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ENFORCEMENT DECREE OF THE ADJUSTMENT OF INTERNATIONAL TAXES ACT

Wholly Amended by Presidential Decree No. 31448, Feb. 17, 2021

Amended by Presidential Decree No. 32274, Dec. 28, 2021

Presidential Decree No. 32423, Feb. 15, 2022

Presidential Decree No. 33140, Dec. 27, 2022

Presidential Decree No. 33272, Feb. 28, 2023

Presidential Decree No. 34064, Dec. 29, 2023

CHAPTER I GENERAL PROVISIONS
 Article 1 (Purpose)
The purpose of this Decree is to prescribe matters mandated by the Adjustment of International Taxes Act and matters necessary for the enforcement thereof.
 Article 2 (Detailed Criteria for Special Relationship)
(1) "Person prescribed by Presidential Decree including his or her relatives" in Article 2 (1) 3 (b) of the Adjustment of International Taxes Act (hereinafter referred to as the "Act") means a person in a relationship by blood defined in subparagraph 20 (a) of Article 2 of the Framework Act on National Taxes (hereafter in this Article referred to as "relatives, etc.").
(2) A special relationship defined in Article 2 (1) 3 of the Act shall be any of the following relationships: <Amended on Dec. 28, 2021; Dec. 27, 2022>
1. A relationship referred to in Article 2 (1) 3 (a) of the Act: Any of the following relationships:
(a) A relationship between a resident, domestic corporation, or domestic place of business and another foreign corporation, where the resident, domestic corporation, or foreign corporation having the domestic place of business owns directly or indirectly at least 50 percent of the voting stocks (including the equity shares; hereinafter the same shall apply) of the another foreign corporation;
(b) A relationship between a person residing or located in a foreign country and a domestic corporation or domestic place of business, where the person owns directly or indirectly at least 50 percent of the voting stocks of the domestic corporation or the foreign corporation having the domestic place of business;
2. A relationship referred to in Article 2 (1) 3 (b) of the Act: A relationship between a domestic corporation or domestic place of business and another foreign corporation, where a third party or his or her relatives, etc. owning directly or indirectly at least 50 percent of the voting stocks of the domestic corporation or the foreign corporation having the domestic place of business owns directly or indirectly at least 50 percent of the voting stocks of the another foreign corporation;
3. A relationship referred to in Article 2 (1) 3 (c) of the Act: A relationship between the parties to a transaction, where the parties to a transaction are a resident, domestic corporation, or domestic place of business and a nonresident, foreign corporation, or its overseas place of business and one party to a transaction has the power to substantially determine all or important part of the business policy of the other party by any of the following means:
(a) The representative director or the executive officers corresponding to at least half of all executive officers of the other corporation shall assume the positions of executive officers or employees of one corporation which is one party to a transaction or shall have assumed such positions within three years retroactively from the end of the pertinent business year;
(b) One party to a transaction shall own at least 50 percent of the voting stocks of the other party, through an association or trust;
(c) One party to a transaction shall depend on the trade with the other party for at least 50 percent of its business activities;
(d) One party to a transaction shall borrow at least 50 percent of the funds required for its business activities from the other party or shall raise them through a payment guarantee of the other party;
(e) One party to a transaction shall depend on the intellectual property right provided by the other party for at least 50 percent of its business activities;
4. A relationship under Article 2 (1) 3 (d) of the Act: A relationship between the parties to a transaction, where the parties to a transaction are a resident, domestic corporation, or domestic place of business and a nonresident, foreign corporation, or its overseas place of business and a third party has the power to substantially determine the business policy of both parties to a transaction by any of the following means:
(a) A third party shall directly or indirectly own at least 50 percent of the voting stocks of one party to a transaction and have the power to substantially determine all or important part of the business policy of the other party by any of the means referred to in the items of subparagraph 3;
(b) A third party shall have the power to substantially determine all or important part of the business policy of both parties to a transaction by any of the means referred to in the items of subparagraph 3;
(c) One party to a transaction shall be an affiliated company of an enterprise group under any subparagraph of Article 4 (1) of the Enforcement Decree of the Monopoly Regulation and Fair Trade Act, and another affiliated company of the enterprise group shall directly or indirectly own at least 50 percent of the voting stocks of the other party.
(3) For the purposes of applying paragraph (2) 1, 2, and 4, the indirect ownership ratio of stocks of one party (referring to a resident, domestic corporation, nonresident, or foreign corporation; hereafter in this paragraph the same shall apply) to the other party (referring to a domestic corporation or foreign corporation; hereafter in this paragraph the same shall apply) shall be the ratio calculated according to the methods classified as follows:
1. Where either party owns at least 50 percent of the voting stocks of the corporation that is a stockholder of the other party (hereinafter referred to as "stockholding corporation"): The ratio of the voting stocks held by the other party, which are owned by the stockholding corporation, to the voting stocks held by the other party (hereafter in this paragraph referred to as "stockholding ratio of the stockholding corporation");
2. Where either party owns less than 50 percent of the voting stocks of a stockholding corporation: The ratio obtained by multiplying the relevant holding ratio by the stockholding ratio of the stockholding corporation;
3. Where there exist at least two stockholding corporations for the purposes of applying subparagraphs 1 and 2: The ratio obtained by adding the ratios calculated by each stockholding corporation pursuant to subparagraphs 1 and 2;
4. Where either party, a stockholding corporation, and at least one corporation between them are connected through a stock ownership: The ratio calculated by applying the calculation methods referred to in subparagraphs 1 through 3 mutatis mutandis.
 Article 3 (Substance over Form Principle regarding International Transactions)
(1) "Where the tax burden to be paid to the Republic of Korea is significantly reduced by more than the ratio prescribed by Presidential Decree through a roundabout transaction" in Article 3 (4) of the Act means cases where the tax burden to be paid to the Republic of Korea (hereafter in this Article referred to as "tax burden") is not more than 50 percent of the tax burden calculated according to the economic substance of the relevant transaction.
(2) "Where ... meet the requirements prescribed by Presidential Decree" in Article 3 (4) of the Act means cases where all the following requirements are met:
1. The amount of a roundabout transaction shall not exceed one billion won;
2. The amount of tax burden reduced through a roundabout transaction shall not exceed 100 million won.
(3) The tax burden under paragraphs (1) and (2) 2 shall be calculated by including only the following taxes:
1. Income tax;
2. Corporate tax;
3. Other taxes subject to the application of the tax treaty.
(4) Except as provided in paragraphs (1) through (3), matters necessary for the calculation, etc. of tax burden shall be prescribed by Ordinance of the Ministry of Economy and Finance.
 Article 4 (Applicable Scope of Rejection of Recalculation of Unfair Transaction)
"Donation, etc. of assets prescribed by Presidential Decree" in the proviso of Article 4 (2) of the Act means the following cases:
1. Transferring an asset without consideration (excluding transferring it at a substantially low price) or exempting an obligation;
2. Purchasing nonperforming asset, receiving such asset as a contribution in kind, or bearing expenses of such asset;
3. Bearing contributions by proxy;
4. Other capital transactions which fall under any of the items of Article 88 (1) 8 of the Enforcement Decree of the Corporate Tax Act or under subparagraph 8-2 of that paragraph.
CHAPTER II ADJUSTMENT OF TAX ON INTERNATIONAL TRANSACTIONS
SECTION 1 Adjustment of Taxation on Transactions with Foreign Related Parties
Sub-Section 1 Adjustment of Taxation by Arm’s Length Price
 Article 5 (Comparable Uncontrolled Price Method)
In applying the comparable uncontrolled price method under Article 8 (1) 1 of the Act to crude oil, agricultural products, minerals, etc. traded in any domestic or overseas open market (hereafter in this Article referred to as "open market"), the following matters shall be taken into consideration:
1. Where there is a substantial difference in the terms and conditions of transaction, such as physical characteristics and quality of goods, the quantity of and timing for supply, the contract term, and the conditions of transportation, in comparison of a transaction of goods between a resident (including a domestic corporation and a domestic place of business; hereafter in this Section the same shall apply) and a foreign related party and a transaction of goods between independent unrelated business entities in an open market, such difference shall be reasonably adjusted;
2. The specific time based on which a price is calculated (hereafter in this Article referred to as "pricing date") shall be determined according to the following classifications:
(a) Where a resident submits reliable data on the pricing date: The pricing date shall be determined based on the data submitted by the resident;
(b) Where a resident fails to provide data on the pricing date or where it is not reasonable to determine the pricing date based on data submitted by the resident in the light of the actual transaction: The pricing date shall be determined based on data available to the relevant tax authority, such as the shipment date entered on the relevant bill of lading.
 Article 6 (Resale Price Method)
(1) The normal profits obtained by a purchaser as a seller in applying the resale price method under Article 8 (1) 2 of the Act shall be an amount calculated by multiplying the price of assets that the purchaser sells to an unrelated person, by a sale-based normal profit margin. In such cases, the sale-based normal profit margin means the ratio of gross profits (referring to the amount calculated by subtracting the sales cost from the sales; hereafter in this Sub-section the same shall apply) to sales realized in the transactions between the purchaser and the unrelated person, which are similar to the relevant transaction in light of the functions performed, the assets used, and the degree of risk assumed.
(2) Where it is impracticable to compute the proper sale-based normal profit margin in transactions between the purchaser and the unrelated person under paragraph (1), the normal profit margin generated from the third transactions between the unrelated persons, which are similar to the relevant transactions in light of the functions performed, the assets used, and the degree of risk assumed, may be used as the sale-based normal profit margin under paragraph (1).
 Article 7 (Cost Plus Method)
(1) The normal profits of the seller of assets or the service provider in applying the cost plus method under Article 8 (1) 3 of the Act shall be an amount calculated by multiplying the following costs by a cost-based normal profit margin. In such cases, the cost-based normal profit margin shall be the ratio of gross profits to the costs incurred in the transactions between the seller of assets or the service provider and an unrelated person, which are similar to the relevant transaction in light of the functions performed, the assets used, and the degree of risk assumed:
1. In cases of the seller of assets: Costs incurred in purchasing, constructing, or manufacturing the relevant assets at an arm's length price;
2. In cases of the service provider: Cost incurred in rendering the service at an arm's length price.
(2) Where it is impracticable to compute the proper cost-based normal profit margin in transactions between the seller of assets or the service provider and an unrelated person under paragraph (1), the normal profit margin generated from the third transactions between the unrelated persons, which are similar to the relevant transactions in light of the functions performed, the assets used, and the degree of risk assumed, may be used as the cost-based normal profit margin under paragraph (1).
 Article 8 (Transactional Net Margin Method)
(1) In applying the transactional net margin method under Article 8 (1) 4 of the Act, an ordinary transactional net margin realized in a transaction between a resident and an unrelated person shall be calculated on the basis of any of the following indicators:
1. A ratio of net profits to sales (referring to the amount calculated by subtracting operating expenses from gross profits, and operating expenses refer to the expenses incurred in sales and general administration; hereafter in this Sub-section the same shall apply);
2. A ratio of net profits to assets;
3. A ratio of net profits to sales cost and operating expenses;
4. A ratio of gross profits to operating expenses;
5. Other transactional net margins deemed reasonable.
(2) Where it is impracticable to calculate an ordinary transactional net margin realized in a transaction between a resident and an unrelated person under paragraph (1), the ordinary transactional net margin realized in transactions similar to the relevant transactions in light of the functions performed, the assets used, and the degree of risk assumed may be used as the ordinary transactional net margin under paragraph (1):
1. Transactions between a foreign related party and an unrelated party;
2. Transactions between unrelated third parties.
 Article 9 (Profit Split Method)
(1) The profit split method under Article 8 (1) 5 of the Act shall be applied in consideration of the following matters:
1. Net profits generated by both parties to a transaction shall be a net profit realized in transactions with a third party;
2. Relative contribution shall be measured with the reasonable allocation criteria deemed applicable to transactions between independent unrelated business entities in similar conditions, taking into consideration the following criteria and the significance of each criteria in realizing the net profits:
(a) The relative value of the function performed by a party to the transaction, in consideration of the assets used and risks assumed;
(b) Operating assets, tangible or intangible assets, or capital employed;
(c) Expenses spent and invested in key areas, such as research and development, design, and marketing;
(d) Other reasonably measurable allocation criteria concerning the creation of the net profits, such as increased sales volume, the number of employees involved in the key areas or work hours input, and store sizes.
(2) The profit split method under Article 8 (1) 5 of the Act shall include the methods of preferentially distributing the proper initial remuneration of the parties to transactions by transaction type and allocating the residual profit according to the relative contribution of each party.
 Article 10 (Other Arm’s Length Pricing Methods)
"Other methods deemed reasonable as prescribed by Presidential Decree" in Article 8 (1) 6 of the Act means methods deemed reasonable in the light of the substance and practices of transactions, in addition to the pricing methods prescribed by the Act.
 Article 11 (Arm's Length Pricing Methods for Monetary Loan Transactions)
(1) The interest rate as the arm's length price for a monetary loan transaction between a resident and a foreign related party (hereafter in this Article referred to as "normal interest rate") shall be calculated in consideration of the following factors. In such cases, the monetary loan transaction between the resident and the foreign related party shall include de facto monetary loan transactions, such as collection of claims and payment of obligations which are overdue beyond the ordinary time limit for collection or payment:
1. The amount of the obligation;
2. Maturity of the obligation;
3. Whether the obligation is secured;
4. Credit rating of the obligor.
(2) In applying Article 8 (1) 6 of the Act to the method of calculating the normal interest rate on a monetary loan transaction between a resident and a foreign related party, the following interest rates may be applied: <Amended on Feb. 15, 2022>
1. The interest rate calculated by considering factors under the subparagraphs of paragraph (1), based on the rate that works like the insurance premium rate applicable to a credit default swap transaction to hedge against credit risk such as default on derivatives under Article 5 of the Financial Investment Services and Capital Markets Act and similar foreign derivatives;
2. The interest rate calculated by considering factors under the subparagraphs of paragraph (1), based on the interest rate derived from incorporating such variables as risk-free interest rate, default risk, liquidity risk, debt maturity, and inflation rate into a model designed for computing prevailing interest rates in international financial markets;
3. The interest rate determined by the Minister of Economy and Finance by considering the transaction amounts, prevailing interest rates, etc. in international financial markets.
 Article 11-2 (Arm's Length Pricing Method for Cash Pooling Transactions)
(1) "Cash pooling transaction" in this Article means either of the following transactions within an enterprise group comprising residents and foreign related parties (hereinafter referred to as "enterprise group") that centralizes liquidity management by selecting a person responsible for centrally managing the enterprise group's funds (hereinafter referred to as "cash pool leader") and managing the deposit accounts opened and held by each constituent enterprise at the enterprise group level, resulting in benefits for residents and foreign related parties within the enterprise group (such as fee income and reduced interest expenses; hereinafter the same shall apply):
1. A transaction that generates benefits for cash pool participants and the cash pool leader as the consistent enterprises, not the cash pool leader (hereinafter referred to as "cash pool participants") transfer funds to or receive money from the cash pool leader's deposit account (hereinafter referred to as "master cash-pooling account");
2. A transaction that generates benefits for cash pool participants and the cash pool leader or for cash pool participants as the cash pool leader essentially centralize cash management within the enterprise group without opening and holding a master cash-pooling account by facilitating money lending among cash pool participants or raising money from financial companies, etc. based on the cumulative amounts held in the deposit account of each cash pool participant.
(2) In applying an arm's length pricing method under Article 8 of the Act to cash pooling transactions, the following formula shall be followed:
1. The respective benefits obtained by both the cash pool leader and cash pool participants from the cash pooling transaction shall be taken into consideration;
2. When calculating the benefits for the cash pool leader, the following methods shall be applied:
(a) Where the cash pool leader actively centralizes cash management by formulating a funding strategy and managing liquidity, credit risk, liquidity risk, and the risk of exchange rate fluctuations at the enterprise group level: Arm's length pricing methods for monetary loan transactions under Article 11;
(b) In cases other than those provided in item (a): Arms' length pricing methods for intra-group services under Article 12;
3. When calculating benefits for cash pool participants, the following methods shall be applied:
(a) In cases of cash pooling transactions under paragraph (1) 1: Arm's length pricing methods for monetary loan transactions under Article 11. In such cases, matters prescribed by Ordinance of the Ministry of Economy and Finance, such as the period of cash pooling transactions and risk management policies at the enterprise group level shall be taken into consideration;
(b) In cases of cash pooling transactions under paragraph (1) 2: Arm's length pricing methods in consideration of matters prescribed by Ordinance of the Ministry of Economy and Finance, such as expected benefits for and level of contributions by cash pool participants.
[This Article Newly Inserted on Feb. 15, 2022]
 Article 12 (Arm's Length Pricing Methods for Intra-Group Services)
(1) Where the cost plus method under Article 8 (1) 3 of the Act or the transactional net margin method under Article 8 (1) 3 of this Decree is applied to an arm's length pricing for intra-group services (referring to business management, financial consulting, payment guarantee, computational and technical support, or any other intra-group service deemed necessary for business; hereafter in this Article the same shall apply) between a resident and a foreign related party, it shall be calculated according to the following criteria:
1. The cost incurred shall include all expenses incurred directly or indirectly in providing the service;
2. Where the service provider requests a third party to perform all or part of the service on his or her behalf, pays the price therefor in lump sum, and then reclaims such expenses from the service recipient, the service provider shall add a normal profit to the cost generated from the activities that the service provider performs on his or her own in connection with the service: Provided, That the same shall not apply, if deemed reasonable in light of the details of the service, circumstances of the transaction, and customary practices.
(2) Where a resident applies an amount calculated by adding five percent to the cost of the relevant service as the price for intra-group services regarding the intra-group services satisfying all of the following requirements (hereafter in this Article referred to as "low value-added intra-group services"), such price shall be deemed an arm's length price. In such cases, the cost of the relevant service shall be calculated in accordance with the criteria prescribed in the subparagraphs of paragraph (1):
1. The services subject to a transaction shall not fall under any of the following and be of a supportive nature not directly related to the core business activities of residents and foreign related parties:
(a) Research and development;
(b) Exploration, collection, and processing of natural resources;
(c) Purchase, manufacture, sales, marketing, and advertisement of raw materials;
(d) Finance, insurance, and reinsurance;
2. Any of the following facts shall not exist in the course of providing services:
(a) Use or creation of unique and valuable intangible assets;
(b) A service provider shall assume or manage and control serious risks;
3. Neither service provider nor service recipient shall engage in any similar intra-group service with a third party that has no special relationship.
(3) Where the aggregate of the amounts calculated by adding five percent to the cost of low value-added intra-group services for the relevant taxable year exceeds the amount prescribed by Ordinance of the Ministry of Economy and Finance, paragraph (2) shall not apply.
(4) In applying Article 8 (1) 6 of the Act as an arm's length pricing method for an intra-group payment guarantee among intra-group services between a resident and a foreign related party, any of the following methods shall apply:
1. Arm's length pricing method based on the anticipated risks of, and expenses to be incurred by, the guarantor;
2. Arm's length pricing method based on the expected benefits of the principal;
3. Arm's length pricing method based on the anticipated risks of, and expenses to be incurred by, the guarantor and the expected benefits of the principal.
(5) Where a resident applies any of the following amounts to the price for an intra-group payment guarantee in the application of paragraph (4), such amount shall be deemed an arm's length price:
1. The amount of fees computed by the relevant financial company based on the difference in interest rates that depend on the existence of a payment guarantee at the time of concluding the payment guarantee agreement (applicable only to the amount of fees verified by a statement on the difference in interest rates prepared by the relevant financial company);
2. The amount of fees computed according to the method prescribed in the subparagraphs of paragraph (4), as determined by the Commissioner of the National Tax Service.
(6) For the purposes of paragraphs (4) and (5), detailed matters concerning the computation of anticipated risks and expenses, expected benefits, etc. shall be prescribed by Ordinance of the Ministry of Economy and Finance.
(7) Where an intra-group service between a resident and a foreign related party fails to meet any of the following requirements, expenses incurred in providing such service shall not be included in necessary expenses or deductible expenses:
1. The service provider shall conclude an agreement in advance and actually provide such service in accordance with the agreement;
2. The service recipient shall be able to anticipate additional profits or expense savings by using that service;
3. Another related party itself shall not perform the same service as the one provided to the service recipient, or an unrelated third party shall not provide the service for another related party: Provided, That the same shall not apply where the service provided is temporarily overlapped on any reasonable grounds, such as reorganization of the business or organizational structure, restructuring, an effort to reduce errors in making decisions on business management;
4. Documents substantiating the facts referred to in subparagraphs 1 and 2 shall be retained and kept.
 Article 13 (Arm's Length Pricing Methods for Transaction of Intangible Assets)
(1) "Intangible asset" in this Article means any of the following assets available for business activities (referring to those other than tangible or financial assets), which are capable of being owned or controlled by a particular person and whose use or transfer would be properly compensated had it occurred between independent unrelated business entities:
1. A patent right under the Patent Act;
2. A utility model right under the Utility Model Act;
3. A design right under the Design Protection Act;
4. A trademark right under the Trademark Act;
5. A copyright under the Copyright Act;
6. A service mark right, trade name, brand, know-how, trade secret, customer information, or customer network;
7. A contractual right or a concession granted by the Government, such as a concession for extraction and a concession for the management of toll roads;
8. Good will or going concern value.
(2) In computing an arm's length price for a transaction of an intangible asset between a resident and a foreign related party, the following factors shall be taken into consideration:
1. Whether appropriate compensation deemed applicable to independent unrelated business entities is paid corresponding to the functions performed in connection with the development, enhancement, maintenance, protection, and exploitation of the relevant intangible asset and to the relative importance of contribution to the generation of income, regardless of the legal ownership of the relevant intangible asset;
2. The following factors depending on the characteristics of the transaction:
(a) The amount of additional income expected to be generated from or expense savings anticipated to result from the intangible asset;
(b) Whether there is any restriction on the exercise of rights;
(c) Whether it is allowed to transfer it to another person or to grant a sub-license to use it.
(3) As an arm's length pricing method for a transaction of an intangible asset between a resident and a foreign related party, either of the following methods shall be preferentially applied, taking into consideration the standards prescribed in Article 14 (1):
1. The comparable uncontrolled price method under Article 8 (1) 1 of the Act;
2. The profit split method under Article 8 (1) 5 of the Act.
(4) In applying Article 8 (1) 6 of the Act as an arm's length pricing method for a transaction of an intangible asset between a resident and a foreign related party, the valuation method shall calculate the present value by discounting the projected future cash flows attributable to the exploitation of the relevant intangible asset. In such cases, the projected future cash flows, growth rate, discount rate, service life and residual value of the intangible asset, tax burden, and other factors shall be collected or computed in an objective and reasonable manner, and a resident shall retain and keep data substantiating such fact.
(5) Where there is a substantial difference between the ex ante price and ex post price of a hard-to-value intangible asset that meets all of the following requirements, such as exceeding 20 percent of the ex ante price of the intangible asset, the tax authority may presume that the relevant price is not rational and may compute the arm's length price again, based on the circumstances of the transaction, economic conditions, etc. that changed after the transaction in relation to the intangible asset, such as the economic benefits actually generated from the relevant intangible asset:
1. There shall be no highly comparable transaction between independent unrelated business entities at the time of transaction of the intangible asset;
2. It shall take a long time for the intangible asset under development to be exploited commercially or there shall be a high uncertainty of economic benefits, etc. expected to be generated from the relevant intangible asset at the time of the transaction due to a high innovativeness of the intangible asset.
(6) Paragraph (5) shall not apply in any of the following cases:
1. Where the difference between the ex ante price and ex post price of an intangible asset is caused by any ground reasonably unforeseeable by the parties to the transaction at the time the transaction occurs and where it is proved that the assumptions for projections, which are made by the parties at the time of the relevant transaction, are reasonable;
2. Where the difference between the ex ante price and the ex post facto price of an intangible asset does not exceed 20 percent of the ex ante price;
3. Where an advance pricing agreement has been approved through mutual agreement with the competent authority of the other Contracting State pursuant to the main clause of Article 14 (2) of the Act on an arm's length pricing method for a transaction of intangible assets.
 Article 14 (Selection of Arm's Length Pricing Method)
(1) In computing the arm's length price under Article 8 (1) of the Act, the most reasonable means shall be selected by taking into account the following standards:
1. In any of the following cases, where the level of comparability between the international transactions of related parties and those of unrelated parties shall be high:
(a) Where a difference in the circumstances being compared has no significant effect on the pricing or net profit of transactions being compared;
(b) Even where the difference in the circumstances being compared has a significant effect on the pricing or net profit of transactions being compared, a reasonably appropriate adjustment can be made to eliminate the effects of such difference;
2. It shall be highly likely to secure and use the data to be used;
3. Assumptions on the economic conditions, business environment, etc., which are made to compare international transactions between related parties with those between the unrelated parties, shall be closely aligned with realities;
4. Defects in the data to be used or in the established assumption shall have a minor effect on the calculated arm's length price;
5. The arm's length pricing method shall be highly appropriate for international transactions between related parties.
(2) In evaluating whether a high comparability exists under paragraph (1) 1, matters prescribed by Ordinance of the Ministry of Economy and Finance regarding the types and characteristics of goods or services that may affect prices or profits, functions of business activities, risks accompanying transactions, assets to be used, contractual terms and conditions, economic situations, business strategies, etc. shall be analyzed.
