Korea (Rep. Of)
According to an IRS announcement on its website, the competent authorities of the U.S. and Slovakia have concluded an arrangement on the exchange of Country-by-Country Reports. The competent authority arrangement (CAA) for exchange of country-by-country reports is on the basis of a double tax convention (DTC). The agreement was signed on 21 June 2017.
Under the arrangement, the first fiscal year for which the U.S. and Slovakia intend to exchange CbC reports is the fiscal years of MNE Groups commencing on or after January 1, 2016. The CbC report is intended to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC report relates. CbC reports with respect to fiscal years of MNE Groups commencing on or after January 1, 2017 are intended to be exchanged as soon as possible and no later than 15 months after the last day of the fiscal year of the MNE Group to which the CbC report relates.
The Competent Authorities intend to exchange the CbC Reports automatically through a common schema in Extensible Markup Language (XML).
With the aim of encouraging the development of new growth-engine industries, reinforcing employment-friendly tax schemes, and facilitating corporate restructuring, a few amendments that affect foreign investment or foreign invested companies have been taken in Korea.
The amendments are as follows:
- the research and development (R&D) tax credit has been restructured for qualified technologies to stimulate the economy;
- tax support given to companies with foreign investment with high-technology has also been restructured and a tax credit has been introduced for facility investment to commercialize technologies;
- while calculating the corporate tax base using the tax credit method, foreign tax included in gross income cannot be deducted from the tax base of the local income tax; and
- foreign corporate branches in Korea shall be added to the scope of companies subject to restriction of net operating loss deductions.
Most of the above mentioned amendments became effective from 1 January 2017.
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.