Korea - Implementation of UTPR delayed

The tax reform proposals for fiscal year 2024, presented by Korea’s Ministry of Economy and Finance (MOFE) on 27 July 2023, include measures to supplement the global minimum tax rules under Pillar Two, defer the implementation of the under-taxed profits rule (UTPR) and shorten the deadline for submitting master and local files. Once approved by the National Assembly, most of the proposed measures generally would apply for fiscal years beginning on or after 1 January 2024.

Pillar Two rules

Korea was the first country to codify the OECD GloBE rules under Pillar Two in its “Law for the Coordination of International Tax Affairs” introduced on 31 December 2022. The rules basically follow the OECD model rules and include a 15% minimum tax that will apply to multinationals with consolidated revenue of at least EUR 750 million during two of the prior four business years, an income inclusion rule and “supplementary rules for income inclusion,” the latter of which is called the UTPR in the OECD model rules. Although the proposals do not include a qualified domestic minimum top-up tax, the MOFE is expected to introduce one in the near future.

The main features of the proposals are as follows:

  • The implementation of the UTPR would be delayed for another year so that it would become effective as from 1 January 2025.
  • The key aspects of the OECD GloBE rules would be implemented in Korean law.
  • Transitional penalty relief measures would be introduced.

The MOFE will issue detailed administrative guidance on the Pillar Two rules in 2024.

Master and local files

The deadline for submitting local and master file would be shortened from the current 12 months from the last day of the fiscal year to six months to strengthen the risk management of cross-border transactions. The deadline for submitting country-by-country reports, however, would remain unchanged, i.e., such reports must be filed within 12 months from the last day of the fiscal year.

Kwang Tae Oh
BDO in Korea