(3) In assessing whether there is a high appropriateness under paragraph (1) 5, which indicators, among the price, profit, or net profit, are easier to compute in a related party transaction, whether the factors to differentiate a related party transaction are goods or services being dealt with or characteristics of the functions being conducted, the correlation between the transactional net margin indicators and business activities in applying the transactional net margin method, etc. shall be analyzed as prescribed by Ordinance of the Ministry of Economy and Finance.
(4) Where a transaction between unrelated parties cannot be treated as a normal transaction because it is willfully fabricated by the parties involved, the tax authority need not select such transaction as a comparable transaction.
 Article 15 (Application of Arm's Length Pricing Method)
(1) In calculating an arm's length price based on the selection of the most reasonable method pursuant to Article 14 (1), such computation shall undergo the analysis procedures, such as analyzing the business environment of a taxpayer and related party transactions, collecting data on internal and external comparable transactions, selecting an arm's length pricing method, computing the price, profit, or net profit, selecting comparable transactions, and making reasonable adjustment of difference, as prescribed by Ordinance of the Ministry of Economy and Finance.
(2) In applying an arm's length pricing method pursuant to Article 8 (1) of the Act, where it is unreasonable to compute the price, profit, or net profit for each individual transaction because the individual transactions are closely linked or consecutively conducted, such individual transactions may be assessed in a consolidated manner.
(3) In applying an arm's length pricing method pursuant to Article 8 (1) of the Act, where it is not reasonable to compute the price, profit, or net profit from the pertinent business year’s data alone since it has been affected by economic conditions, business strategies, etc. over a number of years, data covering several business years may be used.
(4) In computing an arm's length price pursuant to Article 8 of the Act, where any difference occurs in the applicable price, profit, or net profit because of differences in the factors of comparability analysis under Article 14 (2), the relevant difference in the price, profit, or net profit shall be reasonably adjusted.
(5) In computing an arm's length price pursuant to Article 8 of the Act, the scope of the arm's length price may be calculated based on at least two transactions between unrelated parties to be used where a resident determines whether to file a report based on the arm's length price under Article 6 of the Act or the tax authority decides on determination or rectification based on the arm's length price under Article 7 of the Act.
(6) Where a resident or the tax authority files a report or makes determination, rectification, etc. pursuant to Article 6 or 7 of the Act with respect to a transfer price deviating from the scope of arm's length price under paragraph (5), it shall be based on the average price, median price, mode price, and other reasonable specific prices, calculated in transactions within the relevant scope of arm's length price.
(7) Where it is necessary to consider specific economic crisis situations, such as economic recession and mass unemployment, in calculating the arm's length price pursuant to Article 8 (1) of the Act, transactions in which either one of or both parties suffer a loss due to changes in economic circumstances may be compared with transactions between a resident and a foreign related party. <Newly Inserted on Feb. 15, 2022>
 Article 16 (Substantial Content and Commercial Rationality of Transactions with Foreign Related Parties)
(1) The tax authority shall consider the following factors to clearly grasp the substantial content of an international transaction between a resident and a foreign related party under Article 8 (2) of the Act:
1. Terms and conditions of the contract;
2. Functions performed by the parties to a transaction, in consideration of the assets used, risks assumed, and other factors. In such cases, the risks assumed shall be analyzed, taking into consideration activities of the parties to the transaction for the management and control of risks, financial capacity to assume the risks, etc., as prescribed by Ordinance of the Ministry of Economy and Finance, and the methods of performance of overall business activities, the status of transactions, and practices of not only the parties to the transaction but also all related parties shall be comprehensively considered in assessing the functions performed by the parties to the transaction;
3. The types and characteristics of the traded goods or services;
4. Economic conditions and business strategies.
(2) In deciding on whether an international transaction between a resident and a foreign related party is a commercially rational transaction pursuant to Article 8 (2) and (3) of the Act, the tax authority shall consider the following standards:
1. It shall be foreseeable that independent unrelated business entities are unlikely to agree on the relevant terms and conditions of transaction. In such cases, it shall not be concluded that it is unlikely to reach an agreement merely on the fact that any transaction similar to the relevant transaction has never been entered into by and between independent unrelated business entities in similar transaction conditions;
2. Refraining from entering into the relevant transaction or entering into the relevant transaction in any other manner shall be more beneficial to the resident or the foreign related party for the purpose of business;
3. It shall be foreseeable that the relevant transaction would not occur, if tax advantage was not taken into consideration, such as a substantial reduction of the tax burden on the resident or the foreign related party as a consequence of the relevant transaction.
 Article 17 (Assessment of Arm’s Length Cost Contribution and Expected Benefits)
(1) Intangible assets under Article 9 of the Act means intangible assets under Article 13 (1).
(2) In calculating the arm’s length cost contribution referred to in Article 9 (1) of the Act (hereafter in this Sub-section referred to as "arm’s length cost contribution") pursuant to paragraph (2) of that Article, the following amounts shall be excluded:
1. Consideration for using any intangible asset owned by participants in an agreement on the sharing of costs, expenses, and risks (hereinafter referred to as "costs, etc.");
2. Interest paid for loans to pay the shared amount.
(3) The arm's length cost contribution shall be included in necessary expenses or deductible expenses of a resident, only where the resident concludes an agreement on the arm’s length cost contribution and subsequently bears the costs, etc.
(4) Expected benefits under Article 9 (2) and (3) of the Act shall be computed by using any of the following benefits, which are estimated to be realized after joint development of the intangible asset:
1. Cost savings;
2. Increase in any of the following caused by use of the intangible asset:
(a) Sales;
(b) Operating profit;
(c) Quantity consumed, produced, or sold.
 Article 18 (Adjustment of Participants’ Shares and Cost Contribution Following Change in Expected Benefits)
(1) "Where ... changed by not less than the rate prescribed by Presidential Decree" in Article 9 (3) of the Act means cases where the ratio of the resident's expected benefits to the total expected benefits realized after the development of the intangible asset increases or decreases by at least 20 percent, in comparison with the ratio of the resident's expected benefits to the total expected benefits expected originally at the time of concluding an agreement.
(2) Where the tax authority adjusts the share of the resident who is a participant pursuant to Article 9 (3) of the Act, the total shared costs, etc. borne by the resident shall be recalculated in proportion to the resident's share as adjusted, and the excess cost shared, if any, shall be adjusted when calculating the tax base for the business year in which such change occurred.
(3) Where a change in expected benefits under paragraph (1) reoccurs after the tax authority readjusted the cost contribution, etc. pursuant to paragraph (2), a report or a rectification claim may be filed by the deadline falling under any subparagraph of Article 6 of the Act.
(4) Where the tax authority intends to determine or rectify a resident's tax base or tax amount pursuant to Article 9 (3) of the Act, it shall not determine or rectify the resident's tax base and tax amount for more than five years from the date following the deadline for filing a return on tax base for the taxable year in which the date the joint development of an intangible asset is completed falls.
 Article 19 (Determination on Tax Base for Payments Made by New Entrants or to Departing Participants)
Where payments are made by new entrants to an agreement on sharing of costs, etc. under Article 9 (1) of the Act for expected benefits in return for participating in the agreement or payments are made to departing participants in such agreement for the expected benefits to be granted to other participants, the tax authority may determine or rectify the resident's tax base and tax amount based on the arm's length price, if the amount paid is less or more than the arm’s length price.
 Article 20 (Submission of Statement of Cost-Share Adjustments)
(1) A resident who intends to be subject to Article 9 of the Act shall submit to the tax authority a statement of cost-share adjustments prescribed by Ordinance of the Ministry of Economy and Finance, when filing a tax return under Article 70 or 70-2 of the Income Tax Act or Article 60 or 76-17 (1) of the Corporate Tax Act.
(2) Where a resident is unable to submit a statement of cost-share adjustments for a reason falling under any subparagraph of Article 37 (1) when filing a final return on the tax base and tax amount under paragraph (1), he or she may file with the tax authority, an application for extension of the deadline for submission prescribed by Ordinance of the Ministry of Economy and Finance no later than 15 days prior to the submission deadline.
(3) Upon receipt of the application under paragraph (2), the tax authority may approve an extension of deadline for submission within a period of one year and shall notify the applicant as to whether such application is approved within seven days from the date of receipt of the application for extension. In such cases, where no notification is given within seven days, the deadline for submission shall be deemed extended until the time requested by the applicant.
 Article 21 (Procedures for Filing Application for Corresponding Adjustment)
(1) A resident who intends to have his or her tax base and tax amount adjusted pursuant to Article 12 of the Act shall file a revised return or a rectification claim [including a claim filed via the national tax information and communications networks (referring to the national tax information and communications networks referred to in subparagraph 19 of Article 2 of the Framework Act on National Taxes; hereinafter the same shall apply)] with the head of a tax office having jurisdiction over the place for tax payment, using a special application for income adjustment prescribed by Ordinance of the Ministry of Economy and Finance, along with the notice of the end of the mutual agreement procedure issued by the Commissioner of the National Tax Service pursuant to Article 88 (2), within three months from the date of receiving a notification under Article 47 (2) of the Act.
(2) Upon receipt of a rectification claim under paragraph (1), the head of a tax office having jurisdiction over the place for tax payment may rectify the tax base and tax amount within two months from the date of receipt of such rectification claim. In such cases, where no ground exists for making a rectification, he or she shall notify the relevant person who filed the rectification claim of such fact.
 Article 22 (Verification of Return of Amount to Be Included in Gains)
(1) "Where it is not verified that ... has been returned by a foreign related party to such corporation as prescribed by Presidential Decree" in Article 13 (1) of the Act means cases where a document verifying that the amount which a foreign related party intends to return to a domestic corporation (referring to a certificate of return of transferred income prescribed by Ordinance of the Ministry of Economy and Finance) out of the amount to be included in gains of a domestic corporation pursuant to Articles 6, 7, 9, 12, and 15 of the Act (hereinafter referred to as "amount included in gains") plus interests for return calculated pursuant to paragraph (2) were returned has not been submitted to the tax authority within 90 days from the date classified as follows:
1. Where a domestic corporation reports the tax base and tax amount pursuant to Articles 6, 9, 12, and 15 of the Act: The date of reporting;
2. Where the tax authority determines or rectifies the tax base and tax amount pursuant to Article 7, 9, 12, and 15 of the Act: The date of receipt of a notice of temporary secondary adjustment under Article 24 (2) (where the mutual agreement procedure under Article 45 of the Act commences within 90 days from the date of receipt of such notice, referring to the date of being notified of the results under Article 47 (2)).
(2) The interest for return, which is added to the amount a foreign related party intends to return to a domestic corporation pursuant to paragraph (1), shall be calculated according to the following formula:
Interests for return = Amount to be returned × period from the day following the end of the business year in which the transaction date falls, to the date transferred income is returned × interest rate prescribed by Ordinance of the Ministry of Economy and Finance, considering the prevailing interest rate in the international financial market ÷ 365 (366 for a leap year)
(3) Where some of the amount included in gains is returned to a domestic corporation by a foreign related party, an amount (including interest for return thereof) accrued earlier in the order of accrual of the amount included in gains shall be deemed returned.
 Article 23 (Disposition and Adjustment of Amount Whose Return Is Not Verified)
(1) Where the return under Article 22 is not verifiable, the amount whose return has not been verified shall be disposed of or adjusted as follows:
1. Where a foreign related party, who is the other party to an international transaction, is a corporation in which the relevant domestic corporation invests (including cases where the party falls under Article 2 (2) 1 (a)): An increase of investment in the foreign related party;
2. Where a foreign related party, who is the other party to an international transaction, is a stockholder of the relevant domestic corporation (including cases where the party falls under Article 2 (2) 1 (b)): A dividend vested in the foreign related party;
3. Where a foreign related party, who is the other party to an international transaction, is a person other than those prescribed in subparagraphs 1 and 2: A dividend vested in the foreign related party.
(2) Where the tax authority makes a disposition or adjustment pursuant to paragraph (1), it shall notify such fact by applying mutatis mutandis Article 192 (1) and (4) of the Enforcement Decree of the Income Tax Act within 15 days from the expiry of the deadline for submitting a certificate of return of transferred income under Article 22 (1). In such cases, the notice shall be made via a notice of transferred income prescribed by Ordinance of the Ministry of Economy and Finance (hereinafter referred to as "notice of transferred income").
(3) Where any disposition under paragraph (1) has been made, any dividend shall be deemed paid on the date the notice of transferred income under paragraph (2) is received. <Amended on Feb. 28, 2023>
(4) The amount disposed of as a domestic corporation’s retained earnings, which was deemed a loan to a foreign related party under paragraph (1) 3 before May 24, 2006, because it had not been returned by the foreign related party to a domestic corporation, out of the amount included in gains may be disposed of by the domestic corporation as a dividend under paragraph (1) 3.
 Article 24 (Temporary Secondary Adjustment)
(1) Where a domestic corporation or the tax authority disposes of income or makes tax adjustment under Article 13 (1) of the Act, it shall make a temporary secondary adjustment before verifying that the return has been properly made pursuant to Article 22.
(2) Where the tax authority makes a temporary secondary adjustment pursuant to paragraph (1), it shall notify such fact by applying mutatis mutandis Article 192 (1) and (4) of the Enforcement Decree of the Income Tax Act. In such cases, the notice shall be made via a notice of temporary secondary adjustment prescribed by Ordinance of the Ministry of Economy and Finance.
 Article 25 (Special Cases concerning Exclusion from Application of Temporary Secondary Adjustment)
(1) Notwithstanding Articles 22 (1) and 24 (1), in any of the following cases, a disposition or adjustment shall be made pursuant to the subparagraphs of Article 23 (1) of the amount included in gains which is not verified to be returned to a domestic corporation by a foreign related party as at the time a domestic corporation or tax authority reports, determines, or rectifies the tax base and tax amount pursuant to Articles 6, 7, 9, 12, and 15 of the Act without undergoing a temporary secondary adjustment: <Amended on Feb. 28, 2023>
1. Where the relevant domestic corporation submits to the tax authority a written request to dispose of transferred income prescribed by Ordinance of the Ministry of Economy and Finance;
2. Where the relevant domestic corporation closes its business (including de facto business closure);
3. Where the statute of limitations period for tax assessment expires within four months from the date the tax authority determines or rectifies the tax base and tax amount pursuant to Article 7, 9, 12, or 15 of the Act.
4. Where the domestic corporation intends to dispose of or adjust the amount not verified to be returned to the domestic corporation by the foreign related party out of the amount included in gains at the time of filing the tax base and tax amount pursuant to the subparagraphs of Article 23 (1), instead of making a temporary secondary adjustment of the amount.
(2) Where any cause falling under paragraph (1) 1 or 2 occurs after making a temporary secondary adjustment pursuant to Article 24 (1), a new disposition or adjustment shall be made pursuant to the subparagraphs of Article 23 (1).
(3) Where the tax authority makes a disposition or adjustment pursuant to paragraph (1) or (2), it shall notify such fact by applying mutatis mutandis Article 192 (1) and (4) of the Enforcement Decree of the Income Tax Act within 15 days from the date it determines or rectifies the tax base and tax amount pursuant to Article 7, 9, 12, or 15 of the Act. In such cases, the notice shall be made via a notice of transferred income.
(4) Where a disposition is made under paragraph (1) or (2), dividends shall be deemed paid on the dates classified as follows: <Amended on Feb. 28, 2023>
1. Where the domestic corporation makes the disposition under paragraph (1) or (2): The date on which the domestic corporation reports the tax base and tax amount;
2. Where the tax authority makes the disposition under paragraph (1) or (2): The date on which the domestic corporation receives a notice of transferred income under paragraph (3).
(5) Where a taxpayer submits a certificate of return of transferred income under Article 22 (1) within 90 days from the date of receipt of a notice of transferred income pursuant to paragraph (3), it shall be deemed that no disposition or adjustment under paragraph (1) or (2) has been made.
Sub-Section 2 Advance Pricing Agreements
 Article 26 (Application for Advance Pricing Agreements)
(1) A resident who files an application for an advance pricing agreement under Article 14 (1) of the Act (hereafter in this Sub-section referred to as "applicant") shall submit a written application for an advance pricing agreement prescribed by Ordinance of the Ministry of Economy and Finance to the Commissioner of the National Tax Service regarding all or part of his or her international transactions, along with the following documents, by the day immediately preceding the start date of the first taxable year of the proposed period of the advance pricing agreement. In such cases, documents falling under subparagraph 3 may be submitted in an electronic data storage medium, such as portable storage devices:
1. Data explaining the business history, business details, organization, investment relationships, etc. of the parties to the transactions;
2. Financial statements, copies of tax returns, and copies of the contracts for international transactions, and other accompanying documents of the parties to the transactions for the last three years;
3. The following documents elaborating on the details of the arm's length pricing method:
(a) The methods to evaluate comparability and to adjust the difference by factor under Articles 14 (2) and 15 (4);
(b) Where the financial statements of comparable companies are used, the difference in the accounting standards applied and the method for adjustment thereof;
(c) Where the financial data or cost data classified by transaction are used, the criteria for preparation thereof;
(d) Where at least two comparable transactions are used, the range of arm's length price and its calculation method;
(e) Data explaining the conditions or assumptions underlying the arm's length pricing method;
4. Data explaining how to adjust the difference between the international transfer price and the arm’s length price;
5. Where an application is filed for mutual agreement with the other Contracting State regarding the arm's length pricing method proposed by the applicant, an application for commencing the mutual agreement procedure prescribed by Ordinance of the Ministry of Economy and Finance;
6. Other data proving the appropriateness of the arm's length pricing method proposed by the applicant.
(2) Where the documents submitted to the competent authority of the other Contracting State are different from those submitted under paragraph (1), the applicant shall additionally submit the documents submitted to the competent authority of the other Contracting State.
(3) The proposed period of the advance pricing agreement shall be the period during which the taxpayer intends to enter into the advance pricing agreement.
(4) The applicant may amend the details of his or her application for an advance pricing agreement or withdraw his or her application before the Commissioner of the National Tax Service approves the application. In such cases, where the application is withdrawn, the Commissioner of the National Tax Service shall return all data submitted under paragraph (1) or (2) to the applicant.
(5) The Commissioner of the National Tax Service shall not use any data submitted under paragraph (1) or (2) for purposes other than review of applications for an advance pricing agreement, ex post facto management, and exchange of information with the competent authority of the other Contracting State.
(6) Where a resident or a foreign related party files an application for an advance pricing agreement corresponding to Article 14 of the Act to the competent authority of the other Contracting State, and where it is necessary to commence a mutual agreement procedure with the Republic of Korea, the relevant resident shall, without delay, file an application for an advance pricing agreement with the Commissioner of the National Tax Service pursuant to Article 14 of the Act.
 Article 27 (Review of Application for Advance Pricing Agreement)
(1) In reviewing an application for an advance pricing agreement, the Commissioner of National Tax Service may refer to the opinion of the head of the tax office having jurisdiction over the place for tax payment of an applicant and the commissioner of a regional tax office.
(2) In reviewing an application for an advance pricing agreement, the Commissioner of National Tax Service may designate an expert who is in a neutral relationship with the applicant if the applicant consents thereto, and refer to the review opinion of the expert in the arm's length pricing method proposed by the applicant. In such cases, the Commissioner of the National Tax Service may require the applicant to bear part of the relevant expenses if the applicant consents thereto.
(3) The expert under the former part of paragraph (2) shall not provide nor disclose any information related to an application for an advance pricing agreement to any person other than the applicant, an agent of the applicant, and the Commissioner of the National Tax Service.
 Article 28 (Procedures for Advance Pricing Agreement Based on Mutual Agreement Procedure)
(1) Where the Commissioner of National Tax Service rejects an application for an advance pricing agreement as deemed inappropriate, he or she shall return to the applicant all data submitted under Article 26 (1) or (2).
(2) Where the applicant applies for commencing a mutual agreement procedure at the time of applying for an advance pricing agreement, the Commissioner of National Tax Service shall request the competent authority of the other Contracting State to commence the mutual agreement procedure and shall notify the applicant of such request.
(3) Where an agreement is made with the other Contracting State in the mutual agreement procedure requested under paragraph (2), the Commissioner of the National Tax Service shall notify the applicant of the details of the agreement within 15 days from the date following the end date of the mutual agreement procedure.
(4) The applicant shall submit in writing whether he or she consents thereto to the Commissioner of the National Tax Service within two months from the date of receiving a notification under paragraph (3).
(5) Where the applicant consents to the details agreed under the mutual agreement procedure pursuant to paragraph (4), he or she shall be deemed to have applied for the relevant details from the outset, even if they are not identical with the original content of the application for an advance pricing arrangement.
(6) Upon receipt of a letter of consent to the details of mutual agreement from the applicant pursuant to paragraph (4), the Commissioner of the National Tax Service shall accept the application for an advance pricing arrangement within 15 days from the date of receiving the letter and shall notify the applicant thereof.
(7) Where the applicant fails to notify the Commissioner of the National Tax Service of whether he or she consents thereto by the deadline specified under paragraph (4), it shall be deemed that he or she has not consented, and the original application for an advance pricing arrangement shall be deemed withdrawn by the applicant.
(8) In any of the following cases, the Commissioner of the National Tax Service shall notify the applicant of discontinuation of the mutual agreement procedure within 15 days from the date the following cases occur:
1. Where the Commissioner of the National Tax Service discontinues the mutual agreement procedure ex officio, because no mutual agreement has been reached within three years from the date of receiving an application for an advance pricing agreement;
2. Where it is agreed to end the mutual agreement procedure with the other Contracting State, because the parties cannot reach an agreement under the mutual agreement procedure.
 Article 29 (Procedures for Unilateral Advance Pricing Agreement)
(1) "Cases prescribed by Presidential Decree" in the proviso of Article 14 (2) of the Act means the following cases:
1. Where an applicant applies for an advance pricing agreement under Article 14 (1) of the Act without undergoing a mutual agreement procedure (hereinafter referred to as "unilateral advance pricing agreement");
2. Where a mutual agreement procedure for an arm's length pricing method is discontinued due to a cause falling under any subparagraph of Article 28 (8).
(2) Where an applicant intends to obtain a unilateral advance pricing agreement due to the cause specified in paragraph (1) 2, he or she shall file a written application therefor with the Commissioner of the National Tax Service within 15 days from the date of receipt of notification under Article 28 (8), and where he or she fails to file such application, the first application for an advance pricing agreement shall be deemed withdrawn by the applicant.
(3) Where an applicant applies for a unilateral advance pricing agreement pursuant to paragraph (1) 1 or (2), the Commissioner of the National Tax Service shall determine whether to accept it within two years from the date of application. In such cases, the Commissioner of the National Tax Service may attach the condition that a unilateral advance pricing agreement may be canceled upon commencement of the relevant mutual agreement procedure.
(4) Article 28 (1) and (3) through (7) shall apply mutatis mutandis to the return of documents submitted regarding a unilateral advance pricing agreement, the notification of details of a decision on an advance pricing agreement and whether the applicant consents to such decision, the modification of the details of an application upon consent, the notification of an advance pricing agreement, and the withdrawal of an application for an advance pricing arrangement.
 Article 30 (Cancellation of Advance Pricing Arrangement)
(1) "Cases prescribed by the Presidential Decree" in the proviso of Article 15 (1) of the Act means the following cases:
1. Where a critical part of data required under Article 26 (1) or (2) or 32 is not submitted or falsely prepared;
2. Where an applicant fails to comply with the details or terms and conditions of the advance pricing agreement;
3. Where a critical part of the conditions or assumptions underlying the arm's length pricing method agreed in the advance pricing agreement is not realized;
4. Where the details of the advance pricing agreement are not applicable due to changes in relevant statutes, regulations, or tax treaties.
(2) In cases falling under any subparagraph of paragraph (1), the Commissioner of the National Tax Service may cancel or withdraw the advance pricing agreement.
(3) Where the Commissioner of the National Tax Service cancels or withdraws an advance pricing agreement, he or she shall, without delay, notify the competent authority of the other Contracting State of such fact.
(4) Where an applicant falls under paragraph (1) 3 or 4, he or she may apply for the modification of the details of the original advance pricing agreement, no later than the deadline for filing a final return on the tax base and tax amount for a taxable year in which the relevant cause occurs, with respect to the relevant taxable year and the remaining covered period thereafter. In such cases, Articles 26 through 29, 31, and 32 shall apply mutatis mutandis, but the data to be submitted under Article 26 (1) shall be limited to the changed portions.
 Article 31 (Application for Adjustment of Tax Base and Tax Amount under Advance Pricing Agreements)
(1) An applicant who intends to have his or her tax base and tax amount adjusted pursuant to Article 15 (2) of the Act shall file a revised return or a rectification claim (including a claim filed via the national tax information and communications networks) with the head of a tax office having jurisdiction over the place for tax payment, using a special application for income adjustment prescribed by Ordinance of the Ministry of Economy and Finance, along with a notice of an advance pricing agreement issued by the Commissioner of the National Tax Service pursuant to Articles 28 (6) and 29 (4), within three months from the date of receiving such notice.
