Korea published a proposal for detailed procedures of the country -by country reporting requirements on 28 December 2016.
The proposal requires the provision of a full report on cross-border transactions with related parties, consisting of the master file, the local file, and the CbC report.
A master file and a local file are to be submitted for cross-border related persons with a turnover of over KRW 50 billion (including financial transactions, ie intercompany loans) and KRW 100 billion in turnover. For consolidated sales of KRW 1 trillion (approximately US $ 1 bn), the CbC report must be provided.
According to Article 21-2 of the proposed enforcement order, the multinational entities (MNEs) operating in Korea would have to submit a “reporting form for the reporting company” in advance, and the MNEs would require to determine which company and which jurisdiction the CbC report would be submitted.
The reporting entity notification form must be submitted within six months after the end of the financial year.
The penalty provision would also be revised, so that each report would be subject to a separate fine of KRW 10 million. As suggested, if a taxpayer lacks a detailed statement of cross-border transactions for one entity, the taxpayer would be subject to a separate fine of KRW 5 million. In other words, a taxpayer would be subject separately to a fine of KRW 5 million per missing entity. The penalty for the combined report on international transactions and a detailed presentation of the cross-border transactions could not exceed KRW 100 million.