(2) Upon receipt of a rectification claim under paragraph (1), the head of a tax office having jurisdiction over the place for tax payment may rectify the tax base and tax amount within two months from the date of receipt of such rectification claim. In such cases, where no ground exists for making a rectification, he or she shall notify the relevant person who filed the rectification claim of such fact.
 Article 32 (Submission of Annual Reports under Advance Pricing Agreements)
(1) An applicant whose application for an advance pricing agreement has been approved shall submit (including submission via the national tax information and communications network) to the Commissioner of the National Tax Service, an annual report including the following matters pursuant to Article 15 (3) of the Act. In such cases, he or she shall submit an annual report for the taxable period, for which the reporting deadline under subparagraph 1 of Article 6 of the Act expired, together with the first annual report to be submitted after approval of an application for the advance pricing agreement:
1. Whether the grounds or assumptions underlying the arm's length pricing method agreed in the advance pricing agreement are realized;
2. The arm's length price computed by applying the transfer pricing method agreed in the advance pricing agreement, and the relevant computation process;
3. Where the international transfer price differs from the arm's length price, the details of dealing with the relevant difference;
4. Other matters stipulated to be included in an annual report at the time the advance pricing agreement is made.
(2) Where the Commissioner of the National Tax Service requires additional data when reviewing the annual report submitted under paragraph (1), he or she may request such data from the relevant applicant.
Sub-Section 3 Submission of Data on International Transactions and Special Cases on Application of Penalty Taxes
 Article 33 (Types of Consolidated Reports on International Transaction Information)
"Master File, Local Files, and Country-by-Country Reports prescribed by Presidential Decree" in Article 16 (1) of the Act means the reports prescribed by Ordinance of the Ministry of Economy and Finance that are classified as follows:
1. Master File: A report which includes the following matters about a taxpayer who falls under Article 16 (1) 1 of the Act and the Multinational Enterprise (MNE) group in a special relationship as a whole prescribed by Ordinance of the Ministry of Economy and Finance with the taxpayer:
(a) Organizational structure;
(b) Details of business;
(c) Details of intangible assets;
(d) Financing activities;
(e) Financial status;
2. Local File: A report which includes the following matters about a taxpayer who falls under Article 16 (1) 1 of the Act: Provided, That where an application for an advance pricing agreement has been approved under Article 14 of the Act, the details of the relevant international transactions conducted during the period covered by the advance pricing agreement may be excluded from the Local File:
(a) Organizational structure;
(b) Details of business;
(c) Details of transactions with his or her foreign related party;
(d) Information on calculation of the price regarding the transactions referred to in item (c);
(e) Financial status;
3. Country-by-Country Report: A report which includes the following matters about a taxpayer who falls under Article 16 (1) 2 of the Act and the MNE group, etc. in a special relationship prescribed by Ordinance of the Ministry of Economy and Finance with the taxpayer:
(a) Details of profit by country;
(b) Pre-tax profit or loss by country;
(c) Amount of tax payment by country;
(d) Capital by country;
(e) Major business activities by country.
 Article 34 (Submission of Master File and Local Files)
(1) "Taxpayer who meets the requirements prescribed by Presidential Decree" in Article 16 (1) 1 of the Act means a domestic corporation or a foreign corporation having a domestic place of business, which is a taxpayer meeting all of the following requirements. In such cases, where a taxpayer is a foreign corporation having a domestic place of business, the following requirements shall be determined on the basis of the domestic place of business of the foreign corporation: <Amended on Feb. 28, 2023>
1. The turnover in the relevant taxable year shall exceed 100 billion won;
2. The total volume of transactions of goods and services, intangible asset transactions and lending transactions (hereafter in this Article referred to as "transaction volume") with a foreign related party in the relevant taxable year shall exceed 50 billion won. In such cases, the transaction volume with the head office and overseas branch offices of such foreign corporation (hereinafter referred to as "head office or branch office") shall be included when calculating the sum of transaction volume, in cases of a domestic place of business of the foreign corporation.
(2) Where at least two taxpayers under paragraph (1) prepare the same Master File, a taxpayer prescribed by Ordinance of the Ministry of Economy and Finance among the relevant taxpayers may submit such Master File as a representative.
(3) The Master File and Local Files shall be prepared in Korean and be submitted via the information and communications network under subparagraph 18 of Article 2 of the Framework Act on National Taxes (hereinafter referred to as "information and communications network").
(4) Notwithstanding paragraph (3), the Master File may be prepared and submitted in English. In such cases, the Master File prepared in Korean shall be additionally submitted within one month from the date of submission.
(5) Except as provided in paragraphs (1) through (4), matters necessary for the methods of calculating the aggregate of the turnover and transaction volume for the relevant taxable year, the detailed methods for preparing the Master File and the Local Files and others shall be prescribed by Ordinance of the Ministry of Economy and Finance.
 Article 35 (Submission of Country-by-Country Report)
(1) "Taxpayer who meets the requirements prescribed by Presidential Decree" in Article 16 (1) 2 of the Act means taxpayers classified as follows:
1. Where the ultimate parent company prescribed by Ordinance of the Ministry of Economy and Finance (hereafter in this Article referred to as "ultimate parent company") is located in the Republic of Korea and the turnover in consolidated financial statements for the immediately preceding taxable year exceeds one trillion won: The ultimate parent company in the Republic of Korea;
2. Where the ultimate parent company is located in a foreign country and the turnover on consolidated financial statements for the immediately preceding taxable year exceeds the following amounts: A related company prescribed by Ordinance of the Ministry of Economy and Finance in the Republic of Korea (hereafter in this Article referred to as "domestic related company"):
(a) Where it is obligated to submit a Country-by-Country Report under the statutes or regulations of the country in which the ultimate parent company is located: The amount prescribed by the relevant statutes or regulations;
(b) Where it is not obligated to submit a Country-by-Country Report under the statutes or regulations of the country in which the ultimate parent company is located: 750 million euros.
(2) A domestic ultimate parent company and a domestic related company shall submit (including submission via the information and communications networks) data prescribed by Ordinance of the Ministry of Economy and Finance, which are about a person obligated to submit a Country-by-Country Report, to the head of the tax office having jurisdiction over the place for tax payment, within six months from the last day of the month in which the end date of each business year falls.
(3) A domestic related company which has submitted the data under paragraph (2) by the deadline for submission need not submit a Country-by-Country Report in any of the following cases:
1. Where it is obligated to submit a Country-by-Country Report under the statutes or regulations of the country in which the ultimate parent company is located and such Country-by-Country Report is exchanged with the Republic of Korea according to a tax treaty;
2. Where another domestic related company submits a Country-by-Country Report representatively;
3. Where the ultimate parent company requires a related company located in a third country to submit a Country-by-Country Report to the relevant country on its behalf and such Country-by-Country Report is exchanged with the Republic of Korea according to a tax treaty.
(4) A Country-by-Country Report shall be prepared in Korean and English and be submitted through the information and communications networks.
(5) Except as provided in paragraphs (1) through (4), matters necessary for the methods for calculating the turnover in consolidated financial statements for the immediately preceding taxable year, the detailed methods for preparing a Country-by-Country Report and others shall be prescribed by Ordinance of the Ministry of Economy and Finance.
 Article 36 (Exemption from Obligation to Submit Data on International Transactions)
"Requirements prescribed by Presidential Decree" in the proviso, with the exception of the subparagraphs, of Article 16 (2) of the Act means the following requirements:
1. Exemption from the obligation to submit a statement of international transactions under Article 16 (2) 1 of the Act: The aggregate amount of transactions by type of international transactions with foreign related parties in the relevant business year shall meet all of the following requirements:
(a) Aggregate amount of goods transactions: Up to 500 million won;
(b) Aggregate amount of service transactions: Up to 100 million won;
(c) Aggregate amount of intangible asset transactions: Up to 100 million won;
2. Exemption from the obligation to submit a summary income statement under Article 16 (2) 2 of the Act: In any of the following cases:
(a) The aggregate amount of transactions by type of international transactions with the foreign related party in the relevant business year shall meet all of the following requirements:
(i) Aggregate amount of goods transactions: Up to one billion won;
(ii) Aggregate amount of service transactions: Up to 200 million won;
(iii) Aggregate amount of intangible asset transactions: Up to 200 million won.
(b) The business profile of an overseas subsidiary and a statement of financial position of an overseas subsidiary under Article 98 (1) shall be submitted;
3. Exemption from the obligation to submit a report on arm's length pricing method under Article 16 (2) 3 of the Act: In any of the following cases:
(a) The aggregate amount of transactions by type of international transactions in the relevant business year shall meet all of the following requirements:
(i) Aggregate amount of goods transactions: Up to five billion won;
(ii) Aggregate amount of service transactions: Up to one billion won;
(iii) Aggregate of intangible asset transactions: Up to one billion won;
(b) Each foreign related party's aggregate amount of transactions in the relevant business year by type of international transactions with foreign related parties shall meet all of the following requirements:
(i) Aggregate amount of goods transactions: Up to one billion won;
(ii) Aggregate amount of service transactions: Up to 200 million won;
(iii) Aggregate amount of intangible asset transactions: Up to 200 million won.
[This Article Wholly Amended on Feb. 28, 2023]
 Article 37 (Extension of Deadline for Submission of Data on International Transactions)
(1) "Unavoidable cause prescribed by Presidential Decree" in Article 16 (3), the proviso of paragraph (5) of that Article, and paragraphs (6) and (7) of that Article of the Act means the following:
1. Where a taxpayer is unable to submit the relevant data due to a fire, disaster, robbery, etc.;
2. Where it is extremely impracticable for a taxpayer to submit the relevant data due to a serious business crisis;
3. Where the relevant books and documents are seized or held provisionally by a competent authority;
4. Where the end date of the taxable year of a foreign related party has not yet arrived;
5. Where it is impossible for a taxpayer to submit the relevant data by the deadline, as it takes a substantial time to collect and compile such data;
6. Where a taxpayer is deemed unable to submit the data by the deadline on any grounds corresponding to those prescribed in subparagraphs 1 through 5.
(2) A person who intends to apply for an extension of the deadline for submission pursuant to Article 16 (3) of the Act and the proviso of paragraph (5) of that Article shall submit (including submission via the national tax information and communications networks) to the tax authority an application for extension of the deadline for submission prescribed by Ordinance of the Ministry of Economy and Finance, no later than 15 days before the deadline for submission.
(3) The tax authority shall notify the applicant of whether such extension is to be granted, within seven days from the date of receiving an application for extension of the deadline for submission under paragraph (2). In such cases, where no notification has been given within seven days, the deadline for submission shall be deemed extended by the requested deadline.
 Article 38 (Scope of Data Requested by Tax Authority and Method of Submission Thereof)
(1) The scope of data that the tax authority may require a taxpayer to submit pursuant to Article 16 (4) of the Act shall be the following data which are about a taxpayer or his or her foreign related party: <Amended on Feb. 15, 2022>
1. The organizational chart of a corporation and a table of assignment of office duties;
2. Details of business activities of the parties involved in the relevant transactions;
3. Current status of mutual investments with related parties;
4. Various relevant contract documents concerning the transfer, purchase, etc. of assets;
5. A price list of products;
6. A statement of manufacturing costs;
7. A statement of transaction by item, in which related and unrelated parties are separately assorted;
8. Documents corresponding to data prescribed in subparagraphs 4 through 7, in cases of the provision of services or other transactions;
9. Data for determining international transfer prices;
10. Internal guidelines for pricing applicable to transactions among the related parties;
11. Accounting standards and methods relating to the relevant transactions;
12. Data prescribed by Ordinance of the Ministry of Economy and Finance, with which it is possible to grasp the details of transactions in connection with intra-group services under Article 12;
13. Data prescribed by Ordinance of the Ministry of Economy and Finance, such as cost sharing agreements, in connection with determination and rectification based on arm's length cost contribution, etc. under Article 9 of the Act;
14. Forms or items omitted in filing returns on the corporate tax or income tax.
(2) "Data prescribed by Presidential Decree" in Article 16 (7) of the Act means the data provided in paragraph (1) 4 through 14.
(3) Data falling under paragraphs (1) and (2) shall be prepared and submitted in Korean: Provided, That if permitted by the tax authority, the data prepared in English maybe submitted.
 Article 39 (Determination on Negligence of Taxpayers)
(1) In determining whether a taxpayer has been negligent pursuant to Article 17 (1) 1 and 2 of the Act, the taxpayer shall not be deemed negligent where he or she meets all the following requirements:
1. The taxpayer shall suggest the process through which he or she selected the most reasonable means, from among those provided in the subparagraphs of Article 8 (1) of the Act, through the documents prepared at the time of filing a final return on tax base and tax amount;
2. The taxpayer shall actually apply the method selected under subparagraph 1;
3. The taxpayer shall retain and keep necessary data regarding the arm's length pricing method under subparagraphs 1 and 2.
(2) Data verifying the arm's length pricing method under Article 17 (1) 3 of the Act refer to the following data, and a taxpayer shall, upon request by the tax authority, submit the data within 30 days from the date of receipt of such request:
1. Data describing the outline of business (including the data analyzing the factors that have influence over the prices of assets and services);
2. Data describing the structures, etc. with foreign related parties and other relevant persons having influence over the transfer pricing;
3. The following data verifying the details about how to select the arm's length pricing method applied in filing a return:
(a) Data on economic analysis and prediction, which have served as a basis for selecting the arm's length pricing method applied in filing a return;
(b) Data describing the numerical values being the objects used for computing the arm's length price and the details of adjustment in the course of comparison and evaluation of the numerical values;
(c) Data describing the arm's length pricing method that could have been applied as an alternative and the reason the alternative was not selected;
(d) Relevant data, etc. added in order to compute the arm's length price when filing a return on the income tax or corporate tax after the expiration of the taxable period.
(3) Whether a taxpayer has made rational decisions under Article 17 (1) 3 of the Act shall be determined in consideration of the following requirements:
1. The numerical values being compared, which have been collected at the time of expiration of the taxable period, shall be representative data, and none of the particular numerical values being compared which must be included has been omitted, thus not leading to any results favorable to the taxpayer;
2. The arm's length pricing method has been selected and applied after systematically analyzing the collected data;
3. Although there was an arm's length pricing method agreed under an advance pricing agreement in the previous taxable year or one selected in the course of tax investigation by the tax authority, there shall be justifiable reasons for selecting and applying another arm's length pricing method if such method has been selected and applied.
(4) Where a resident whose application for an advance pricing agreement has been approved under Article 14 of the Act files a revised return on the tax base and tax amount of the corporate tax pursuant to Article 31, no penalty tax shall be imposed pursuant to Article 17 of the Act.
(5) Where important data related to the arm's length pricing method that could not be verified at the time of filing a return are verified after the filing deadline, no penalty tax shall be imposed pursuant to Article 17 of the Act if the relevant person files a revised return on the tax base and tax amount of the corporate tax within 60 days from the time he or she becomes aware of such fact. In such cases, paragraphs (2) and (3) shall apply mutatis mutandis to the revised return.
Sub-Section 4 Adjustment of Arm’s Length Prices for National Taxes and Customs Value
 Article 40 (Procedures for Pre-Adjustment)
(1) Upon receipt of an application for pre-adjustment of the arm’s length price for national tax and the customs value under Article 18 (1) of the Act (hereafter in this Article referred to as "pre-adjustment"), the Commissioner of the National Tax Service shall commence the pre-adjustment procedure under paragraph (2) of that Article within 90 days from the date of receipt of the application and shall notify the applicant of such fact: Provided, That where the data under Article 26 (1) and (2) are not submitted or falsely prepared or other grounds exist that make it impractical to commence the procedures for pre-adjustment, he or she shall notify the applicant of such grounds.
(2) Upon receipt of notification that the Commissioner of the National Tax Service is unable to commence the procedures for pre-adjustment under the proviso of paragraph (1), the applicant may, within 30 days from the date of receipt of such notification, supplement and submit the relevant data or notify the Commissioner of the National Tax Service whether he or she will separately follow the procedures for unilateral advance pricing agreement and an advance ruling on the matters referred to in Article 37 (1) 3 of the Customs Act. In such cases, the Commissioner of the National Tax Service upon receipt of such notification shall, without delay, inform the Commissioner of the Korea Customs Service of the matters notified.
(3) The Commissioner of the National Tax Service and the Commissioner of the Korea Customs Service may jointly organize and operate a consultative council to conduct pre-adjustment.
(4) Articles 26, 27, and 29 through 32 of this Decree and Article 31 of the Enforcement Decree of the Customs Act shall apply mutatis mutandis to the methods, procedures, etc. for filing applications for pre-adjustment under Article 18 (5) of the Act.
(4) Except as provided in paragraphs (1) through (4), matters necessary for conducting pre-adjustment and other matters necessary for pre-adjustment shall be prescribed by Ordinance of the Ministry of Economy and Finance.
 Article 41 (Procedures for Filing Claim for Rectification of National Taxes Following Rectification of Customs Duties)
A person who intends to file a claim for rectification pursuant to Article 19 (1) of the Act shall submit (including submission via the national tax information and communications networks) to the tax authority a written claim for rectification stating the following matters, along with the relevant evidentiary materials:
1. The name and address or residence of the person who files the claim;
2. The tax base and tax amount of the corporate tax or income tax before rectification;
3. The tax base and tax amount of the corporate tax or income tax after rectification;
4. Reasons for filing a claim for rectification;
5. Other matters necessary to file a claim for rectification.
 Article 42 (Consultative Council on Adjustment of Taxation on International Transfer Prices)
(1) To consult and adjust matters necessary for recommendations on the adjustment of taxation on the arm’s length prices for national taxes and the customs value under Article 20 of the Act, a Consultative Council on Adjustment of Taxation on International Transfer Prices (hereinafter referred to as the "Consultative Council on Adjustment of Taxation") shall be established under the jurisdiction of the Minister of Economy and Finance.
(2) The chairperson of the Consultative Council on Adjustment of Taxation shall be a member in general service of the Senior Executive Service (including public officials in equivalent position in special service and in extraordinary civil service; hereafter in this Article the same shall apply) who is responsible for tax-related affairs at the Ministry of Economy and Finance, and one person each nominated by the head of an institution under his or her jurisdiction, from among members in general service of the Senior Executive Service of the Ministry of Economy and Finance, the National Tax Service, and the Korea Customs Service shall serve as members of the Consultative Council on Adjustment of Taxation.
(3) Except as provided in paragraph (2), matters necessary for the organization and operation of the Consultative Council on Adjustment of Taxation shall be determined by the Minister of Economy and Finance.
[This Article Wholly Amended on Feb. 15, 2022]
 Article 43 (Application for Adjustment of Taxation on Arm’s Length Prices for National Taxes and Customs Value)
(1) A taxpayer who intends to apply for adjustment of the arm’s length price for national tax and the customs value pursuant to Article 20 (1) of the Act shall submit an application for tax adjustment for the international transfer price stating the following matters, along with the relevant evidentiary materials:
1. The name and address or residence of the applicant;
2. Details of disposition for rectification issued by the head of a customs office;
3. Grounds for, and details of, the application filed for tax adjustment;
4. Other matters necessary for adjusting the arm’s length price for national tax and the customs value.
(2) Where a transaction for which an application for adjustment of taxation is filed falls under any of the following cases, the Minister of Economy and Finance may not recommend the adjustment: <Amended on Feb. 15, 2022>
1. Where an objection, a request for examination, or a request for ruling is filed under Article 55 of the Framework Act on National Taxes and Article 119 of the Customs Act, or a request for examination is filed under Article 43 of the Board of Audit and Inspection Act, or an administrative suit is pending under the Administrative Litigation Act, regarding the relevant transaction;
2. Where the relevant transaction has been subject to the advance pricing agreement under Article 14 of the Act and the advance rulings on method for customs valuation under Article 37 of the Customs Act;
3. Where the mutual agreement procedure under Article 42 of the Act and a tax treaty is pending or ended regarding the relevant transaction;
4. Where it is deemed impracticable to recommend the adjustment for reasons such as a difference in computation methods of the arm's length price for the national tax and the customs value.
(3) Where an application for adjustment of taxation is not deliberated upon pursuant to paragraph (2), the relevant taxpayer shall be notified of the details thereof. <Newly Inserted on Feb. 15, 2022>
(4) Where the Minister of Economy and Finance deems that the details of an application for adjustment of taxation filed under paragraph (1) and the basis for calculating the customs value, etc. are not clearly stated, he or she may request the taxpayer, the Commissioner of the National Tax Service, or the Commissioner of the Korea Customs Service to make corrections within a reasonable period. <Amended on Feb. 15, 2022>
(5) The period for correction referred to in paragraph (4) shall not be included in the period for adjustment under the latter part of Article 20 (2) of the Act. <Newly Inserted on Feb. 15, 2022>
(6) Upon filing a request for correction with the Commissioner of the National Tax Service or the Commissioner of the Korea Customs Service under the former part of paragraph (3), the Minister of Economy and Finance shall notify the relevant taxpayer of such fact. <Amended on Feb. 15, 2022>
 Article 44 (Scope of Provision of Information on Taxation of Customs Duties)
"Information or data prescribed by Presidential Decree" in Article 21 (1) of the Act means the following:
1. Information for taxation referred to in Article 116 (1) of the Customs Act;
2. Other data related to the determination or rectification of customs values.
SECTION 2 Adjustment of Tax on Interest Paid to Foreign Controlling Stockholders
Sub-Section 1 Exclusion of Interest Paid on Excessive Borrowings Compared to Amount of Investment from Deductible Expenses
 Article 45 (Detailed Criteria for Foreign Controlling Stockholders)
(1) A foreign controlling stockholder of a domestic corporation under Article 22 (1) 1 of the Act shall be any of the following persons as of the end date of each business year:
1. A foreign stockholder or investor (hereinafter referred to as "foreign stockholder") who directly or indirectly owns at least 50 percent of the voting stocks of a domestic corporation;
2. A foreign corporation, at least 50 percent of whose voting stocks are owned directly or indirectly by a foreign stockholder prescribed in subparagraph 1;
3. A foreign stockholder having a relationship referred to in Article 2 (2) 3 with a domestic corporation.
(2) A foreign controlling stockholder over a domestic place of business of a foreign corporation under Article 22 (1) 2 of the Act means any of the following:
1. The head office or a branch office of a foreign corporation having a domestic place of business;
2. A foreign stockholder who directly or indirectly owns at least 50 percent of the voting stocks of a foreign corporation under subparagraph 1;
3. A foreign corporation, at least 50 percent of whose voting stocks are owned directly or indirectly by a head office under subparagraph 1 or a foreign stockholder under subparagraph 2.
(3) Article 2 (3) shall apply mutatis mutandis to the method of calculating the indirect ownership ratio of stocks prescribed in paragraphs (1) and (2).
 Article 46 (Scope of Borrowings)
(1) The scope of the amount borrowed by a domestic corporation (including a domestic place of business of a foreign corporation; hereafter in this Section the same shall apply) under the subparagraphs of Article 22 (2) of the Act (hereafter in this Sub-section referred to as "borrowings from a foreign controlling stockholder, etc.") shall be liabilities which generate the interest and discount fees (hereafter in this Section referred to as "interest, etc."): Provided, That the following amounts borrowed by a domestic branch of a foreign bank under the Banking Act shall be excluded:
1. Funds borrowed in foreign currency upon request of the Government (including the Bank of Korea under the Bank of Korea Act);
2. Funds deposited or borrowed in foreign currency by or from the head office or branch office of the relevant foreign bank in order to use them by any of the following methods:
(a) A method of depositing or lending in foreign currency in or to a nonresident or a foreign exchange agency under the Foreign Exchange Transactions Act;
(b) A method of accepting or trading stocks in foreign currency issued by a nonresident or a foreign exchange agency under the Foreign Exchange Transactions Act.
(2) For the purposes of paragraph (1) 2, where it is unclear that the amount is deposited or borrowed in foreign currency by or from the head office or branch office of a foreign bank, and where it may be distinguished by the source ratio of funds stated on the statement of financial position (based on the annual average balance), etc. for the relevant business year, the amount calculated by applying such source ratio shall be deemed the amount borrowed from the head office or branch office. In such cases, the annual average balance may be calculated daily or monthly.
(3) For the purposes of Article 22 of the Act, where foreign controlling stockholders include both a foreign stockholder under Article 45 (1) 1 and a foreign corporation under subparagraph 2 of that paragraph, borrowings from a foreign controlling stockholder, etc. related to the foreign corporation shall be added to borrowings from a foreign controlling stockholder, etc. related to the foreign stockholder.
(4) For the purposes of Article 22 of the Act, borrowings from a foreign controlling stockholder, etc. shall be converted by applying the basic exchange rate or arbitrated exchange rate under the Foreign Exchange Transactions Act as of the end date of the relevant business year.
(5) Notwithstanding paragraph (4), a domestic corporation engaging in the financial business under the Korean Standard Industrial Classification publicly notified by the Commissioner of the Korea National Statistical Office (hereafter in this Sub-section referred to as "financial business") pursuant to Article 22 of the Statistics Act may select and apply any of the following exchange rates when converting the amount borrowed:
1. The basic exchange rate or arbitrated exchange rate under the Foreign Exchange Transactions Act as of the end date of the business year;
2. The daily basic exchange rate or arbitrated exchange rate under the Foreign Exchange Transactions Act.
(6) The conversion method selected and applied by a domestic corporation pursuant to paragraph (5) shall continuously apply even to the subsequent business years: Provided, That after five business years including the business year to which the conversion method selected under paragraph (5) is applied, another method may be selected and applied.
 Article 47 (Method of Computing Amount of Investment of Foreign Controlling Stockholders)
(1) The amount of investment in a domestic corporation by a foreign controlling stockholder under Article 22 (2) of the Act shall be calculated by multiplying the amount referred to in subparagraph 1 by the ratio referred to in subparagraph 2 as of the end date of the relevant business year of the relevant domestic corporation: Provided, That in cases of a domestic place of business of a foreign corporation, the amount calculated by subtracting the total amount of liabilities from the total amount of assets on the statement of financial position of the relevant domestic place of business as of the end date of the relevant business year shall be deemed the amount of investment in the domestic place of business of the foreign corporation by the foreign controlling stockholder:
1. The greater of the following amounts:
(a) An amount calculated by subtracting the total amount of liabilities (including reserves and excluding the unpaid corporate tax) from the total amount of assets on the statement of financial position;
(b) An amount calculated according to the following formula (hereafter in this Article referred to as "paid-in capital"):
Capital + (the amount exceeding the par value of stocks issued and gains on capital reduction) ? (margins from the issuance of stocks at below par value and losses on capital reduction)
2. The ratio of paid-in capital of a foreign controlling stockholder to the total paid-in capital (hereafter in this Article referred to as "paid-in capital ratio"): Provided, That where the foreign controlling stockholder includes both a foreign stockholder and a foreign corporation that aggregate borrowings pursuant to Article 46 (3), the paid-in capital ratio of the foreign stockholder shall be deemed the paid-in capital ratio of the foreign stockholder and the foreign corporation.
(2) Notwithstanding paragraph (1), where a change occurs in capital due to the merger or demerger, increase or reduction of capital, etc. during the relevant business year, the sum of multiplied numbers, which are respectively calculated for the period from the start date of the relevant business year to the day before the date of the change in capital and the period from the date of such change to the end date of the relevant business year, shall be the multiple referred to in paragraph (1) 1 (a) or the multiplied paid-in capital referred to in item (b) of that subparagraph.
(3) For the purposes of paragraph (1) 2, where a foreign controlling stockholder indirectly owns a domestic corporation’s stocks, the paid-in capital ratio of the foreign controlling stockholder to a domestic corporation shall be calculated by the following methods:
1. Where a foreign controlling stockholder, a domestic corporation, and at least one corporation between them are connected through a single series of stock ownership: The ratio computed by multiplying all equity ratios in every phase: Provided, That where both a foreign stockholder and a foreign corporation that aggregate borrowings pursuant to Article 46 (3) are included in a single series of stock ownership, Article 2 (3) shall apply mutatis mutandis to the calculation, and in such cases, "indirect ownership ratio" shall be construed as "paid-in capital ratio";
2. Where at least two series of stock ownership exist between a foreign controlling stockholder and a domestic corporation: The ratio computed by adding up all paid-in capital ratios computed pursuant to subparagraph 1 with respect to each series of stock ownership.
 Article 48 (Method of Calculating Interest Paid Excluded from Deductible Expenses)
(1) The amount not included in deductible expenses under Article 22 (2) of the Act shall be the amount of interest, etc., plus the amount calculated by multiplying the accumulated excess borrowings calculated according to the following formula by the interest rate on each borrowing:
Accumulated excess borrowings = Accumulated amount of borrowings from a foreign controlling stockholder, etc. - [accumulated amount of investment in a domestic corporation by a foreign controlling stockholder under Article 47 × standard multiplier (two times or multipliers by business)]
(2) For the purposes of paragraph (1), the accumulated amount of a borrowing subject to the higher interest rate shall be first included in the accumulated excess borrowings; where at least two borrowings are subject to the same interest rate, the accumulated amount of the later borrowing shall be first included in the accumulated excess borrowings; and where both the interest rate and the timing for borrowing are same, the accumulated amount of borrowings shall be proportionally included in the accumulated excess borrowings depending on the ratio of borrowings.
(2) The scope of interest, etc. to be aggregated under paragraph (1) shall be all interest income generated from borrowings from a foreign controlling stockholder, etc., the economic substance of which corresponds to interest, such as the amortization of bond discounts and discount charges on accommodation bills, which a domestic corporation must pay to its foreign controlling stockholder: Provided, That the interest on construction capital funds shall be excluded from the scope of interest, etc.
 Article 49 (Disposal of Income of Non-Deductible Expenses of Interest Paid)
For the purposes of Article 22 (2) of the Act, the non-deductible expenses of interest paid on funds borrowed from a foreign controlling stockholder under subparagraph1 of that paragraph shall be deemed disposed of as a dividend under Article 67 of the Corporate Tax Act, and the non-deductible expenses of interest paid on funds borrowed from a related person of a foreign controlling stockholder under Article 22 (2) 2 of the Act and of the interest paid on funds borrowed from a third party under subparagraph 3 of that paragraph shall be deemed disposed of as other outflows from the relevant corporation under Article 67 of the Corporate Tax Act.
 Article 50 (Multiplier by Type of Business)
(1) The multiplier of the borrowings against the amount of investment by a foreign controlling stockholder, which applies to the financial business pursuant to Article 22 (3) of the Act, shall be six times.
(2) Where a domestic corporation concurrently engages in the financial business and a type of business other than the financial business and the amount of investment or borrowings of the domestic corporation are not classified by type of business, a multiplier by type of business under paragraph (1) and the former part, with the exceptions of the subparagraphs, of Article 22 (2) of the Act shall respectively apply to the amount of investment or borrowings allocated according to the following classification: <Amended on Feb. 15, 2022>
1. Where both the financial business and the type of business other than the financial business generate operating profit (referring to operating profit obtained according to the Korea Financial Accounting Standards; hereafter in this paragraph the same shall apply): Allocation of the amount of investment or borrowings in proportion to each operating profit;
2. Where either the financial business or the type of business other than the financial business fails to generate operating profit: Allocation of the amount of investment or borrowings by applying Article 94 (2) 2 of the Enforcement Decree of the Corporate Tax Act mutatis mutandis.
 Article 51 (Borrowings under Ordinary Terms and Conditions)
(1) Where a domestic corporation, whose multiplier of borrowings against the amount of investment by a foreign controlling stockholder exceeds two times or a multiplier by type of business prescribed in Article 50 (1), intends to become subject to Article 22 (4) of the Act, it shall submit the following data to the competent tax authority by the filing deadline under Article 60 (1) or 76-17 (1) of the Corporate Tax Act:
1. Data proving that the relevant borrowings are not actual investment, based on the interest rate, maturity, payment method, possibility of conversion into capital, priority over other claims, etc.;
2. Data on the multiplier of borrowings against the equity capital of a comparable corporation engaging in the same business type as that of the relevant domestic corporation (hereafter in this Article referred to as "comparable multiplier"). In such cases, the comparable corporation shall be a corporation having a representative nature based on the multiplier of borrowings among domestic corporations having a scale of business, managerial conditions, etc. similar to those of the relevant domestic corporation.
(2) Where the multiplier of borrowings against the amount of investment in a domestic corporation by a foreign controlling stockholder exceeds the comparable multiplier, Article 48 shall apply mutatis mutandis to the method of computing non-deductible expense of the domestic corporation. In such cases, "standard multiplier" shall be construed as "comparable multiplier".
 Article 52 (Adjustment of Withholding Taxes)
Where a domestic corporation has an amount of tax payable subsequent to an offset of a withholding tax pursuant to Article 22 (5) of the Act, it shall pay the amount of tax to the head of the tax office having jurisdiction over the place for tax payment no later than 10th day of the month following the month in which the filing deadline under Article 60 (1) or 76-17 (1) of the Corporate Tax Act falls, and where it has a refundable tax amount, it may file an application for refund with the head of the tax office having jurisdiction over the place for tax payment.
 Article 53 (Submission of Forms concerning Interest Paid to Foreign Controlling Stockholders)
(1) A domestic corporation that has borrowings from a foreign controlling stockholder, etc. shall submit a statement of adjustment of interest, etc. payable to the foreign controlling stockholder prescribed by Ordinance of the Ministry of Economy and Finance, to the head of the tax office having jurisdiction over the place for tax payment at the time of filing a final return on the tax base and tax amount of corporate tax under Article 60 (1) or 76-17 (1) of the Corporate Tax Act.
(2) A domestic corporation that has an additional amount of tax payable or any refundable tax amount pursuant to Article 52 shall submit a statement of adjustment of withholding tax for the foreign controlling stockholder prescribed by Ordinance of the Ministry of Economy and Finance to the head of the tax office having jurisdiction over the place for tax payment at the time of filing a final return on the tax base and tax amount of corporate tax under Article 60 (1) or 76-17 (1) of the Corporate Tax Act.
Sub-Section 2 Exclusion of Interest Overpaid Compared to Income from Deductible Expenses
 Article 54 (Calculation of Net Interest Expenses and Adjusted Gross Income)
(1) The net interest expense under Article 24 (1) 1 of the Act shall be the total amount of interest, etc. paid on the total funds borrowed by a domestic corporation from all its foreign related parties, less the total amount of interest income received by the domestic corporation from the foreign related parties. In such cases, where the net interest expense is negative, it shall be regarded as zero.
(2) For the purposes of paragraph (1), Article 48 (3) shall apply mutatis mutandis to the scope of interest, etc.
(3) The depreciation costs and the amount of income under Article 24 (1) 2 of the Act shall be as follows: <Amended on Feb. 15, 2022>
1. Depreciation costs: Depreciation costs appropriated as deductible expenses under Article 23 of the Corporate Tax Act;
2. The amount of income: The amount of income for each business year before applying Articles 6, 7, 22, 23, and 25 of the Act and Article 28 of the Corporate Tax Act.
(4) If the amount of adjusted gross income calculated pursuant to Article 24 (1) 2 of the Act is a negative number, it shall be deemed zero. <Newly Inserted on Feb. 15, 2022>
(5) For the purposes of applying Article 24 (2) of the Act, if at least two borrowings are subject to the same interest rate, the borrowings made at a later date shall be excluded from deductible expenses; and where both interest rate and the timing of borrowing are identical, they shall not be included in deductible expenses on a proportional basis. <Newly Inserted on Feb. 15, 2022>
 Article 55 (Exemption from Application of Exclusion of Interest Overpaid Compared to Income from Deductible Expenses)
"Domestic corporation prescribed by Presidential Decree" in Article 24 (3) of the Act means a domestic corporation that engages in the financial and insurance business under the Korean Standard Industrial Classification publicly notified by the Commissioner of the Korea National Statistical Office pursuant to Article 22 of the Statistics Act.
 Article 56 (Submission of Forms concerning Net Interest Expenses)
A domestic corporation that has borrowed funds from any foreign related party shall submit a statement of adjustment of net interest expenses payable to the foreign related party prescribed by Ordinance of the Ministry of Economy and Finance, to the head of the tax office having jurisdiction over the place for tax payment at the time of filing a final return on the tax base and tax amount of corporate tax under Article 60 (1) or 76-17 (1) of the Corporate Tax Act.
Sub-Section 3 Exclusion of Interest Paid on Hybrid Financial Instrument Transactions from Deductible Expenses
 Articles 57 (Scope of Hybrid Financial Instrument)
(1) "Financial instrument prescribed by Presidential Decree" in Article 25 (1) of the Act means a financial instrument that satisfies all the requirements classifies as follows: Provided, That the same shall not apply to financial instruments issued by any domestic corporation that engages in the financial and insurance business under the Korean Standard Industrial Classification publicly notified by the Commissioner of the Korea National Statistical Office pursuant to Article 22 of the Statistics Act:
1. For the Republic of Korea: The interest, etc. paid by a domestic corporation to a foreign corporation that is a foreign related party (hereafter in this Sub-section referred to as "counter-party to transaction") in relation to the relevant financial instrument transactions shall be treated as interest expenses, classifying the financial instruments as liabilities in accordance with the Korean tax law;
2. For a country where the counter-party to transaction is located: The interest, etc. received by the counter-party to transaction from the domestic corporation shall be treated as dividend income, classifying the financial instruments as capital in accordance with the country’s tax law.
 Article 58 (Reasonable Period)
"Period prescribed by Presidential Decree" in Article 25 (2) of the Act means the period from the end date of the business year in which a domestic corporation pays interest, etc. in relation to transactions of hybrid financial instruments under Article 57 (hereinafter referred to as "hybrid financial instruments") to the end date of the business year of the counter-party to transaction that commences within 12 months therefrom. <Amended on Feb. 28, 2023>
 Article 59 (Scope of Non-Taxable Amount)
(1) The scope of the non-taxable amount under Article 25 (2) of the Act means the amount not included in the taxable income because interest, etc. paid by a domestic corporation is treated as dividend income pursuant to the tax law of a country where the counter-party to transaction is located, which shall be classified as follows:
1. Where all of the relevant interest, etc. are not included in the taxable income of the counter-party to transaction: The entire amount;
2. Where only the amount that is less than 10 percent of the relevant interest, etc. is included in the taxable income of the counter-party to transaction: The amount not included in the taxable income.
(2) The amount to be included in gains in calculating the amount of income for the business year in which the end date of the reasonable period falls pursuant to Article 25 (2) of the Act shall be calculated by multiplying the amount referred to in subparagraph 1 by the ratio referred to in subparagraph 2:
1. The amount of interest, etc. paid by a domestic corporation to the counter-party to transaction;
2. The ratio of the non-taxable amount under paragraph (1) to the amount of dividend income received by the counter-party to transaction from the domestic corporation.
(3) "Amount equivalent to interest calculated as prescribed by Presidential Decree" in the latter part of Article 25 (2) of the Act means an amount calculated by multiplying the amount referred to in subparagraph 1 by the ratio referred to in subparagraph 2: <Amended on Feb. 15, 2022>
1. The difference in corporate tax arising from non-inclusion of an amount calculated pursuant to paragraph (2) in deductible expenses in the business year for which the interest, etc. paid to the counter-party to transaction are included in the deductible expenses;
2. 22/100,000 per day for the period from the start date of the business year following the business year for which interest, etc. are included in deductible expenses to the end date of the business year for which inclusion in gains is made.
 Article 60 (Submission of Data on Hybrid Financial Instrument Transactions)
A domestic corporation that shall submit data on hybrid financial instrument transactions pursuant to Article 25 (3) of the Act shall submit a statement of adjustment of interest expenses related to hybrid financial instruments prescribed by Ordinance of the Ministry of Economy and Finance.
[This Article Wholly Amended on Feb. 28, 2023]
SECTION 3 Accumulative Taxation of Retained Earnings of Controlled Foreign Companies
 Article 61 (Scope of Income Actually Earned)
(1) The income actually earned under Article 27 (1) of the Act shall be the average annual amount of the aggregate of income actually earned by a relevant foreign corporation for the last three business years, including the relevant business year calculated based on the generally accepted accounting principles (referring to the Korean corporate accounting principles, where such principles are remarkably different from the Korean corporate accounting principles) at the time of preparing financial statements in a country or region where the head office, principal office, or actual management place of the relevant foreign corporation is located (hereafter in this Section referred to as "residence state"). In such cases, the net income before deducting the corporate tax (referring to the net income before deducting the taxes assessed on the corporate income computed pursuant to the tax laws of the residence state of the relevant foreign corporation, and other taxes incidental thereto; hereafter in this Section referred to as "pre-tax profit") actually earned during each business year means the amount adjusted reflecting the following, and income for the business year in which a pre-tax profit is negative shall be deemed zero: <Amended on Feb. 15, 2022>
1. Where the appraised gain or loss (hereafter in this Article referred to as "appraised gain or loss") of stocks or investment certificates is reflected in the pre-tax profit: The appraised gain shall be subtracted, while the appraised loss shall be added: Provided, That where all or part of the appraised gain or loss of such asset is reflected in the residence state at the time of calculating the taxable income of the relevant foreign corporation, the appraised gain or loss shall not be added nor subtracted;
2. Where stocks or investment securities are sold or dividends or distributions accruing from the assets are received and where any appraised gain or loss in the assets has arisen before the relevant business year: Such appraised gain or loss shall be included.
(2) The last three business years under the former part of paragraph (1) shall include only those during which the types of business referred to in the items of Article 29 (1) 1 of the Act are conducted or those during which acts referred to in the items of subparagraph 2 of that paragraph are primarily conducted, and where the number of business years is less than three, the average annual amount under paragraph (1) shall be calculated only for the relevant business years. <Newly Inserted on Feb. 15, 2022>
 Article 62 (Scope of Actual Tax Burden)
The actual tax burden under the provisions, with the exception of the tables, of Article 27 (1) 1 of the Act shall be the average annual amount of the aggregate of taxes actually borne during the last three business years (referring to the period calculated pursuant to Article 61 (2)) including the relevant business year of a foreign corporation, calculated in accordance with the tax law of the resident state of the relevant foreign corporation. In such cases, the amount of tax actually borne means taxes on the pre-tax profits earned by the relevant foreign corporation, and shall include the amount of tax paid in a country other than the relevant resident state and the amount of tax reduced due to the deduction of losses carried forward.
[This Article Wholly Amended on Feb. 15, 2022]
 Article 63 (Scope of Related Persons)
(1) "Person prescribed by Presidential Decree, including a relative of the Korean national" in Article 27 (1) of the Act means a person in the following relationships (hereafter in this Article referred to as "related person"): <Amended on Feb. 15, 2022>
1. A person in a relationship prescribed in subparagraph 20 (a) or (b) of Article 2 of the Framework Act on National Taxes with a Korean national;
2. A person in a special relationship defined in Article 2 (1) 3 of the Act with a Korean national.
(2) Where the percentage of stocks indirectly owned by a related person is calculated under Article 2 (3), the stocks indirectly owned by the related person through the relevant Korean national shall be excluded.
(3) For the purposes of Article 27 (2) of the Act, Article 2 (3) shall apply mutatis mutandis to the calculation of the total number of issued stocks or the indirect stockholding ratio of the total amount of investment.
 Article 64 (Judgment on Exception from Application of Controlled Foreign Companies’ Retained Earnings Deemed Dividends)
(1) "Where the income actually earned ... as of the end of each business year does not exceed the amount prescribed by Presidential Decree" in subparagraph 1 of Article 28 of the Act means where the amount obtained by converting the income actually earned calculated pursuant to Article 61 by applying the basic exchange rate or arbitrated exchange rate under the Foreign Exchange Transactions Act as of the end of each business year does not exceed 200 million won: Provided, That where the relevant business term is less than one year, it means where such amount does not exceed an amount computed according to the following formula:
(200 million won) × the number of months in the relevant business year / 12
(2) The primary business under the provisions, with the exceptions of the items, of subparagraph 3 of Article 28 of the Act means business that generates more than 50 percent of the total revenue of the relevant controlled foreign company.
(3) "Foreign corporation that meets all the requirements prescribed by Presidential Decree" in the provisions, with the exceptions of the items, of subparagraph 3 of Article 28 of the Act means a foreign corporation meeting the following requirements:
1. The controlled foreign company shall own at least 40 percent of the total number of issued stocks or the total amount of investment;
2. It shall not be subject to Article 27 of the Act.
(4) "Rate prescribed by Presidential Decree" in subparagraph 3 (b) of Article 28 of the Act means 90 percent.
 Article 65 (Judgment on Exceptional Application of Controlled Foreign Companies’ Retained Earnings Deemed Dividends)
(1) "Requirements prescribed by Presidential Decree" in the proviso, with the exception of the subparagraphs, of Article 29 (1) of the Act means cases where the amount of sales made to an unrelated person in the same country, etc. under the proviso, with the exception of the subparagraphs, of that paragraph exceeds 50 percent of the total revenue for the relevant business year. In such cases, where Article 2 applies to such special relationship, "domestic corporation" shall be construed as "controlled foreign company."
(2) "Foreign corporation satisfying the requirements prescribed by Presidential Decree" in the provisions, with the exception of the items, of Article 29 (1) 1 of the Act means a corporation meeting the following requirements:
1. It shall be a corporation, for which the aggregate of the revenue generated from the type of business prescribed in the items of Article 29 (1) 1 of the Act or the aggregate of incidental costs added to the purchase prices (hereafter in this Article referred to as "purchase cost") exceeds 50 percent of the total revenue or the total purchase cost of the controlled foreign company: Provided, That in cases of wholesale trade, it shall be based on the average amount during the last three business years including the relevant business year (where the period falls short of three business years, it shall be limited to the period of the relevant business years);
2. It shall be a corporation, for which the amount of transactions with a related person, out of the aggregate of the revenues or of the purchase costs generated from the type of business prescribed in the items of Article 29 (1) 1 of the Act, exceeds 50 percent of the aggregate of the revenues or of the purchase costs generated from the relevant type of business. In such cases, where Article 2 applies to such special relationship, "domestic corporation" shall be construed as "controlled foreign company."
(3) The primary business under Article 29 (1) 2 of the Act shall be business that generates more than 50 percent of the total revenue of the relevant controlled foreign company.
(4) "Where ... meets the standards prescribed by Presidential Decree" in the provisions, with the exception of the subparagraphs, of Article 29 (2) of the Act means where the aggregate of the income falling under each subparagraph of Article 29 (2) of the Act (hereinafter referred to as "passive income") in the relevant business year exceeds five percent of the total revenue of the relevant controlled foreign company: Provided, That where the relevant controlled foreign company holds at least 10 percent of the stocks of any of the following foreign corporations, the calculation shall be based on the relevant passive income excluding dividends accrued from such stocks:
1. A foreign corporation performing business other than those referred to in the subparagraphs of Article 29 (1) of the Act;
2. A foreign corporation engaging in wholesale trade falling under Article 29 (1) 1 (a) of the Act, which meets the requirements prescribed in paragraph (1).
 Article 66 (Computation of Distributable Retained Earnings)
(1) The distributable retained earnings of a controlled foreign company as of the end of each business year under Article 30 (1) and (2) of the Act shall be computed by deducting the following amounts from the amount obtained by adjusting the matters prescribed by Ordinance of the Ministry of Economy and Finance in the unappropriated earned surplus (referring to the amount before subtracting interim dividends that have accrued from the appropriation of earned surplus executed in the relevant business year) computed based upon the generally accepted accounting principles at the time of preparing financial statements in the residence state of the relevant controlled foreign company (referring to the Korean corporate accounting principles, where such principles are remarkably different from the Korean corporate accounting principles):
1. Dividends of profits (including interim dividends that have accrued from the appropriation of earned surplus executed in the relevant business year) or distributions of surplus funds, out of the amount of earned surplus appropriated in the relevant business year;
2. Bonuses, retirement benefits, and other outflows from the relevant corporation, out of the amount of earned surplus appropriated in the relevant business year;
3. Obligatory reserves or obligatory appropriation of earned surplus prescribed by the statutes or regulations of the relevant residence state, out of the amount of earned surplus appropriated in the relevant business year;
4. The amount of earned surplus under subparagraph 1 that has not been appropriated, out of the amount already taxed as being deemed distributed to the relevant Korean national pursuant to Article 27 of the Act before the start date of the relevant business year;
5. The amount of earned surplus under subparagraphs 1 and 2 that has not been appropriated, out of the earned surplus (excluding the amount referred to in subparagraph 6) accrued when Article 27 of the Act was not applied;
6. The amount unrealized as of the end of the relevant business year, out of the appraised gain on stocks or investment certificates;
7. The amount under Article 64 (1).
(2) Where a controlled foreign company holding the following amounts appropriates earned surplus under paragraph (1) 1 and 2, such amounts shall be deemed appropriated preferentially in the order of accrual:
1. The distributable retained earnings held before January 1, 1997;
2. The amount referred to in paragraph (1) 4 and 5 held before the start date of the relevant business year.
 Article 67 (Method of Calculating Stockholding Ratio)
(1) A stockholding ratio of the relevant Korean national in a controlled foreign company to compute the amount deemed a dividend to be distributed to a Korean national under Article 30 (1) and (2) of the Act (hereafter in this Section referred to as "amount deemed a dividend") shall be calculated as follows:
1. Where a Korean national, a controlled foreign company, and at least one corporation between them are connected through a single series of stock ownership: The ratio computed by multiplying all stockholding ratios in every phase;
2. Where at least two series of stock ownership exist between a Korean national and a controlled foreign company: The ratio computed by adding up all stockholding ratios computed pursuant to subparagraph 1 with respect to each series of stock ownership.
(2) For the purposes of paragraph (1) 1, where at least one domestic corporation interposes between a Korean national and a controlled foreign company by means of stock ownership, it shall be deemed that no stockholding ratio exists among Korean nationals.
(3) For the purposes of applying Article 30 (1) and (2) of the Act, the amount deemed a dividend shall be converted by applying the basic exchange rate or arbitrated exchange rate under the Foreign Exchange Transactions Act as of the 60th day from the day following the end date of each business year of the relevant specific foreign corporation.
(4) "Amount prescribed by Presidential Decree" in the formula prescribed in Article 30 (2) of the Act means the dividends prescribed in the proviso, with the exception of the subparagraphs, of Article 65 (4).
 Article 68 (Method for Exclusion of Actual Dividends from Taxable Gains)
(1) Where a controlled foreign company has actually paid dividends (including the amount to be deemed dividends or distributions pursuant to Article 16 (1) of the Corporate Tax Act; hereafter in this Article the same shall apply) to a Korean national, the actual dividends shall be deemed paid from retained earnings in the order of accrual of the distributable retained earnings.
(2) Where a foreign corporation in which a Korean national invested (hereafter in this Article referred to as "intermediate foreign corporation") has reinvested in a controlled foreign company and the intermediate foreign corporation actually pays dividends to the Korean national, the amount of such dividends shall be deemed income not included in gross income pursuant to subparagraph 2 of Article 18 of the Corporate Tax Act or shall not be deemed dividend income under Article 17 (1) of the Income Tax Act. In such cases, the amount deemed income not included in gross income or deemed not to be dividend income shall be limited to the amount calculated by the following formula:
The aggregate of [the retained earnings actually paid as dividends by a specific foreign corporation to an intermediate foreign corporation × the stockholding ratio of the Korean national to the intermediate foreign corporation as at the time of actual dividend payment)] - the amount already paid as dividends by the intermediate foreign corporation to the Korean national during the past business year and thereby deemed income not included in gross income or deemed not to be dividend income
(3) Where at least two intermediate foreign corporations interpose between a Korean national and a controlled foreign company, the dividends shall be subject to paragraph (2).
 Article 69 (Rectification Claims for Foreign Tax Credit)
(1) A person who intends to be subject to Article 33 (1) of the Act shall re-compute the tax base and tax amount of income tax or corporate tax of the taxable year for which the amount deemed a dividend was included in gains pursuant to Article 13 of the Act and shall file a rectification claim regarding the refund of such amount, along with a statement of foreign tax credit prescribed by Ordinance of the Ministry of Economy and Finance.
(2) Where a person who intends to file a rectification claim under paragraph (1) fails to file such claim by the deadline under Article 33 (2) of the Act because of delay in determination and notice of the tax amount for the dividend income by the foreign government, difference in the taxable period, etc., he or she may file a rectification claim, along with evidentiary documents, within three months from the date the foreign government notifies him or her of the determination of the tax amount for the overseas dividend income.
 Article 70 (Submission of Taxable Data regarding Controlled Foreign Companies)
(1) A Korean national subject to the application of Articles 27, 29 (excluding cases falling under the proviso, with the exception of the subparagraphs, of paragraph (1) of that Article), and 30 through 33 of the Act shall submit the following documents to the head of the tax office having jurisdiction over the place for tax payment pursuant to Article 34 of the Act:
1. Financial statements of a controlled foreign company;
2. A corporate tax return and supporting documents of a controlled foreign company (referring to supporting documents requested by the tax authority of a country or region where a controlled foreign company is located);
3. A statement on calculation of retained earnings of a controlled foreign company prescribed by Ordinance of the Ministry of Economy and Finance;
4. A statement on judgment of accumulative taxation on retained earnings of a controlled foreign company prescribed by Ordinance of the Ministry of Economy and Finance;
5. A statement on judgment of the scope of application of accumulative taxation on retained earnings of a controlled foreign company prescribed by Ordinance of the Ministry of Economy and Finance;
6. A statement on overseas investment prescribed by Ordinance of the Ministry of Economy and Finance.
(2) A Korean national to whom the application of Article 27 of the Act is excluded pursuant to Article 28 of the Act and the proviso, with the exception of the subparagraphs, of Article 29 (1) of the Act shall submit the documents prescribed in paragraph (1) 4 through 6 to the head of the tax office having jurisdiction over the place for tax payment pursuant to Article 34 of the Act.
SECTION 3-2 Special Cases concerning Imposition of Tax on Income Attributable to Foreign Transparent Entities
 Article 70-2 (Special Cases concerning Imposition of Tax on Income Attributable to Foreign Transparent Entities)
(1) For the purposes of applying Article 34-2 (1) 2 of the Act, where a foreign corporation, etc. referred to in Article 34-2 (1) 1 of the Act (hereafter in this paragraph referred to as "foreign corporation, etc.") is not liable to pay taxes in accordance with statute of a country in which the foreign corporation, etc. is established or its head office or principal office is located, a stockholder, an investor, or a beneficiary (hereafter in this Article referred to as "investor, etc.") of the relevant foreign corporation, etc. shall be directly liable to pay a tax on the income of the foreign corporation, etc. pursuant to subparagraph 2 of that paragraph.
(2) "Resident or domestic corporation prescribed by Presidential Decree" in Article 34-2 (2) of the Act means a resident defined in Article 1-2 (1) 1 of the Income Tax Act or a domestic corporation defined in subparagraph 1 of Article 2 of the Corporate Tax Act.
(3) The following persons shall submit an application for special cases concerning the imposition of tax on a foreign transparent entity under Article 34-2 (3) of the Act:
1. In cases of managing the assets of a fund managed and operated by the head of a central government agency out of the funds established pursuant to statutes prescribed in attached Table 2 of the National Finance Act: The head of a central government agency which manages and operates the relevant fund (in cases where the management and operation of the fund is entrusted, referring to the entrusted person);
2. In cases of managing the assets owned by the Government or the Bank or Korea under the Korea Investment Corporation Act or by a fund managing entity under the National Finance Act: The Korea Investment Corporation under the Korea Investment Corporation Act whose management and operation of the relevant assets are entrusted;
3. In cases of managing postal savings money under the Postal Savings and Insurance Act or postal insurance reserves under the Act on Special Account for Postal Insurance: The agency in overall charge of postal services under subparagraph 2 of Article 2 of the Act on Special Cases concerning the Management of Postal Services;
4. In cases other than those prescribed in subparagraphs 1 through 3: A resident, etc. who intends to be subject to special cases concerning the imposition of tax on a foreign transparent entity under Article 34-2 (2) of the Act (hereafter in this Article referred to as "special cases concerning the imposition of tax on a foreign transparent entity") among residents or domestic corporations referred to in paragraph (2) (hereafter in this Article referred to as "resident. etc.");
(4) Where a resident, etc. who intends to be subject to the special cases concerning the imposition of tax on a foreign transparent entity submits an application for special cases concerning the imposition of tax on a foreign transparent entity pursuant to Article 34-2 (3) of the Act, he, she, or it shall specify, on an application for special cases concerning the imposition of tax on a foreign transparent entity, the first taxable year (referring to the fiscal year in cases of an investment trust, investment limited partnership, or undisclosed investment association under the "Financial Investment Services and Capital Markets Act"; hereafter in this Article the same shall apply) for which he, she, or it intends to become subject to the special cases concerning the imposition of tax on a foreign transparent entity and submit such application to the head of the tax office having jurisdiction over the place for tax payment.
(5) An application for the special cases concerning the imposition of tax on a foreign transparent entity under Article 34-2 (3) of the Act shall be submitted for each foreign transparent entity that intends to become subject to the special cases concerning the imposition of tax on a foreign transparent entity (referring to the foreign transparent entity under Article 34-2 (1) of the Act; hereafter in this Article the same shall apply).
(6) Notwithstanding paragraph (5), where a multiple number of foreign transparent entities are in continuous investment relationship, such as cases where a foreign transparent entity invests in another foreign transparent entity, when the resident, etc. submits an application for special cases concerning the imposition of tax on a foreign transparent entity directly invested by the resident, etc. all foreign transparent entities in a continuous investment relationship with the relevant foreign transparent entity shall be deemed to be included in the entities subject to the special cases : Provided, That the same shall not apply where an application for exclusion from special cases concerning the imposition of tax on a foreign transparent entity prescribed by Ordinance of the Ministry of Economy and Finance is submitted to the head of the tax office having jurisdiction over the place for tax payment.
(7) "Cases prescribed by Presidential Decree, such as where the foreign transparent entity fails to meet the requirements prescribed in the subparagraphs of paragraph (1)" in Article 34-2 (4) of the Act means where the foreign transparent entity becomes unable to meet requirements prescribed in either of the following subparagraphs:
1. Article 34-2 (1) 1 of the Act;
2. Article 34-2 (1) 2 of the Act.
(8) Where a resident, etc. subject to special cases concerning the imposition of tax on a foreign transparent entity (including a foreign transparent entity for which an application is deemed to have been submitted for special cases concerning the imposition of tax on a foreign transparent entity pursuant to pursuant to paragraph (6)) meets the requirements under paragraph (7), the resident, etc. shall submit an application for the renouncement of special cases on the imposition of tax on a foreign transparent entity to the head of the tax office having jurisdiction over the place for tax payment.
(9) The income immediately attributable to investors, etc. under Article 34-2 (6) of the Act shall be deemed attributable to the residents, etc. in a taxable year that includes the date on which the income is attributable to the foreign transparent entity.
[This Article Newly Inserted on Feb. 28, 2023]
SECTION 4 Special Cases concerning Imposition of Gift Tax on Overseas Donation
 Article 71 (Computation of Market Price of Overseas Donated Property)
(1) In computing the market price of the donated property pursuant to the main clause of Article 35 (4) of the Act, where any of the following values is verified, such value shall be deemed the market price of the donated property:
1. The actual sale price realized within six months before and after the date of donation of the relevant property;
2. The value appraised by a creditworthy appraisal institution within six months before and after the date of donation of the relevant property;
3. The price for compensating the donated property, fixed through an expropriation, etc. within six months before and after the date of donation of the relevant property.
(2) "Methods specified by Presidential Decree" in the proviso of Article 35 (4) of the Act means an evaluation of the value of the donated property by applying mutatis mutandis Articles 61 through 65 of the Inheritance Tax and Gift Tax Act: Provided, That where the method of evaluation is inappropriate, it refers to an evaluation by an appraisal corporation, etc. defined in subparagraph 4 of Article 2 of the Act on Appraisal and Certified Appraisers.
(3) The method of evaluation under Article 63 of the Inheritance Tax and Gift Tax Act shall apply mutatis mutandis to computation of the value of securities.
 Article 72 (Foreign Tax Credit)
(1) The amount of gift tax to be deducted from the amount of gift tax computed under Article 35 (5) of the Act shall be the following amounts of tax (excluding penalty taxes) actually paid by a gift taxpayer to a foreign government (including a local government; hereafter in this Article the same shall apply) under Article 35 (2) of the Act (hereafter in this Article referred to as "tax paid to a foreign country"): <Amended on Feb. 15, 2022>
1. An amount of tax levied, on a donation, under the statutes or regulations of the foreign country based on the value of the donated property (including taxes substantially similar thereto);
2. An amount of surtax on the amount of tax referred to in subparagraph 1.
(2) Tax paid to a foreign country shall be deducted from the amount of gift tax computed by up to the amount computed according to the following formula (hereafter in this Article referred to as "credit limitation"). In such cases, the credit limitation shall not exceed the amount of gift tax computed under the Inheritance Tax and Gift Tax Act:
An amount of gift tax computed under the Inheritance Tax and Gift Tax Act ×
(Tax base of the donated property on which the gift tax is paid under the statutes or regulations of a foreign country (referring to the gift tax base under the statutes or regulations of the relevant foreign country)
/Gift tax base under the Inheritance Tax and Gift Tax Act)
(3) For the purposes of paragraph (1) or (2), the tax base of the donated property shall be converted into Korean currency based on the basic exchange rate or arbitrage exchange rate under the Foreign Exchange Transactions Act as of the date of donation, and the tax paid to a foreign country shall be converted into Korean currency, as prescribed by Ordinance of the Ministry of Economy and Finance.
(4) A person intending to obtain a foreign tax credit under paragraphs (1) through (3) shall submit an application for foreign tax credit prescribed by Ordinance of the Ministry of Economy and Finance and evidentiary documents to the head of the tax office having jurisdiction over the place for tax payment when filing a return on the gift tax base.
(5) Notwithstanding paragraph (4), where it is impossible to submit evidentiary documents in filing a return on the gift tax base due to delay in the determination and notice of gift tax by the relevant foreign government, difference in the payment deadline, etc., the relevant person may submit an application for foreign tax credit and evidentiary documents referred to in paragraph (4) to the head of the tax office having jurisdiction over the place for tax payment within three months from the date of receipt of the notice of the determination of gift tax from the foreign government. <Amended on Feb. 15, 2022>
(6) Paragraph (5) shall also apply mutatis mutandis where a tax paid to a foreign country is changed because the relevant foreign government has rectified the amount of gift tax assessed on the donated property. In such cases, refundable taxes, if any, may be appropriated or refunded pursuant to Article 51 of the Framework Act on National Taxes.
CHAPTER III INTERNATIONAL COOPERATION IN TAX ADMINISTRATION
Section 1 INTERNATIONAL COOPERATION IN TAX AFFAIRS
Sub-Section 1 Exchange of Tax and Financial Information
 Article 73 (Scope of Information on Beneficial Owner)
The scope of information on beneficial owners that a taxpayer may be requested to provide pursuant to Article 36 (2) of the Act shall be classified as follows: <Amended on Feb. 15, 2022>
1. Where the taxpayer is a corporation or an organization: The name, date of birth, and resident registration number of an individual (in cases of a foreigner, referring to the nationality, passport number, or alien registration number, and if it is impracticable to identify beneficial owners based on stocks owned or investment shares, referring to a representative and an executive officer of the relevant corporation or organization, and if there is a person having a de facto control, such person shall be included) to be verified under Article 10-5 (2) through the main clause of paragraph (4) of that Article of the Enforcement Decree of the Act on Reporting and Using Specified Financial Transaction Information;
2. Where the taxpayer is involved in a trust under the Trust Act: The name, date of birth, and resident registration number of an individual (in cases of a foreigner, referring to the nationality, passport number, and alien registration number) classified as follows:
(a) A trustor, trustee, beneficiary, trust administrator, or person who actually controls the trust under the Trust Act;
(b) Where a person who falls under item (a) is a corporation or organization, a person subject to verification under subparagraph 1.
 Article 74 (Exchange of Tax and Financial Information upon Request)
(1) Where the competent authority of the Republic of Korea requests a specific branch or the head of a financial company, etc. (referring to a financial company, etc. defined in subparagraph 1 of Article 2 of the Act on Real Name Financial Transactions and Confidentiality; hereinafter the same shall apply) to provide financial information pursuant to Article 36 (3) and (4) of the Act, such request shall be made in compliance with the standard form referred to in Article 4 (2) of that Act (hereafter in this Section referred to as "written request for the provision of financial transaction information"). In such cases, where the competent authority requests the provision of financial information related to a group that is unable to specify the personal information of a title holder related to the specific financial transaction, it need not enter personal information of the holder in a written request for the provision of financial transaction information.
(2) Where the competent authority of the Republic of Korea provides tax or financial information of a specific taxpayer upon request of the competent authority of the other Contracting State pursuant to Article 36 (1), (3), or (4) of the Act, it shall notify the relevant taxpayer or his or her agent of the fact of providing the tax or financial information, etc., the details of information provided, etc., using a notice of the details of information provision prescribed by Ordinance of the Ministry of Economy and Finance, within 10 days from the date of such provision (where the notification is deferred under paragraph (3), referring to the date the deferment period ends).
(3) Notwithstanding paragraph (2), where the competent authority of the Republic of Korea receives a written request for deferment of notification on the following grounds from the competent authority of the other Contracting State, it may defer the notification for the period of deferment requested (referring to six months if the period of deferment requested on the ground prescribed in subparagraph 2 or 3 is at least six months):
1. Where such notification is likely to jeopardize a person's life or body;
2. Where it is evident that such notification is likely to obstruct the fair progress of judicial proceedings, such as the destruction of evidence or a threat to a witness;
3. Where it is evident that such notification is likely to obstruct or excessively delay the progress of administrative procedures, such as inquiry and examination.
 Article 75 (Regular Exchange of Financial Information)
(1) Where the competent authority of the Republic of Korea requests the head of a financial company, etc. to provide financial information on a regular basis pursuant to Article 36 (6) of the Act, it shall comply with a written request for the provision of financial transaction information. In such cases, where it is unable to specify the personal information of a title holder who requests the provision of financial information, the personal information of the title holder may not be prepared in a written request for the provision of financial transaction information.
(2) For the purposes of paragraph (1), where a period related to a request and provision is specified in a written request for the provision of financial transaction information, such written request may substitute for a request for the provision of information during such period: Provided, That where any change occurs to the financial company, etc. subject to such request or the details of such request, a new written request for the provision of financial transaction information shall be sent.
(3) An employee of a financial company, etc. that provides financial information pursuant to Article 36 (6) of the Act shall prepare the relevant financial information in the head office of the relevant financial company, etc., in accordance with a statement of information provision prescribed by Ordinance of the Ministry of Economy and Finance, within three months from the date the competent authority of the Republic of Korea requests the provision of financial information (in cases falling under paragraph (2), referring to the date designated for the regular provision in a written request for the provision of financial transaction information) and shall submit it to the Commissioner of the National Tax Service through the information and communications network.
(4) Personal information that the head of a financial company, etc. shall verify when providing financial information pursuant to Article 36 (6) of the Act and personal information that he or she can request from a counter-party to the financial transactions pursuant to paragraph (8) of that Article shall be classified as follows:
1. For an individual: The name, address, taxpayer identification number (referring to the date of birth where no taxpayer identification number exists) in the other Contracting State, and other matters prescribed by the relevant tax treaty to verify the personal information;
2. For a corporation: The corporate name, address of the head office or principal office, de facto controller, and other matters prescribed by the relevant tax treaty to verify the personal information.
(5) Where the competent authority of the Republic of Korea acknowledges that any obvious error exists in the information provided by a financial company, etc. pursuant to Article 36 (6) of the Act or where the competent authority receives a request from the competent authority of the other Contracting State, based on the relevant tax treaty, to correct an error in the information exchanged pursuant to that paragraph, it shall request, without delay, the head of the financial company, etc. to correct such error.
(6) The head of a financial company, etc. upon receipt of a request for correction pursuant to paragraph (5) shall submit the corrected information using the information and communications network to the competent authority of the Republic of Korea that has requested the correction or shall explain the absence of any error, within 30 days from the date of receipt of such request.
(7) Where it is impossible to submit the corrected information or explain the absence of any error by the deadline prescribed in paragraph (6) on the ground referred to in any subparagraph of Article 97 (3), the head of the relevant financial company, etc. may file an application for extension of the deadline for submission with the competent authority of the Republic of Korea that has requested such correction, within up to 30 days.
 Article 76 (Detailed Matters of Information Exchange)
Except as provided in this Sub-Section, matters necessary for a request to provide information of the beneficial owner and the submission thereof, verification of personal information, etc. shall be determined and publicly notified by the Minister of Economy and Finance. In such cases, the Minister of Economy and Finance shall consult in advance with the Chairperson of the Financial Services Commission and the Commissioner of the National Tax Service (in cases of information falling under Article 73, limited to the Commissioner of the National Tax Service) in enacting or amending the relevant public notice.
Sub-Section 2 Entrustment of Tax Collection
 Article 77 (Cooperation in Tax Audit)
The competent authority of the Republic of Korea may consult with the competent authority of the other Contracting State on matters necessary for cooperation in a tax audit between the countries, such as the procedures and methods for and scope, etc. of cooperation in the tax audit.
 Article 78 (Procedures for Entrustment of Tax Collection)
(1) Where the head of a tax office having jurisdiction over the place for tax payment or the head of a local government intends to request the Commissioner of the National Tax Service to take measures necessary to collect taxes in the other Contracting State pursuant to Article 40 (1) of the Act, he or she shall submit the following documents: Provided, That the documents prescribed in subparagraph 2 shall be limited to those collectable in the Republic of Korea:
1. A written request to entrust tax collection between countries prescribed by Ordinance of the Ministry of Economy and Finance;
2. Documents concerning the nationality, status of residence, and status of domestic and overseas property ownership of the following persons:
(a) A taxpayer;
(b) A person jointly and severally liable for tax payment under Article 25 of the Framework Act on National Taxes or Article 44 of the Framework Act on Local Taxes;
(c) A person secondarily liable for tax payment under Articles 38 through 41 of the Framework Act on National Taxes or Articles 45 through 48 of the Framework Act on Local Taxes and Article 15 of the Local Tax Collection Act.
(2) Upon receipt of a request under paragraph (1), the Commissioner of the National Tax Service shall decide whether to request the competent authority of the other Contracting State to entrust the tax collection, after reviewing the following matters:
1. The nationality, status of residence, and status of property ownership of a taxpayer;
2. The status of the joint and several tax liability and of security for tax payment;
3. A possibility that no tax can be collected;
4. Extinctive prescription of tax claims;
5. Other matters necessary to collect taxes.
(3) Where the Commissioner of the National Tax Service decides to entrust tax collection pursuant to paragraph (2), he or she shall request entrustment of tax collection from the competent authority of the other Contracting State.
(4) Upon receipt of a notification of the results of entrusted tax collection from the other Contracting State, the Commissioner of the National Tax Service shall notify the head of the tax office having jurisdiction over the place for tax payment or the head of the local government of the details of such notification.
 Article 79 (Procedures for Performing Entrusted Tax Collection)
(1) Where the Minister of Economy and Finance is entrusted with tax collection by the competent authority of the other Contracting State, he or she may require the Commissioner of the National Tax Service to perform the tax collection. In such cases, the Commissioner of the National Tax Service shall report on the results thereof to the Minister of Economy and Finance.
(2) Where the Commissioner of the National Tax Service is entrusted with tax collection by the competent authority of the other Contracting State or is requested to perform the tax collection by the Minister of Economy and Finance pursuant to paragraph (1), he or she shall without delay notify the person subject to tax collection who resides in the Republic of Korea of such fact. In such cases, the Commissioner of the National Tax Service may request such person to submit data to vindicate himself or herself.
(3) The Commissioner of the National Tax Service may request the competent authority of the other Contracting State to provide data verifying the tax liability of the person subject to tax collection, such as a court ruling and the results of an appeal related to the entrusted tax collection.
(4) The Commissioner of the National Tax Service shall examine whether to cooperate in the tax collection entrusted by the competent authority of the other Contracting State, in consideration of the following matters:
1. Data secured pursuant to paragraphs (2) and (3);
2. Matters referred to in the subparagraphs of Article 78 (2);
3. Whether the other Contracting State cooperates in tax collection with the Republic of Korea, according to the principle of reciprocity.
(5) If deemed necessary for an examination under paragraph (4), the Commissioner of the National Tax Service may request consultation from the other Contracting State.
(6) Where the Commissioner of the National Tax Service decides to cooperate in tax collection with the other Contracting State, he or she shall without delay instruct the head of the tax office having jurisdiction over the place for tax payment to collect the relevant tax.
(7) The head of the tax office having jurisdiction over the place for tax payment who is instructed to collect taxes pursuant to paragraph (6) shall collect the relevant taxes as prescribed by the National Tax Collection Act and report the results thereof to the Commissioner of the National Tax Service. In such cases, any expenses incurred in tax collection exceeding the regular collection expenses shall be deducted from the collected tax and be paid to the National Treasury, and the details of such calculation shall be reported to the Commissioner of the National Tax Service.
 Article 80 (Remittance of Collected Taxes)
(1) Upon receipt of a report from the head of the tax office having jurisdiction over the place for tax payment under Article 79 (7), the Commissioner of the National Tax Service shall notify the other Contracting State of the results of the entrusted tax collection, together with the details of deducted collection expenses.
(2) The method of remitting the other Contracting State's taxes collected in the Republic of Korea or the Korean taxes collected in the other Contracting State shall be determined in consultation with the competent authority of the other Contracting State.
(3) Upon receipt of a remittance of Korean taxes collected in the other Contracting State, the Commissioner of the National Tax Service shall revert it to the National Treasury or to the revenue account of the relevant local government.
 Article 81 (Procedures for Issuing Residence Certificates)
(1) A person that intends to file an application for the issuance of a document substantiating that he, she, or it is a resident or a domestic corporation shall submit an application for the issuance of residence certificate prescribed by Ordinance of the Ministry of Economy and Finance to the head of the tax office having jurisdiction over the place for tax payment. <Amended on Feb. 15, 2022>
(2) Upon receipt of an application for the issuance of residence certificate under paragraph (1), the head of the tax office having jurisdiction over the place for tax payment shall issue a residence certificate prescribed by Ordinance of the Ministry of Economy and Finance after verifying the relevant facts: Provided, That where he or she is requested to issue the residence certificate in a form issued by the government of the other Contracting State, he or she may issue it in such form.
SECTION 2 Mutual Agreement Procedure
 Article 82 (Applications for Commencing Mutual Agreement Procedures)
A resident or domestic corporation or a nonresident or foreign corporation that files an application for commencing a mutual agreement procedure under Article 42 (1) of the Act (hereafter in this Section referred to as "applicant") shall submit to the Minister of Economy and Finance or the Commissioner of the National Tax Service an application for commencing a mutual agreement procedure prescribed by Ordinance of the Ministry of Economy and Finance, along with the following documents:
1. A statement of accounts and a tax return relevant to an application for commencing a mutual agreement procedure;
2. Where an application for an objection, a request for examination, a request for trial, filing of a lawsuit, or any other procedure for raising objections has been filed or is expected to be filed in the Republic of Korea or in a foreign country, such application;
3. Other data prescribed by Ordinance of the Ministry of Economy and Finance, including a written opinion of the applicant on the grounds for applying for commencing a mutual agreement procedure.
 Article 83 (Processing Applications for Commencing Mutual Agreement Procedures)
(1) Upon receipt of an application for commencing a mutual agreement procedure pursuant to Article 42 (1) of the Act, the Minister of Economy and Finance or the Commissioner of the National Tax Service shall determine whether to request the competent authority of the other Contracting State to commence the mutual agreement procedure, within three months from the date of receipt of the application, in consideration of the following matters:
1. Whether the application falls under Article 42 (1) 1 through 3 and (2) 1 through 4 of the Act;
2. Whether the tax authority is able to reasonably adjust it by taking necessary measures, without commencing the mutual agreement procedure.
(2) "Cases prescribed by Presidential Decree ... such as where a response to the tax adjustment by the other Contracting State is required" in the proviso of Article 42 (2) 1 of the Act and the proviso, with the exception of the subparagraphs, of Article 46 (3) of the Act means the following cases:
1. Where it is necessary for the tax authority to adjust the tax base and tax amount for each business year, in response to the adjustment of a transfer price between a resident (including a domestic corporation and a domestic place of business; hereafter in this paragraph the same shall apply) and a foreign related party at the arm’s length price by the other Contracting State;
2. Where it is necessary for the other Contracting State to adjust the tax base and tax amount for each business year of a foreign related party, in response to the adjustment of a transfer price between a resident and the foreign related party at the arm's length price by the tax authority.
(3) Where the requirements for applying for a mutual agreement procedure are not met as a result of review under paragraph (1), the Minister of Economy and Finance or the Commissioner of the National Tax Service may request the applicant to supplement and re-file such application.
(4) Even after receiving an application for commencing a mutual agreement procedure, the Minister of Economy and Finance or the Commissioner of the National Tax Service may refrain from requesting the competent authority of the other Contracting State to commence the mutual agreement procedure or may discontinue the mutual agreement procedure that has commenced, if the applicant consents thereto.
(5) Where the Minister of Economy and Finance or the Commissioner of the National Tax Service rejects an application for commencing a mutual agreement procedure, he or she shall notify the applicant and the competent authority of the other Contracting State of such fact.
 Article 84 (Reporting on Current Status of Progress of Mutual Agreement Procedures)
Pursuant to Article 42 (5) of the Act, the Commissioner of the National Tax Service shall submit to the Minister of Economy and Finance a quarterly report on the current status of progress of a mutual agreement procedure prescribed by Ordinance of the Ministry of Economy and Finance, within 15 days from the expiration of each quarter, by the end date of the mutual agreement procedure. In such cases, the current status of progress shall include the status of progress of the mutual agreement procedure requested by the other Contracting State.
 Article 85 (Applications for Commencing Arbitration Procedures)
(1) A person who intends to apply for the commencement of arbitration procedures under Article 43 (1) of the Act (hereafter in this Section referred to as "arbitration procedure") (hereafter in this Section referred to as "applicant for arbitration") shall submit an application for commencing arbitration procedures prescribed by Ordinance of the Ministry of Economy and Finance to the Minister of Economy and Finance or the Commissioner of the National Tax Service.
(2) Upon receipt of an application for commencing arbitration procedures under paragraph (1), the Minister of Economy and Finance or the Commissioner of the National Tax Service may require the applicant for arbitration to submit documents necessary for proceeding with the arbitration procedures.
 Article 86 (Submission of Opinions about Arbitration Procedures)
(1) An applicant for arbitration may, as prescribed by the tax treaty, submit his or her opinion about the interpretation and application of the tax treaty, the adjustment of income, the selection of arbitrators, the progress of the arbitration procedures, etc. to the Minister of Economy and Finance or the Commissioner of the National Tax Service during the period from the start date to the end date of the arbitration procedures.
(2) An applicant for arbitration may submit his or her opinion in writing or present it orally in the arbitration procedures, as prescribed by the relevant tax treaty. In such cases, all expenses incurred in the submission of opinions, etc. shall be borne by the applicant for arbitration.
 Article 87 (Qualification Requirements for Arbitrators)
The Minister of Economy and Finance or the Commissioner of the National Tax Service shall appoint as arbitrators persons meeting the criteria determined by the Minister of Economy and Finance, who have extensive expertise and experience in the fields of taxation, law, and accounting and are able to secure the fairness and independence of the arbitration procedures: Provided, That the same shall not apply to persons determined by the Minister of Economy and Finance, such as an applicant for arbitration and a person who has an interest in the taxation, etc. subject to the mutual agreement.
 Article 88 (Reporting on and Notice of Terms and Conditions Mutually Agreed Upon)
(1) Where a mutual agreement procedure ends, the Commissioner of the National Tax Service shall without delay submit a copy of the mutual agreement to the Minister of Economy and Finance pursuant to Article 47 (1) of the Act.
(2) A notice of the end of the mutual agreement procedure under Article 47 (2) of the Act shall be made via a notice of end of the mutual agreement procedure prescribed by Ordinance of the Ministry of Economy and Finance.
(3) Where the tax authority or the head of a local government assesses taxes, determines to make a rectification, or takes other necessary actions under the tax laws pursuant to Article 47 (4) of the Act, he or she shall notify the Minister of Economy and Finance or the Commissioner of the National Tax Service of such fact, within 15 days after taking such measures.
 Article 89 (Submission of Acceptance or Refusal of Terms and Conditions Mutually Agreed Upon)
(1) Where an agreement is reached in writing with the other Contracting State, the Minister of Economy and Finance or the Commissioner of the National Tax Service shall notify an applicant of the details of agreement pursuant to the main clause of Article 47 (2) of the Act within 15 days from the day following the end date of the mutual agreement procedure under the main clause of Article 46 (1) of the Act.
(2) Upon receipt of notice under paragraph (1), the applicant shall submit, in writing, to the Minister of Economy and Finance or the Commissioner of the National Tax Service, whether to accept the terms and conditions mutually agreed upon under the subparagraphs of Article 47 (3) of the Act and whether to withdraw the relevant appeal within two months from the date of receipt of such notice.
(3) Where the applicant submits an intention of not consenting to the details of the agreement or fails to withdraw the relevant lawsuit by the deadline for submission referred to in paragraph (2) or where he or she fails to submit in writing whether to accept it or whether to withdraw the relevant appeal, the relevant application for commencing the mutual agreement procedure shall be deemed withdrawn.
 Article 90 (Expanded Application of Terms and Conditions Mutually Agreed Upon)
(1) A person who intends to apply for an expanded application of the terms and conditions mutually agreed upon pursuant to Article 48 (1) of the Act shall submit the following documents with the tax authority or the head of a local government:
1. An application for an expanded application of terms and conditions mutually agreed upon, prescribed by Ordinance of the Ministry of Economy and Finance;
2. Documents proving that the applicant meets requirements referred to in the subparagraphs of Article 48 (2) of the Act.
(2) "Requirements prescribed by Presidential Decree" in Article 48 (2) 3 of the Act means that the normal profit or the transactional net margin applied at the time of computing the arm's length price shall be identical.
 Article 91 (Special Cases on Application of Extension of Deadline for Payment)
(1) A person who intends to apply for special application of extension of the payment deadline, etc. or suspension of attachment or sale under Article 49 (1) of the Act shall file an application with the head of the tax office having jurisdiction over the place for tax payment or the head of a local government, along with the following documents:
1. A written application for the special application of extension of payment deadline, etc. prescribed by Ordinance of the Ministry of Economy and Finance;
2. A copy of the notification of commencing a mutual agreement procedure issued by the Commissioner of the National Tax Service.
(2) For the purposes of Article 49 (2) and (3) of the Act, the head of a tax office having jurisdiction over the place for tax payment or the head of a local government upon receipt of an application under paragraph (1) shall not grant deferment of payment notice, extension of the payment deadline, etc., or suspension of attachment or sale (hereafter in this Article referred to as "deferment of notice, etc.") in any of the following cases. In such cases, where the deferment of notice, etc. has already been allowed, he or she shall cancel it immediately and collect the tax amount and delinquent taxes related to such deferment in lump sum:
1. Where the applicant is in arrears on any national or local tax as of the date of application under paragraph (1);
2. Where the applicant fails to perform his or her duty to submit the following data:
(a) A consolidated report on international transaction information under Article 16 (1) of the Act;
(b) A statement of international transactions under Article 16 (2) 1 of the Act;
(c) Data, the submission of which is requested by the tax authority pursuant to Article 16 (4) of the Act;
3. Where it is highly unlikely to collect taxes.
(3) Where the extension of the payment deadline, etc. or the suspension of attachment or sale is allowed pursuant to Article 49 (5) of the Act, an amount equivalent to the interest to be added to the national tax or local tax shall be calculated as follows:
Additional amount equivalent to interest = Amount of relevant national tax or local tax whose deadline, etc. for payment has been extended or after attachment of property or the sale of attached property has been suspended (where an adjustment is made under the mutual agreement procedure, the adjusted amount) × the number of days from either the day after the deadline for tax payment or the commencement date of the mutual agreement procedure, whichever comes later, until the end date of the mutual agreement procedure (hereinafter referred to as “deferment period”) × the interest rate prescribed in Article 27-4 of the Enforcement Decree of the Framework Act on National Tax (where the deferment period exceeds two years, the interest rate prescribed in the main clause of Article 43-3 (2) of the same Decree shall be applied to the period after two years have passed)
(4) Where the deferment of notice, etc. is applied to the amount of income tax or corporate tax pursuant to Article 49 (6) of the Act and the deferment of notice, etc. is given to a taxpayer pursuant to Article 13 (3), 14 (3), or 105 (4) of the National Tax Collection Act, such fact shall be notified to the head of the local government having jurisdiction over the local tax added to the relevant amount of income tax or corporate tax, by applying mutatis mutandis Article 15 of the Enforcement Decree of that Act.
CHAPTER IV REPORTING ON FOREIGN ASSETS AND SUBMISSION OF DATA
SECTION 1 Reporting on Foreign Financial Accounts
 Article 92 (Reporting on Foreign Financial Accounts)
(1) "Entities ... prescribed by Presidential Decree" in the former part, with the exception of the items, of subparagraph 1 of Article 52 of the Act means a financial company, etc. or a financial company, etc. similar thereto established under foreign finance-related statutes or regulations and a virtual asset service provider defined in subparagraph 1 (n) of Article 2 of the Act on Reporting and Using Specified Financial Transaction Information or a virtual asset service provider similar thereto established under foreign statutes or regulations related to virtual assets (hereinafter referred to as "virtual asset service provider, etc.").
(2) For the purposes of Article 53 (1) of the Act, residents and domestic corporations shall be determined as of the end day of the year in which they are required to report.
(3) "Amount prescribed by Presidential Decree" in Article 53 (1) of the Act means 500 million won.
(4) A person required to report his or her account under Article 53 (1) of the Act (hereafter in this Section referred to as "person required to report his or her account") shall submit a report on foreign financial accounts prescribed by Ordinance of the Ministry of Economy and Finance to the head of a tax office having jurisdiction over the place for tax payment by the reporting deadline.
(5) A person required to report his or her account shall also submit information on persons related to the foreign financial account, in addition to himself or herself, as described in a report on foreign financial accounts under paragraph (4).
(6) Persons related to a foreign financial account under Article 53 (2) of the Act shall each be deemed to have the entire balance of the relevant account.
 Article 93 (Methods of Computing Balance of Foreign Financial Accounts)
(1) The balance of a foreign financial account of a person required to report his or her account as of the last day of each month shall be computed by aggregating the amounts calculated according to the following classification as to the assets of each foreign financial account held by the person required to report his or her account after converting them respectively at the exchange rate (referring to a daily basic or arbitrated exchange rate under the Foreign Currency Exchange Transactions Act) of the relevant nominal currencies. In such cases, where several persons jointly inherited a foreign financial account in the decedent's name, only the amounts equivalent to the portion of the accounts that each joint heir inherited, out of the balance of the account, shall be converted and aggregated:
1. Cash: The balance as of the closing time of the last day of each relevant month;
2. Stocks listed on the securities market under the Financial Investment Services and Capital Markets Act or on similar overseas securities markets, and depository receipts issued on the basis of such stocks: Quantity as of the closing time of the last day of each relevant month × the final price on the last day of each relevant month (the final price on the immediately preceding transaction date, if the last day of each relevant month is not a transaction date);
3. Bonds listed on the securities market under the Financial Investment Services and Capital Markets Act or on similar overseas securities markets: Quantity as of the closing time of the last day of each relevant month × the final price on the last day of each relevant month (the final price on the immediately preceding transaction date, if the last day of each relevant month is not a transaction date);
4. Collective investment securities under the Financial Investment Services and Capital Markets Act or similar foreign collective investment securities: Quantity as of the closing time of the last day of each relevant month × the base price on the last day of each relevant month (the redemption price as of the last day of each relevant month or the base price on the closest date before the last day of each relevant month, if no base price on the last day of each relevant month exists);
5. Insurance products under the Insurance Business Act or similar foreign insurance products: The amount paid as of the closing time of the last day of each relevant month;
6. Virtual assets defined in subparagraph 3 of Article 2 of the Act on Reporting and Using Specified Financial Transaction Information, which are stored and managed by overseas virtual asset service providers, etc. having their headquarters or principal offices in a foreign country (limited to where the actual management place of their business does not exist in the Republic of Korea), and similar virtual assets: Quantity as of the closing time of each relevant month × the final price on the last day of each relevant month (the final price on the immediately preceding transaction date, if the last day of each relevant month is not a transaction date);
7. Assets other than those prescribed in subparagraphs 1 through 6: Quantity as of the closing time of the last day of each relevant month × the market price on the last day of each relevant month (the acquisition price, if it is impracticable to calculate the market price).
(2) Foreign financial accounts under paragraph (1) shall include all accounts held throughout the relevant year, including those with no transaction history and those terminated during the relevant year: Provided, That the same shall not apply to the following accounts:
1. Financial accounts constituting insurance contracts under the Insurance Business Act and similar overseas insurance products the net premium of which is comprised of only risk premium;
2. Accounts that meet all the following requirements, among the retirement pension accounts opened according to the retirement pension plan under the Act on the Guarantee of Employees' Retirement Benefits or any similar overseas retirement pension plan:
(a) An account shall be eligible for any of the following tax benefits in the relevant country:
(i) Where deposits in the account are deducted or excluded from the account holder's gross income;
(ii) Where deposits in the account are eligible for tax assessment at a reduced tax rate (including cases where deposits in the account are fully or partially deductible from the tax amount calculated for global income);
(iii) Where taxes on investment income from the account are deferred or assessed at a reduced tax rate;
(b) Information relevant to the account shall be reported every year to the competent foreign tax authority;
(c) Withdrawals shall be permitted only upon the occurrence of a specified event, such as the attainment of the specified retirement age, impairment, or death, or withdrawals prior to the occurrence of a specified event shall be subject to detriment;
(d) Deposits per year in the account shall not exceed 50 million won, or the total deposits shall not exceed one billion won. In such cases, where there are several retirement pension accounts according to overseas retirement pension plans, the total deposits shall be determined based on the aggregate of amounts in such accounts.
 Article 94 (Actual Holder of Foreign Financial Accounts)
(1) The actual holder of a foreign financial account under Article 53 (2) 1 of the Act refers to a person who is a de facto manager of the relevant account, irrespective of the nominal holder of the relevant account, by assuming the economic risks, acquiring the interest gains, dividends, etc., or having the right to dispose of the relevant account in the transactions involving the relevant account.
(2) For the purposes of paragraph (1), where a Korean national directly or indirectly owns 100 percent of the voting stocks of a foreign corporation (including the stocks directly or indirectly owned by persons who has a relationship referred to in subparagraph 20 (a) or (b) of Article 2 of the Framework Act on National Taxes with the Korean national), the Korean national shall count as the actual holder: Provided, That the same shall not apply where the relevant foreign corporation is located in a country which has concluded and implements a tax treaty with the Republic of Korea.
(3) Notwithstanding paragraph (1) and the main clause of paragraph (2), a person who has invested through a foreign financial account whose nominal holder is any of the following persons shall not be deemed the actual holder:
1. A collective investment scheme under Article 9 (18) of the Financial Investment Services and Capital Markets Act or a collective investment scheme similar thereto established in a foreign country (limited to those registered with the Financial Services Commission under Article 279 (1) of that Act);
2. An investment broker under Article 8 (3) of the Financial Investment Services and Capital Markets Act or the Korea Securities Depository under Article 294 of that Act;
3. A trust business entity of a money trust contract under Article 103 of the Enforcement Decree of the Financial Investment Services and Capital Markets Act;
4. A venture investment association defined in subparagraph 11 of Article 2 of the Act on the Venture Investment Promotion Act.
 Article 95 (Exemption from Obligation to Report Foreign Financial Accounts)
(1) "Methods ... prescribed by Presidential Decree" in the latter part of subparagraph 1 of Article 54 of the Act means the method of calculating the period of residence under Article 4 (1), (2), and (4) of the Enforcement Decree of the Income Tax Act.
(2) "Person related to a foreign financial account who meets the requirements prescribed by Presidential Decree, including where his or her foreign financial account information is verifiable through a report by another joint holder, etc. of the account" in subparagraph 4 of Article 54 of the Act means a person whose information on all foreign financial accounts becomes available to the head of the tax office having jurisdiction over the place for tax payment, as any of the persons related to the foreign financial account under Article 53 (2) of the Act also submits his or her foreign financial account information pursuant to Article 92 (5).
(3) "Institution prescribed by Presidential Decree" in subparagraph 5 of Article 54 of the Act shall be the following:
1. An institution related to financial investment business, a collective investment scheme, a fund rating company, or a bond rating company under the Financial Investment Services and Capital Markets Act;
2. A financial holding company under the Financial Holding Companies Act;
3. A foreign exchange agency and a foreign exchange brokerage company under the Foreign Exchange Transactions Act;
4. A credit information company or a claims collection agency under the Credit Information Use and Protection Act.
 Article 96 (Revised and Overdue Reports of Foreign Financial Accounts)
(1) A person who intends to file a revised report on his or her foreign financial account information pursuant to Article 55 (1) of the Act shall submit a revised report on foreign financial account prescribed by Ordinance of the Ministry of Economy and Finance to the head of the tax office having jurisdiction over the place for tax payment, stating the following matters:
1. Foreign financial account information reported for the first time;
2. Foreign financial account information to be reported with its revised report.
(2) A person who intends to file an overdue report on his or her foreign financial account information pursuant to Article 55 (2) of the Act shall submit an overdue report on foreign financial account prescribed by Ordinance of the Ministry of Economy and Finance to the head of the tax office having jurisdiction over the place for tax payment.
 Article 97 (Explanation about Source of Noncompliance Amounts in Relation to Obligation to Report Foreign Financial Accounts)
(1) Where a person required to report his or her account, who has been requested to give an explanation pursuant to Article 56 (1) of the Act, intends to explain the source of the noncompliance amount, he or she shall submit a certificate of the source of noncompliance amount in a foreign financial account prescribed by Ordinance of the Ministry of Economy and Finance to the head of the tax office having jurisdiction over the place for tax payment.
(2) Where a person required to report his or her account, who has been requested to give an explanation pursuant to Article 56 (1) of the Act, explains the source of at least 80 percent of the amount requested to be explained in the relevant foreign financial account, he or she shall be deemed to explain the source of the whole amount requested to be explained in violation of the obligation to report.
(3) "Unavoidable circumstances prescribed by Presidential Decree, such as where collecting and preparing data requires considerable time" in the proviso of Article 56 (2) of the Act means the following:
1. Where the person required to report his or her account is unable to submit data due to a fire, disaster, theft, etc.;
2. Where it is very impracticable for the person required to report his or her account to submit data because his or her business is in serious crisis;
3. Where the relevant books or documents are confiscated or kept in custody by a competent authority;
4. Where it is impossible to submit the relevant data by the deadline, as it will take a substantial time to collect and compile such data;
5. Where it is deemed impossible to submit the data by the deadline, on any grounds similar to those falling under subparagraphs 1 through 4.
SECTION 2 Submission of Data on Overseas Subsidiaries
 Article 98 (Obligation to Submit Data on Overseas Subsidiaries)
(1) A statement, etc. of an overseas direct investment under the former part, with the exception of the subparagraphs, of Article 58 (1) of the Act shall be the data classified as follows: <Amended on Feb. 15, 2022; Feb. 28, 2023>
1. A resident or domestic corporation that has made a foreign direct investment under Article 3 (1) 18 (a) of the Foreign Exchange Transactions Act: The business profiles of overseas subsidiaries prescribed by Ordinance of the Ministry of Economy and Finance;
2. Any of the following residents or domestic corporations that falls under subparagraph 1: The business profiles of overseas subsidiaries and a statement of financial position of overseas subsidiaries prescribed by Ordinance of the Ministry of Economy and Finance:
(a) A resident or domestic corporation that owns at least 10 percent of the total number of issued stocks or the total amount of investment of a corporation that has attracted overseas direct investment under Article 3 (1) 18 (a) of the Foreign Exchange Transactions Act (hereafter in this Article referred to as "invested corporation") and whose amount of investment exceeds 100 million won;
(b) A resident or domestic corporation that directly or indirectly owns at least 10 percent of the total number of issued stocks or the total amount of investment of an invested corporation and has a special relationship defined in Article 2 (1) 3 of the Act with the invested corporation;
3. A resident or domestic corporation falling under subparagraph 2 (b) for which the amount of loss on each transaction falling under Article 58 (1) 3 or 4 of the Act (hereafter in this Article referred to as "amount of loss on a transaction") meets the following requirements: The business profiles of overseas subsidiaries, a statement of financial position, and a statement of losses on transactions prescribed by Ordinance of the Ministry of Economy and Finance:
(a) Residents: The amount of loss on a transaction shall be at least one billion won during a single taxable period, or the cumulative amount of loss from the taxable period during which the first loss occurred to the taxable period falling on the fifth anniversary shall be at least two billion won;
(b) Domestic corporations: The amount of loss on a transaction shall be at least five billion won for a single business year, or the cumulative amount of loss from the business year in which the first loss occurred to the business year falling on the fifth anniversary shall be at least 10 billion won;
4. A resident or domestic corporation that has made a foreign direct investment under Article 3 (1) 18 (b) of the Foreign Exchange Transactions Act: A list of overseas business offices prescribed by Ordinance of the Ministry of Economy and Finance;
5. Deleted. <Feb. 15, 2022>
(2) Pursuant to Article 58 (2) of the Act, a resident or a domestic corporation that has acquired and owns or disposed of real estate in a foreign country or any related right (hereinafter referred to as "overseas real estate, etc.") in the relevant taxable year, in capital under the Foreign Exchange Transactions Act shall submit a statement of acquisition, ownership, investment and management (leasing), and disposal of overseas real estate, etc. prescribed by Ordinance of the Ministry of Economy and Finance to the head of a tax office having jurisdiction over the place for tax payment.. <Newly Inserted on Feb. 15, 2022>
(3) For the purposes of paragraph (1) 3, the following losses on transactions incurred to a resident or domestic corporation shall be calculated in accordance with the generally accepted accounting principles, and the following losses on transactions incurred to an invested corporation shall be calculated in accordance with the generally accepted accounting principles at the time of preparing financial statements in a residence state of the invested corporation (referring to the Korean corporate accounting principles, where such principles are remarkably different from the Korean corporate accounting principles): <Amended on Feb. 15, 2022>
1. Losses arising from purchase, disposal, donation, appraisal, value reduction, etc. of an asset: Provided, That the following losses shall be excluded herefrom:
(a) Losses arising from purchase and sale of inventory assets for business purposes;
(b) Depreciation expenses of tangible and intangible assets used for business purposes;
(c) Losses arising from disposal, appraisal, or value reduction of securities traded in a security market (including foreign securities markets);
(d) Losses arising from valuation following fluctuations of exchange rates of monetary assets in a foreign currency (including losses on valuation following exchange rate fluctuations);
2. Losses arising from recognition, appraisal, repayment, etc. of liabilities (including provisions, but excluding corporate tax payable): Provided, That losses arising from valuation following fluctuations of exchange rates of monetary liabilities in a foreign currency (including losses on valuation following exchange rate fluctuations) shall be excluded herefrom;
3. Losses arising from capital transactions, such as capital increase, capital reduction, merger, and demerger.
 Article 99 (Explanation about Source of Funds for Acquisition in Cases of Noncompliance with Obligation to Submit Data on Overseas Subsidiaries)
(1) Where a resident or domestic corporation requested to give an explanation pursuant to Article 59 (1) of the Act intends to explain the source of the amount subject to explanation pursuant to paragraph (2) of that Article, it shall submit a certificate of the source of the amount subject to explanation of acquisition funds prescribed by Ordinance of the Ministry of Economy and Finance to the head of the tax office having jurisdiction over the place for tax payment.
(2) "Unavoidable circumstances prescribed by Presidential Decree, such as where collecting and preparing data requires considerable time" in Article 59 (3) of the Act means the causes prescribed in the subparagraphs of Article 97 (3).
CHAPTER V GLOBE TAXATION
SECTION 1 Tax Base and Calculation Thereof
 Article 100 (Definitions)
(1) "A collection of entities prescribed by Presidential Decree" in Article 61 (1) 2 of the Act means a group of entities whose assets, liabilities, revenues, expenses, and cash flows are itemized in the consolidated financial statements of the UPE (including entities owned or controlled by the UPE and whose assets, liabilities, revenues, expenses, and cash flows are not itemized in the consolidated financial statements of the UPE for reasons prescribed by the Ministry of Economy and Finance, such as the small size of the entities).
(2) "That any ownership interest holder is required to consolidate in accordance with a financial accounting standard, etc., as prescribed by Presidential Decree" in the former part of subparagraph 11 of Article 61 (1) of the Act means any of the following cases:
1. Where a person holding an ownership interest in another entity is required to consolidate the assets, liabilities, revenues, expenses and cash flows of that enterprise on an item-by-item basis in accordance with the accounting standards pursuant to Article 105 (2) 1 (hereinafter referred to as "recognized accounting standards" in this chapter);
2. Where a person holding an ownership interest in another entity is not required to prepare a consolidated financial statement but, assuming it does, would be required to consolidate the assets, liabilities, revenues, expenses, and cash flows of that entity on an item-by-item basis.
(3) "financial statements similar thereto and that are prescribed by Presidential Decree, such as those where an entity and the entities in which it has a controlling interest, if any, are consolidated" in Article 61 (1) 12 of the Act means financial statements specified in any of the following subparagraphs:
1. Financial statements prepared by a parent entity in accordance with the recognized accounting standards that consolidate the assets, liabilities, revenues, expenses, and cash flows of that entity and other entities in which it has a controlling interest and present them as a single economic entity;
2. Financial statements prepared by the UPE (limited to entities specified in Article 61 (1) 6 (b) of the Act) in accordance with the recognized accounting standards;
3. Financial statements prepared by the UPE in accordance with the accounting standards other than the recognized accounting standards, subject to adjustments prescribed by the Ordinance of the Ministry of Strategy and Finance to prevent material misstatements (hereinafter referred to as "adjustment for prevention of material misstatements");
4. Financial statements of the UPE that is not obligated to prepare the financial statements specified in subparagraphs 1 through 3, assuming that it prepares the financial statements that fall under any of the following items; In such cases, the business year for the relevant financial statements shall be one calendar year:
A. Financial statements prepared in accordance with the recognized accounting standards;
B. Financial statements prepared in accordance with the accounting standards provided in Article 105 (2) 2 (hereinafter referred to in this chapter as "publicly accredited accounting standards") that have been adjusted to prevent material misstatements.
[This Article Newly Inserted on Dec. 29, 2023]
[Previous Article 100 moved to Article 144 <Dec. 29, 2023>]
 Article 101 (How to Apply Standards for Consolidated Sales in Cases of Merger and Demerger)
(1) "Any reason prescribed by Presidential Decree, including a merger or demerger," in Article 62 (2) of the Act means any of the following reasons:
1. Merger: Where two or more groups combine to form a single group, or where an entity that is not a component of a group joins another entity or group to form a single group;
2. Demerger: Where a group is split into two or more groups and the component entities of each group are no longer consolidated to the same UPE;
3. New establishment: Where a group is newly incorporated (excluding cases falling under subparagraph 1 or 2).
(2) When applying paragraph (1) of the same Article pursuant to Article 62 (2) of the Act, if any of the reasons in paragraph (1) of this Article occurs, the following shall apply:
1. Merger: The following shall apply:
(a) Where two or more groups have merged during the four business years immediately preceding each business year (referring to the accounting period for which the UPE of a MNE Group is to prepare consolidated financial statements; hereinafter the same shall apply in this chapter): In the cases of a business year in which the consolidated turnover of each group before the merger during the four business years immediately preceding the merger (if the groups is a MNE Group, the turnover in the consolidated financial statements of the ultimate parent) is EUR 750 million or more, Article 62 (1) of the Act shall apply, deeming the consolidated turnover of the group formed by the merger or surviving the merger (hereinafter referred to as the "merged group" in this subparagraph) is EUR 750 million or more;
(b) In the event that an enterprise that is not a member of the group (hereinafter referred to in this paragraph as the "acquiring enterprise") is merged with another enterprise or group (hereinafter referred to in this paragraph as the "acquiring enterprise") during the four preceding business years of each business year: In the case of a business year in which the sum of the sales of the acquiring enterprise and the sales or consolidated sales of the acquiring enterprise in the four preceding business years is 750 million euros or more, the consolidated sales of the merged group for that business year shall be deemed to be 750 million euros or more, and Article 62(1) of the Act shall apply;
(c) If the business year of the pre-merger group, acquired entity, or acquiring entity does not coincide with the business year of the merged group when applying subparagraphs (a) and (b): The sum of the sales or consolidated sales of the pre-merger group, acquired entity, or acquiring entity for the four business years immediately preceding the business year in which the merger date falls shall be deemed the consolidated sales of the merged group for the business year in which the end of each such business year falls;
2. Demerger: If a MNE Group that would have been subject to Chapter 5 of the Act and this Chapter in the business year in which the demerger took place but for the demerger, is divided into two or more groups, Article 62 (1) of the Act shall apply to the group formed by the demerger (hereinafter referred to as the "demerged group" in this subparagraph) in the business year in which the date of the demerger falls (hereinafter referred to as the "demerger business year" in this subparagraph) of which consolidated turnover is EUR 750 million or more, and with respect to the three business years following the business year of the demerger, Article 62 (1) of the Act shall apply if the consolidated turnover of the demerged group is EUR 750 million or more in at least two of the three business years immediately following the business year of the demerger.
3. New establishment: If a group is newly established, Article 62 (1) of the Act shall apply to the business year in which the date of establishment falls (hereinafter referred to in this paragraph as the "business year of establishment") and the immediately following business year over which the consolidated turnover of the group is EUR 750 million or more, or if the consolidated turnover for at least two business years among the business year of establishment and the business years immediately following the business year of establishment is EUR 750 million or more.
(3) The exchange rate for converting the amounts necessary to apply Chapter 5 of the Act, including consolidated sales pursuant to Article 62 (2) of the Act, into euros shall be the average of the daily exchange rates publicly notified by the European Central Bank in December of the business year immediately preceding the relevant business year: Provided, That if the European Central Bank fails to publicly notify the rate, the average of the daily exchange rates publicly notified by the Central Bank of the issuing country of the currency to be converted into Euros in December of the business year immediately preceding the relevant business year shall be used.
[This Article Newly Inserted on Dec. 29, 2023]
[Previous Article 101 moved to Article 145 <Dec. 29, 2023>]
 Article 102 (Scope of Excluded Entities)
(1) Excluded entities referred to in Article 62 (3) of the Act (hereinafter referred to in this chapter as "excluded companies") shall be the organizations, etc. specified in the following subparagraphs:
1. Government agency: An organization that meets all of the following requirements;
(a) It shall belong to the Government (including the State (including a district which it has financial autonomy; such district shall be deemed a separate State; hereafter the same shall apply in this chapter), local governments, and political subdivisions of governments or local government organs equivalent thereto; hereinafter the same shall apply in this chapter), or it shall be wholly owned by the Government;
(b) It shall have a primary purpose of performing governmental functions or managing and investing governmental assets and shall not engage in a for-profit business;
(c) It shall be accountable to the Government for the performance of its activities and report annual performance to the Government;
(d) If the net profit is distributed, the whole shall be distributed to the Government, and upon dissolution, the remaining property shall revert to the Government;
2. International organization: An intergovernmental organization that meets all of the following requirements (including supranational organizations; the same shall apply in this chapter) or an agency or organization wholly owned by such an organization;
(a) It shall be mainly composed of government organs;
(b) The headquarters agreement (referring to an agreement concluded between an intergovernmental organization and the State where its headquarters is located) or a similar agreement is concluded and effective;
(c) The revenues shall be prohibited by law or its own regulations from being attributed to a private person;
3. Non-profit organization: An organization that satisfies all of the following requirements: Provided, that an organization that conducts business not directly related to the purpose of its establishment shall be excluded:
(a) It shall be an organization that falls under any of the following categories:
i) Organizations established and operated for religion, charity, science, art, culture, sports, education, and other similar purposes;
(ii) Group of professional occupations, business federations, chambers of commerce, labor organizations, agricultural or horticultural organizations, civic groups, and other similar organizations established and operated to promote social welfare;
(b) Almost all income of an organization shall not be taxed in the country where the relevant organization is established and operated;
(c) No shareholders or members have exclusive ownership or rights to use or benefit from the income or assets of the organization;
(d) The income or assets of an organization shall not be distributed or provided to a private person or an enterprise not engaged in philanthropy, except in any of the following cases;
(i) Where the income or assets are generated from charitable activities performed by the relevant organization;
(ii) Where the organization pays a reasonable price for the services provided to, or property or capital used by, the relevant organization;
(iii) Where the relevant organization pays a price equivalent to the fair value of the purchased property;
(e) When the relevant organization closes its business, is dissolved or liquidated, its residual property shall revert to another organization of the State in which the organization was established and operated (limited to an organization meeting the requirements specified in items (a) through (d)), the Government, or a governmental agency;
4. Pension Fund: It means any of the following entities:
(a) An entity established and operated to manage and provide benefits to individuals (referring to retirement benefits (including benefits paid incidentally thereto) and benefits paid in contingency situations such as death or injury; hereinafter the same shall apply in this subparagraph), which satisfies any of the following requirements:
(i) It shall be regulated in the State where the relevant entity is established and operated in compliance with the purpose of establishment and operation of the relevant entity;
(ii) It shall be financed by collective assets, etc. held through a trust so that the relevant benefits can be stably performed, and shall have appropriate means of security or institutional guarantees in case of impossibility of performance thereof;
(b) An entity established and operated for any of the following purposes:
(i) Funds shall be invested for an entity referred to in item (a);
(ii) An entity that belongs to the same group as an entity referred to in item (a) and shall perform incidental activities for the payment of benefits performed by the entity referred to in item (a);
5. Investment fund which is the UPE: An entity that meets all of the following requirements:
(a) It shall be the UPE;
(b) An entity that is a collective investment scheme under Article 9 (18) of the Financial Investment Services and Capital Markets Act or an investment scheme similar thereto, which meets all of the following requirements:
(i) It shall execute investment in accordance with an investment policy designed and determined to collect assets from a large number of investors (excluding cases where all investors are specially related persons prescribed by Ordinance of the Ministry of Economy and Finance (hereafter referred to as "specially related persons" in this chapter));
(ii) It shall be designed to reduce the costs of survey, analysis, and transactions of investors or to diversify risks, and mainly to generate returns on investment or to protect specific or general cases and outcomes;
(iii) Investors shall hold the right to receive profits from fund assets based on their respective contributions;
(iv) The relevant entity or the manager of the entity shall be governed by the regulatory systems of the State (including regulations on the prevention of money laundering and the protection of investors);
(v) An investment fund management expert shall manage the funds on behalf of investors;
6. Real estate investment scheme which is the UPE: it means an entity which satisfies all of the following requirements:
(a) It shall be the UPE;
(b) The investment targets are mainly real estate (including securities whose value is linked to real estate), and the ownership of the relevant investment scheme is dispersed, and either the entity or the owner of its shares shall be subject to taxation (including cases where taxation is deferred by up to one year).
7. Other excluded entities: An entity (hereafter referred to as "controlled entity" in this subparagraph) that is directly owned, or indirectly owned through another excluded entity, by one or more excluded entities specified in subparagraphs 1 through 6 (excluding entities referred to in subparagraph 4 (b); hereafter referred to as "controlling entity" in this subparagraph), which falls under any of the following subparagraphs:
(a) An entity of which the ratio of equity holdings of a controlled entity owned by a controlling entity (calculated as prescribed by Ordinance of the Ministry of Economy and Finance; hereafter in this subparagraph, referred to as "equity holdings value ratio") is at least 95/100, which is specified as follows (including fixed place of business of the relevant entity):
(i) An entity that conducts business activities only for holding assets or investing funds for a controlling entity (including cases where it does not actively conduct business activities other than the relevant business activities). In such cases, holding or investing assets with funds borrowed from a person other than an entity belonging to the same group shall be also deemed for the benefit of the controlling entity.
(ii) An entity that conducts only incidental activities related to the activities performed by the controlling entity. In such cases, the activities performed by an entity of which equity holdings value ratio is directly or indirectly owned by one or more non-profit organizations referred to in subparagraph 3 and which meets the requirements prescribed by Ordinance of the Ministry of Economy and Finance shall be deemed to constitute incidental activities;
(iii) An entity that performs both business activities specified in item (i) and incidental activities specified in item (ii);
(b) An entity whose equity holdings value ratio is not less than 85/100 and whose income is wholly or almost entirely dividend income under Article 104 (1) 2 or equity gains or losses under subparagraph 4 of the aforesaid paragraph;
(2) Where a filing constituent entity decides whether to include an excluded entity as a constituent entity pursuant to Article 62 (4) of the Act, the following criteria (hereafter referred to as "five-year option" in this chapter) shall apply:
1. The selection of a filing constituting company is applied to the first business year subject to the selection and the following four business years;
2. A filing constituting company shall not cancel its selection for the business year subject to application under subparagraph 1;
3. If a filing constituting company does not express its intention to cancel the relevant selection for the business year following the business year subject to the last application under subparagraph 1, the relevant selection shall be reapplied on a yearly basis to the business year subject to the last application under subparagraph 1;
4. If a filing constituting entity cancels its selection for the business year following the business year subject to the application under subparagraph 1, it shall not make the same selection again for the first business year subject to the relevant cancellation (hereafter in this chapter referred to as "business year subject to cancellation") and the following four business years.
[This Article Newly Inserted on Dec. 29, 2023]
[Previous Article 102 moved to Article 146 <Dec. 29, 2023>]
 Article 103 (Location of Entities)
(1) “An entity prescribed by Presidential Decree” in subparagraph 1, with the exception of the items, of Article 64 (1) of the Act, means an entity subject to transparent taxation (referring to taxation by attributing the income, expenditure, and profits and losses of the relevant entity to a person who directly holds the shares of the relevant entity according to the share ratio; hereafter the same shall apply in this chapter) in a country where the relevant entity is established and operated: Provided, That an entity which is a resident under the tax laws of another country in accordance with the place of effective management or the place of establishment or any other similar standards (excluding cases where an entity is liable to pay taxes to the relevant State, in which cases the entity is only liable to pay taxes on the income accruing from the sources within the relevant country), and which is subject to covered taxes on the income or profits thereof pursuant to the former part of Article 67 (1) of the Act (hereafter referred to as “covered taxes” in this chapter), or which is subject to qualified domestic minimum top-up tax under Article 70 (5) of the Act shall be excluded herefrom.
(2) The country of residence of a permanent establishment under Article 64 (3) of the Act shall be the State classified as follows: Provided, That a business establishment other than those specified in subparagraphs 1 through 3, which is not subject to taxation on income attributable to the relevant business establishment (hereafter in this chapter referred to as "type 4 permanent establishment"), shall be deemed to have no country of residence:
(i) In the case of a business establishment which is recognized to have a permanent establishment under an applicable and effective tax treaty (including a tax treaty to which the Republic of Korea is not a contracting party; hereafter the same shall apply in this chapter), and which is subject to taxation on the income attributable to the relevant business establishment by the method of calculating business income under the Model Tax Convention on Income and Capital of the Organization for Economic Cooperation and Development or by any other similar methods;
(ii) In the case of a business establishment without any applicable and effective tax treaty, which is subject to taxation on the income attributable to the relevant business establishment in a manner similar to the method of taxation for residents under the tax laws (hereafter in this chapter referred to as "type 2 permanent establishment"): A State which imposes a tax on the basis of net income based on the place of business;
(iii) In the case of a business establishment located in a State without any corporate tax system on the relevant establishment, and according to the Model Tax Convention on Income and Capital of the Organization for Economic Cooperation and Development agreed internationally upon, the State in which the business establishment is actually located is recognized to have the right to taxation on the income attributable to the relevant business establishment (hereafter in this chapter referred to as "type 3 permanent establishment"): The State in which the relevant business establishment is actually located;
(3) If an entity has at least two countries of residence pursuant to Article 64 (4) of the Act, the country of residence shall be determined by the following methods:
1. If any applicable and effective tax treaty exists: it shall be determined in accordance with the relevant tax treaty;
2. If any applicable and valid tax treaty exists but the country of residence cannot be determined accordingly, or if no applicable and valid tax treaties exist: it shall be determined in the following order:
a. If there exists a State that has paid a larger amount of covered taxes (excluding the tax amount accruing from the application of the tax system for a controlled foreign corporation under Article 111 (1) 5) in the relevant business year, such country shall be decided on;
b. If the amount of covered taxes paid by each State is identical or no taxes are paid in the relevant business year, the State with bigger amount of substance-based income exclusion calculated by each State pursuant to Article 118 is decided on;
c. If the amount of covered taxes paid by each State is identical or nil in the relevant business year, and if the amount of substance-based income exclusion calculated by country pursuant to Article 118 is also identical or nil, it shall be decided that there is no country of residence, but if the relevant entity is the UPE of a MNE Group, it shall be decided that the relevant entity is located in a country where the relevant entity is established and operated.
(4) If the country of residence of a parent entity determined pursuant to paragraph (3) fails to enforce the Qualified IIR provided in Article 72 (4) 1 of the Act, the other country of residence excluded from the decision under paragraph (3) may apply the Qualified IIR to the relevant parent entity: Provided, That this shall not apply where the applicable and effective tax treaties restrict the application thereof.
(5) Where an entity changes the country of residence during a business year, the country of residence at the time of the commencement of the relevant business year shall be deemed the country of residence for the relevant business years.
[This Article Newly Inserted on Dec. 29, 2023]
[Previous Article 103 moved to Article 147 <Dec. 29, 2023>]
SECTION 2 Calculation of Top-Up Tax
 Article 104 (Adjustment of Net Income or Loss in Accounting for Calculation of GloBE Income and Loss)
(1) "The adjustments prescribed by Presidential Decree, such as addition of net tax expenses, deduction of dividend income, and addition of policy disallowed expenses including bribes" in Article 66 (1) of the Act means the following adjustments:
1. Addition of net tax expenses (referring to the amount of covered tax, current corporate tax, deferred corporate tax, etc. appropriated as expenses in accounting of a constituent entity);
2. Deduction of dividend income (referring to dividends or other distributions of profits from the ownership shares held by a constituent entity);
3. Addition of policy disallowed expenses (referring to illegal expenditures such as bribes and fines and administrative fines of at least EUR 50,000)
4. Adjustment of equity gains or losses (referring to profit or loss incurred in connection with the disposal of ownership shares held by a constituent entity or the assessment of fair value, etc.);
5. Adjustment of revaluation gains or losses (referring to gains or losses accruing from the difference between the value of the tangible assets of a constituent enterprise revaluated at fair value and the book value);
6. Adjustment of asymmetric gains or losses on foreign exchange (referring to gains or losses on foreign exchange incurred where the currencies used in preparing the financial statements of a constituent entity are different from the currencies used in calculating the amount of income for tax purposes);
7. Adjustment of pension profits and losses (referring to profits and losses generated in connection with the retirement pension plans of a constituent entity);
8. Adjustment of stock-based compensation expenses (referring to expenses incurred in connection with stocks or money equivalent to the value of stocks that a constituent enterprise pays to its executive officers and employees, etc. as bonuses);
9. Adjustment of expenses for a group internal financial agreement (referring to expenses incurred in connection with an agreement to directly or indirectly provide credit or invest between constituent entities);
10. Adjustment of profits from disposal of total assets (where the sum of profits from disposal of real estate owned by a constituent entity in the relevant country exceeds the sum of losses, referring to such amount);
11. Adjustment of profits exempted from debts (referring to the profits generated when a constituent entity is exempted from debts);
12. Adjustment of qualified refundable tax credits (referring to tax credits received in cash or in cash values within four years from the time a constituent entity meets the conditions for benefits; hereafter the same shall apply in this chapter) and qualified transferable tax credits (referring to tax credits received as transferable and marketable assets by a constituent entity; hereafter the same shall apply in this chapter);
13. Adjustment following the correction of errors in the preceding term (referring to the cases where net profit or loss in accounting is increased or decreased, as a constituent entity corrects errors in accounting in the past business year to which the GloBE tax system under article 139 (1) was applied) or changes in accounting policies (referring to the cases where net profit or loss in accounting is increased or decreased until the business year immediately preceding the relevant business year, as a constituent entity changes the accounting policies or accounting principles applied to the relevant business year);
14. Adjustment following the reflection of results of consolidated accounting adjustments between constituent entities (referring to accounting adjustments conducted to remove income, expenses, profits, and losses arising from internal transactions between constituent entities subject to consolidated tax payment in the same country);
15. Adjustment based on the application of realization principle (referring to the recognition of profits and losses at the time when the assets and liabilities of a constituent entity subject to accounting for fair value assessment and damage loss assessment in consolidated financial statements are transferred or repaid);
16. Adjustment based on the application of the arm's length price and the same price principle (referring to the principle that the transaction price between constituent entities located in different countries for tax purposes shall be determined by applying the conditions established in comparable third-party transactions, not the actual transaction price, and that all transactions between constituent entities located in different countries shall be recorded at the same amount in their respective accounting books);
17. Adjustment of profits or losses related to policyholders (referring to profits or losses incurred in connection with policyholders, such as taxes paid by a constituent entity engaged in insurance business on profits reverted to policyholders);
18. Adjustment pursuant to dividends on other core capital, etc. (referring to dividends paid or to be paid, or received or to be received on other core capital or restricted core capital issued or acquired by a constituent entity engaged in banking business or insurance business in accordance with regulation of capital soundness or solvency regulation under relevant statutes or regulations);
19. Adjustment according to the reflection of other matters concerning consolidation adjustments (referring to matters concerning consolidation which are not separately appropriated in the accounting of a constituent entity, other than for the purpose of eliminating internal transactions and applying purchase accounting).
(2) Detailed matters concerning the methods of adjustment for each adjustment item referred to in subparagraphs of paragraph (1) shall be prescribed by Ordinance of the Ministry of Economy and Finance.
[This Article Newly Inserted on Dec. 29, 2023]
[Previous Article 104 moved to Article 148 <Dec. 29, 2023>]
 Article 105 (Accounting Standards Applicable In Calculating Accounting Net Profit or Loss)
(1) "Where the requirements prescribed by Presidential Decree are satisfied" in Article 66 (2) of the Act means cases where all the following requirements are satisfied:
1. The accounts of a constituent entity shall be recorded and managed in accordance with the accounting standards under paragraph (2);
2. The information included in the accounting of a constituent entity shall be reliable;
3. If a comparison of the results of applying the accounting standards under paragraph (2) with the UPE accounting standards (referring to the accounting standards applied to prepare the consolidated financial statements of the UPE; hereafter the same shall apply in this chapter) with respect to the profits, expenses, and transaction items reveals that there is permanent difference of more than EUR one million, the relevant items shall be handled by applying the UPE accounting standards.
(2) "the accounting standards prescribed by Presidential Decree" in Article 66 (2) of the Act means any of the following accounting standards:
1. International accounting standards and accounting standards generally recognized by the Republic of Korea and the States prescribed by Ordinance of the Ministry of Economy and Finance;
2. Accounting standards approved by a certified public accounting organization having the authority to present, establish, or adopt the accounting standards for the purpose of financial reporting.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 106 (Scope of International Shipping Income and Loss Excluded from Calculation of GloBE Income and Loss)
(1) "Any international shipping income or loss prescribed by Presidential Decree, such as the income obtained from the passengers or cargo by ships operated in international traffic" in Article 66 (3) of the Act means the net profit or loss of a constituent entity generated by conducting any of the following business (hereafter referred to as "international shipping business" in this Article): Provided, That where the details of international shipping business related to transportation activities of vessels (referring to the activities of transporting passengers and cargo; hereafter the same shall apply in this Article) include the portion carried out in an inland waterway of the same country, the amount of income and loss generated by conducting such portion of business shall be excluded from the net profit or loss generated under the main clause:
1. Transportation activities through ships for international navigation owned or leased, or disposal authority of which is held by constituent entities;
2. Transportation activities of ships for international navigation under part of the charter contracts;
3. Lease of ships (including ship equipment, seafarers and ship supplies) to be used for transportation activities by international navigation;
4. Lease to another constituent entity a ship to be used for the transportation activities through international navigation as a bareboat charter;
5. Participation in joint navigation or joint projects for transportation activities of ships sailing internationally, or participation in international marine transportation organizations;
6. Sale of ships used for transportation activities for international navigation and held by constituent entities for at least one year;
(2) "Any qualified ancillary international shipping income or loss prescribed by Presidential Decree" in Article 66 (3) of the Act means the net profit or loss generated from any of the following activities performed in connection with transportation activities for international navigation: Provided, That if the sum of qualified ancillary international shipping income and loss of a constituent entity located in one country exceeds 50/100 of the total sum of international shipping income and loss specified in paragraph (1), the excess shall be excluded from the net profit or loss under the main clause:
1. Lease of bare charter to shipping enterprises other than constituent entities (limited to cases where the charter period does not exceed three years);
2. Sale of tickets issued by other shipping companies navigating domestic section of international navigation route;
3. Lease of containers (including claims for delayed charges due to delayed return of containers) and short-term storage for not more than five days usually;
4. Services provided by engineers, maintenance staff, cargo handling personnel, catering service personnel, and customer service personnel to other shipping enterprises;
5. Necessary investment for the operation of international shipping business (including the operation of deposits or short-term working funds necessary for the operation of international shipping business, entrustment of guarantee bonds required by statutes, etc., and excluding cash flow management and treasury activity for other constituent entities).
(3) The amount excluded from the net profit or loss under the main clause, with the exception of the subparagraphs, of paragraph (2), pursuant to the proviso, with the exception of the subparagraphs, of the same paragraph shall be included in the calculation of the GloBE income and loss of the relevant constituent entity in proportion to the amount of the qualified ancillary international shipping income or loss of each constituent entity.
(4) Except as otherwise provided for in paragraphs (1) through (3), specific methods, etc. of calculating net profit or loss generated from international shipping business shall be prescribed by Ordinance of the Ministry of Economy and Finance.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 107 (Calculation of Net Profit and Loss in Accounting of Permanent Establishment)
The methods of calculating net profit or loss in the accounting of a permanent establishment under Article 66 (4) of the Act shall be as follows:
1. Net profit or loss in the accounting of the Type 1 permanent establishment, Type 2 permanent establishment, Type 3 permanent establishment (referring to the net profit or loss in the separate accounting of the relevant permanent establishment, and if the relevant business establishment does not have separate accounting, it shall be the net profit or loss in the accounting, assuming that a separate account is recorded and managed in accordance with the UPE accounting standards): To be calculated by reflecting only the profits and expenses reverted to the relevant permanent establishment, as prescribed in the following treaties or tax laws:
(a) Type 1 permanent establishment: A valid tax treaty between the country of residence of the relevant business establishment and the country of residence of the head office;
(b) Type 2 permanent establishment: Tax laws of the country of residence of the relevant permanent establishment;
(c) Type 3 permanent establishment: The Model Tax Convention on Income and Capital of the Organization for Economic Cooperation and Development agreed internationally upon:
2. Net profit or loss in the accounting of Type 4 permanent establishment: It shall be calculated according to the following formula:
Accounting Net Profit or Loss = A - B
A: Income not taxed in the country of residence of the head office and attributable to activities carried out outside the country of residence
B: Expenses not deductible for tax purposes in the country of residence of the head office and attributable to activities performed outside the country of residence
[This Article Newly Inserted on Dec. 29, 2023]
 Article 108 (Distribution of Net Profit or Loss in Accounting of Flow-Through Entities)
(1) Pursuant to Article 66 (6) of the Act, if all or part of the business of the relevant flow-through entity is conducted through a permanent establishment, the net profit or loss in the accounting of a flow-through entity shall be distributed to the relevant permanent establishment, and the net profit or loss remaining after such distribution shall be distributed as classified in the following subparagraphs:
1. Where a flow-through entity constitutes a tax transparent entity (referring to a flow through entity which is subject to pass-through tax treatment in the country of residence of the holder of ownership shares; hereafter the same shall apply in this chapter): Distribution according to the following classification:
(a) Where a flow-through entity is the UPE: Distribution is allocated to the relevant flow-through entity;
(b) Where a flow-through entity is not the UPE: Distribution is allocated to the constituent entity-owner according to the ownership interest held by the constituent entity-owner;
1. Where a flow-through entity constitutes a reverse hybrid entity (referring to a flow through entity which is not subject to pass-through tax treatment in the country of residence of the holder of ownership shares): Distribution to the relevant flow-through entity;
(2) In applying paragraph (1), whether the relevant flow-through entity constitutes a tax transparent entity or a reverse hybrid entity shall be determined for each constituent entity-owner holding the ownership share of the flow-through entity.
(3) In applying paragraph (1), if a person who does not belong to the same MNE Group holds an ownership share of a flow-through entity directly or indirectly (limited to indirect holding through one or more tax transparent entity; hereafter the same shall apply in this paragraph), the net profit or loss in accounting attributable to such ownership share shall be excluded from the net profit or loss in accounting distributed pursuant to the same paragraph: Provided, That where the relevant flow-through entity is the UPE (including the UPE that directly or indirectly owns another flow-through entity), Article 77 (3) of the Act shall apply to the calculation of the GloBE income and deficit.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 109 (Scope of Covered Tax)
(1) "Taxes ... which are prescribed by Presidential Decree, such as taxes imposed on the income or profits of the constituent entity" in the former part of Article 67 (1) of the Act means the following taxes:
1. Taxes imposed on the income or profits of the relevant constituent entity;
2. Taxes imposed on the amount equivalent to the ratio of ownership interest out of the income or profits of another constituent entity, the ownership interest of which is held by the relevant constituent entity;
3. Taxes imposed on the amount distributed (including the amount deemed distributed) or non-business-related expenses disbursed by a constituent entity governed by the eligible distribution tax system referred to in Article 78 (1) of the Act (hereafter referred to as "eligible distribution tax system" in this chapter);
4. Taxes imposed in lieu of corporate taxes generally applied (including those prescribed by Ordinance of the Ministry of Economy and Finance, such as withholding taxes);
5. Taxes imposed in connection with earned surplus and capital (including taxes on multiple components based on income and capital);
(2) Notwithstanding paragraph (1), the following taxes shall not be deemed covered taxes:
1. Qualified domestic minimum top-up tax paid by constituent entities pursuant to Article 70 (5) of the Act;
2. Top-up tax paid by the parent entity according to the qualified income inclusion rule under Article 72 (4) 1 of the Act;
3. Top-up tax paid by the constituent entity according to the under taxed payment rule (UTPR) under Article 73 (4) of the Act;
4. The amount of tax paid in connection with dividends paid by a constituent entity, which is the amount of non-qualified refundable tax credits prescribed by Ordinance of the Ministry of Economy and Finance;
5. Taxes paid by insurance companies on profits vested in policyholders;
(3) In calculating adjusted covered taxes pursuant to Article 67 (1) of the Act, the same covered taxes shall not be repeated.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 110 (Matters Subject to Adjustment of Covered Tax)
"Other adjustments prescribed by Presidential Decree" in the former part of Article 67 (1) of the Act means the following matters subject to adjustment:
1. Addition of each of the following amounts:
(a) The amount of covered taxes which are appropriated as expenses in the calculation of pre-tax profits in accounting;
(b) The amount of covered tax paid in the relevant business year, which is related to uncertain tax treatment items (referring to tax treatment items for which it is uncertain whether the tax authority has appropriated, such as the standards for treatment for tax purposes are not clear or in accordance with the final parent corporate accounting standards, such as the standards for treatment for tax purposes are not clear or inconsistent with the interpretation and application of tax laws by the tax authorities, in which cases the covered tax is appropriated in accordance with the UPE accounting standard; hereafter the same shall apply in this chapter), which has been treated as deducted pursuant to subparagraph 2 in the previous business year;
(c) The amount of tax credits or tax refunds that is treated as deduction of the current corporate tax expenses, which is the qualified refundable tax credits or qualified transferable tax credits;
(d) Other amounts prescribed by Ordinance of the Ministry of Economy and Finance;
2. Deduction of each of the following amounts:
(a) Current corporate tax expenses for income excluded from the calculation of GloBE income or loss pursuant to Article 66 (1) and (3) of the Act;
(b) The amount of tax credits or tax refunds which is not treated as a deduction of the current corporate tax expenses, which are non-qualified refundable tax credits (referring to tax credits which do not constitute the qualified refundable tax credits, which are tax credits that can be fully or partially refunded; hereafter the same shall apply in this chapter);
(c) An amount prescribed by Ordinance of the Ministry of Economy and Finance, such as the amount of non-qualified transferable tax credit (referring to tax credits paid with assets that are transferable but not marketable), which is not treated as a deduction of the current corporate tax expenses;
(d) The amount of covered tax credits that are refunded or deducted, excluding the qualified refundable tax credits and the qualified transferable tax credits, which are not deducted from the current corporate tax expense in accounting;
(e) Current corporate tax expenses related to uncertain tax treatment items;
(f) Current corporate tax expenses expected not to be paid within three years from the date immediately following the end of the relevant business year;
3. Addition to or deduction from an increased or decreased amount of covered taxes satisfying all of the following requirements:
(a) The amount shall be included in the calculation of the GloBE income and loss of a constituent entity;
(b) The amount shall be corresponding to the profit or loss which is subject to taxation in the country of residence of the relevant constituent entity, which shall be reflected in the items of capital or other comprehensive profit or loss in accounting.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 111 (Distribution of Covered Taxes among Constituent Entities)
(1) Pursuant to the latter part of Article 67 (1) of the Act, the covered taxes of any of the following constituent entities shall be distributed to other constituent entities specified in the relevant subparagraph:
1. Covered taxes appropriated in the accounting of a constituent entity that is the head office, which are attributed to the GloBE income and loss of a permanent establishment: To be distributed to the relevant permanent establishment;
2. Covered taxes appropriated in the accounting of a tax transparent entity, which is corresponding to the GloBE income and loss attributed to a company constituting shareholders: To be distributed to the relevant constituent entity-owner;
3. Covered taxes on income earned by a hybrid entity (referring to an entity taxed in the country of residence of the relevant entity, which is subject to pass-through tax treatment in the country of residence of the ownership share holder) and appropriated in the accounting of the relevant constituent entity-owner: To be distributed to the relevant hybrid entity;
4. Covered taxes on dividends (including those regarded as dividends under the tax laws of the country of residence of the constituent entity-owners) paid by constituent entities in the business year, which are appropriated in the accounting of a constituent entity-owner that directly holds the ownership shares of the relevant constituent entities: To be distributed to the constituent entities that pay the relevant dividends;
5. Covered taxes payable by constituent entity-owners following the application of the taxation of a controlled foreign corporation (referring to a regime under which covered taxes on the amount corresponding to the ownership shares among the income of an entity located in a foreign country where the shareholders directly or indirectly hold ownership shares (hereinafter referred to as "a controlled foreign corporation" in this subparagraph) are paid by the relevant shareholders as taxes in the business year in which the date of occurrence of the relevant income falls (including a system prescribed by Ordinance of the Ministry of Economy and Finance, such as the aggregate taxation system on retained earnings of a specific foreign corporation under Article 27 of the Act): To be distributed to a controlled foreign corporation that earns incomes corresponding to the relevant covered taxes.
(2) Upon distribution under paragraph (1), matters concerning the limit of distribution shall be prescribed by Ordinance of the Ministry of Economy and Finance.
[This Article Newly Inserted on Dec. 29, 2023]
[This Article Newly Inserted on Dec. 29, 2023]
(1) "Adjustments prescribed by Presidential Decree, such as excluding the deferred tax expense with regard to the income or loss not included in the calculation of the GloBE income or loss" in the former part of Article 67 (2) of the Act means the following adjustments:
1. Exclusion of amounts specified in any of the following items:
(a) Deferred corporate tax expenses on profits and losses excluded from the calculation of GloBE income and loss pursuant to Article 66 (1) and (3) of the Act;
(b) Deferred corporate tax expenses related to the following items:
(i) Adjustment of evaluation or recognition of deferred corporate tax assets due to adjustment of prospects for taxable income for the future business year, etc.;
(ii) Recalculation following changes in corporate tax rates;
(iii) Occurrence or use of carry-forward tax credits (excluding those prescribed by Ordinance of the Ministry of Economy and Finance);
(iv) Occurrence of deferred corporate tax liabilities, the amount of which is not expected to be paid within the payment deadline for corporate tax related to deferred corporate tax liabilities under Article 67 (3) of the Act: Provided, That this shall apply limited to the cases where the relevant deferred corporate tax expenses are not included in the total amount of deferred corporate tax adjustment according to the annual selection (which means the relevant selection is only applicable to the business year subject to the relevant selection; hereafter the same shall apply in this chapter) of the filing constituting entity;
(c) The amount of matters prescribed by Ordinance of the Ministry of Economy and Finance, such as deferred corporate tax expenses following uncertain tax treatment items;
2. Addition of the following amounts:
(a) The amount of deferred corporate tax expenses paid during the relevant business year, which falls under subparagraph 1 (b) (iv) in the previous business year;
(b) The reversed amount of deferred corporate tax liabilities incurred in the previous business year (referring to the amount of corporate tax related to deferred corporate tax liabilities that are not paid within the payment deadline for corporate tax related to deferred corporate tax liabilities under Article 67 (3) of the Act), which are paid during the relevant business year;
3. Deduction of the decreased amount of total deferred corporate tax adjustment amount, which meets all of the following requirements:
(a) The relevant deferred corporate tax assets have not been appropriated in accounting because the tax deficits for the relevant business year failed to meet the standards for recognition of deferred corporate tax assets for accounting;
(b) If the relevant deferred corporate tax assets have been appropriated in accounting as tax deficits in the relevant business year are recognized as deferred corporate tax assets in accounting, the total amount of deferred corporate tax adjustment shall have been decreased;
(2) In applying paragraph (1), if a constituent entity vindicates that the deferred corporate tax assets appropriated at a tax rate below the minimum tax rate are caused by GloBE loss, the relevant deferred corporate tax assets may be recalculated at the minimum tax rate, and the increased amount thereof may be deducted from the total amount of deferred corporate tax adjustment of the business year in which the relevant deferred corporate tax assets are generated.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 113 (Exclusion from Reversal of Deferred Corporate Tax Liabilities)
"Any amount prescribed by Presidential Decree, such as the amount of deferred tax liabilities changed in relation to depreciation of tangible assets" in Article 67 (3) of the Act means the changed amount of deferred corporate tax liabilities due to the occurrence of the following matters, which is appropriated as corporate tax expenses:
1. An allowance established to recover the cost of tangible assets (including the amount capitalized in the cost of acquisition, etc. and royalties for the leased tangible assets);
2. Expenses incurred in acquiring the right to use real estate, etc. prescribed by Ordinance of the Ministry of Economy and Finance, or authorization or permission similar thereto from the Government;
3. Research and development expenses;
4. Expenses for dismantling or restoring to be incurred when the economic durability life of power plants, oil wells, mines, etc. expires;
5. Unrealized net income arising from fair value accounting;
6. Gains on foreign currency conversion prescribed by Ordinance of the Ministry of Economy and Finance;
7. Insurance liability reserve and expenses for deferred renewal of insurance contracts (including the amount appropriated in consideration of assets and liabilities corresponding to the value of insurance business to be underwritten);
8. Gains on sale of tangible assets prescribed by Ordinance of the Ministry of Economy and Finance;
9. The amount increased due to a change in the accounting standards related to matters referred to in subparagraphs 1 through 8.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 114 (Adjustment of GloBE Income and Deficit Due to Reduction of Covered Taxes)
Where it is necessary to adjust the amount of GloBE income and loss for the business year subject to rectification and the business years thereafter because the amount of covered taxes for the business year subject to rectification decreases pursuant to Article 68 (1) 2 of the Act, notwithstanding the adjustment following the correction of errors in the preceding period under Article 104 (1) 13, the relevant GloBE income and loss amount shall be adjusted in accordance with the decreased amount of covered taxes.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 115 (Minor Reduction of Covered Taxes for Business Years Subject to Correction)
(1) "Where the decreased amount ... is an insignificant amount prescribed by Presidential Decree" in Article 68 (2) of the Act means the case where the total amount of reduction from the aggregate of covered taxes subject to adjustment for the business year subject to rectification of the constituent entities in the same country is less than EUR one million.
(2) The selection of filing constituent entities under Article 68 (2) of the Act shall be made annually.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 116 (Adjustment of Covered Taxes Following Changed Tax Rates)
If any change is made to the tax rate applicable to the calculation of deferred corporate tax expenses of a constituent entity in the country of residence of the constituent entity pursuant to Article 68 (3) of the Act, covered taxes shall be adjusted according to the following methods:
1. If the deferred corporate tax expenses accrued in the previous business year decrease because the tax rate applicable to the relevant constituent entity is lowered to below the minimum tax rate: The decreased amount shall be deducted from covered taxes of the business year in which the relevant deferred corporate taxes are incurred, and the effective tax rate under Article 69 of the Act and the top-up taxes under Articles 70 and 71 of the Act shall be recalculated. In such cases, Article 68 (2) of the Act shall apply mutatis mutandis;
2. If the deferred corporate tax expenses accrued at below the minimum tax rate is increased because the tax rate applicable to the constituent entity is increased: The increased amount (up to the amount applied the minimum tax rate) is added to the covered taxes for the business year in which the relevant corporate tax is paid.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 117 (Scope of Stateless Constituent Entities)
"A constituent entity prescribed by Presidential Decree, such as a flow-through entity that is deemed to have no country of residence" in Article 69 (4) of the Act means any of the following constituent entities (hereafter referred to as "stateless constituent entity" in this chapter):
1. A flow-through entity other than those referred to in Article 64 (1) 2 of the Act;
2. Type 4 permanent establishment.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 118 (Calculation of Amount of Substance-Based Income Exclusion)
(1) "The sum of the excluded amounts related to payroll costs and the book value of tangible assets prescribed by Presidential Decree" in Article 70 (3) of the Act means the aggregate of the amounts specified in subparagraphs 1 and 2 (hereafter referred to as "substance-based income exclusion" in this chapter):
1. The amount obtained by multiplying the payroll costs prescribed by Ordinance of the Ministry of Economy and Finance (hereafter referred to as "qualified payroll costs" in this chapter) paid to employees who provide labor for the relevant MNE Group in the country where each constituent entity is located, who are prescribed by Ordinance of the Ministry of Economy and Finance (hereafter referred to as "qualified employees" in this chapter), by the ratio classified as follows:
a. For a business year beginning in 2024: 98/1000;
b. For a business year beginning in 2025: 96/1000;
c. For a business year beginning in 2026: 94/1000;
d. For a business year beginning in 2027: 92/1000;
e. For a business year beginning in 2028: 90/1000;
f. For a business year beginning in 2029: 82/1000;
g. For a business year beginning in 2030: 74/1000;
h. For a business year beginning in 2031: 66/1000;
i. For a business year beginning in 2032: 58/1000;
j. For a business year beginning after 2033: 50/1000;
2. The amount calculated by multiplying the book value of tangible assets prescribed by Ordinance of the Ministry of Economy and Finance (hereafter referred to as "qualified tangible assets" in this chapter) by the following ratios:
a. For a business year beginning in 2024: 78/1000;
b. For a business year beginning in 2025: 76/1000;
c. For a business year beginning in 2026: 74/1000;
d. For a business year beginning in 2027: 72/1000;
e. For a business year beginning in 2028: 70/1000;
f. For a business year beginning in 2029: 66/1000;
g. For a business year beginning in 2030: 62/1000;
h. For a business year beginning in 2031: 58/1000;
i. For a business year beginning in 2032: 54/1000;
j. For a business year beginning after 2033: 50/1000;
(2) The specific calculation methods, etc. of the qualified payroll costs and the book value of qualified tangible assets shall be prescribed by Ordinance of the Ministry of Economy and Finance.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 119 (Calculation of Additional Current Top-Up Taxes)
(1) If the top-up taxes for the preceding business year is increased as a result of recalculating the effective tax rate under Article 69 of the Act or the top-up taxes under Articles 70 and 71 of the Act pursuant to the following provisions, the additional current top-up taxes of the State under Article 70 (4) of the Act shall be the aforesaid increased amount added to the top-taxes of the State of the relevant business year:
1. Article 67 (3) of the Act;
2. Article 68 (1) 2 and (4) of the Act;
3. Article 78 (2) of the Act;
4. Other provisions prescribed by Ordinance of the Ministry of Economy and Finance.
(2) In the case of a country that does not have the net Globe incomes under Article 69 (2) 2 of the Act in each business year, if the adjusted covered taxes of the relevant country is negative and less than the estimated amount of adjusted covered taxes (referring to the amount obtained by GloBE income and loss of the country of residence of a constituent entity by the minimum tax rate; hereafter the same shall apply in this Article), the difference between the adjusted covered taxes and the estimated amount of adjusted covered taxes shall be deemed the additional current top-up taxes of the relevant State under Article 70 (4) of the Act.
(3) In the cases referred to in paragraph (2), a filing constituent entity may, at its option annually, deduct the difference deemed to be the additional current top-up taxes under the same paragraph from the adjusted covered taxes for the first business year in which the net GloBE income exists after the difference arises. In such cases, the remaining amount, which is not deducted from the relevant difference, shall be carried over to the next business year in which the net GloBE income is included.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 120 (Requirements for Qualified Domestic Minimum Top-Up Tax System)
"Qualified domestic minimum top-up tax system of the relevant country prescribed by Presidential Decree" in Article 70 (5) of the Act means a system which satisfies all of the following requirements:
1. The amount of excess profits of the relevant country shall be calculated in accordance with the recognized accounting standards or certified public accounting standards that have undergone material distortion prevention adjustment in a manner consistent with the Global anti-Base Erosion Rules internationally agreed upon;
2. The tax burden on the amount of excess profits under subparagraph 1 of the relevant State shall be increased to the amount calculated by multiplying the amount of the relevant excess profits by the minimum tax rate;
3. The system shall be implemented in a manner that leads to the results corresponding to the results of applying the Global anti-Base Erosion Rules internationally agreed upon and shall not provide an entity bearing top-up taxes according to the GloBE Rules with benefits (including tax benefits and subsidies) related to the GloBE Rules.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 121 (Calculation of Top-Up Taxes of Constituent Entities)
(1) When calculating the top-up taxes of a constituent entity for each business year pursuant to Article 71 of the Act, if the relevant country has no net GloBE income under Article 69 (2) 2 of the Act in the relevant business year, the additional current top-up taxes of the relevant country shall be allocated to each constituent entity:
1. In the cases of additional current top-up taxes under Article 119 (1): To be distributed to each constituent entity of the relevant country in proportion to the standard allocation amount according to the following calculation formula:
(With Image)
2. In the cases of additional current top-up taxes under Article 119 (2): To be distributed to each constituent entity of the relevant country (limited to the constituent entity of which adjusted covered taxes for the relevant business year is negative and is smaller than the estimated amount of adjusted covered taxes of the relevant constituent entity in the relevant business year), in proportion to the standard allocation amount according to the following calculation formula:
(With Image)
(2) A constituent entity to which the additional current top-up taxes are distributed pursuant to paragraph (1) shall be deemed a low-taxed constituent entity when applying Articles 72 and 73 of the Act.
[This Article Newly Inserted on Dec. 29, 2023]
[Enforcement Date: Jan. 1, 2025]
SECTION 3 Imposition of Top-Up Tax
 Article 122 (Calculation of Top-Up Taxes Allocated to Parent Entity)
(1) "Ratio prescribed by Presidential Decree" in the calculation formula provided in Article 72 (2) of the Act means the ratio calculated according to the following formula (hereafter referred to as "income inclusion ratio" in this chapter):
(With Image)
(2) The specific calculation methods, etc. of the income inclusion ratio shall be prescribed by Ordinance of the Ministry of Economy and Finance.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 123 (Requirements for Qualified Income Inclusion Rules)
"A rule that ... meets the requirements prescribed by Presidential Decree" in Article 72 (4) 1 of the Act means the income inclusion rule under Article 72 of the Act or the rules of other countries corresponding thereto (hereafter referred to as "Qualified Income Inclusion Rule" in this chapter):
1. It shall be implemented in conformity with the results of the GloBE Rule internationally agreed upon;
2. The relevant State shall not provide benefits (including tax benefits and subsidies) related to the GloBE Rules to an entity that bears top-up taxes under the GloBE Rules pursuant to Article 139 (1).
[This Article Newly Inserted on Dec. 29, 2023]
 Article 124 (Deducted Amount of Allocation of Top-up Taxes)
The term "amount prescribed by Presidential Decree" in Article 72 (8) of the Act means an amount attributed to the ownership shares of the relevant intermediate parent entity or the relevant partially-owned intermediate parent entity, among the allocated amount of top-up taxes paid by an intermediate parent entity or a partially-owned intermediate parent entity, which is a constituent entity of a Group governed by the Qualified IIR.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 125 (Calculation of Number of Employees)
(1) The number of employees under A and B in the calculation formula specified in Article 73 (4) of the Act shall be calculated by converting each qualified employee according to the standards for regular working hours prescribed by Ordinance of the Ministry of Economy and Finance for the relevant business year.
(2) The net book value of tangible assets specified in C and D in the calculation formula under Article 73 (4) of the Act shall be the book value of qualified tangible assets, respectively.
(3) The number of employees under paragraph (1) and the method of distribution among domestic constituent entities of the net book value of tangible assets under paragraph (2) shall be prescribed by Ordinance of the Ministry of Economy and Finance.
[This Article Newly Inserted on Dec. 29, 2023]
SECTION 4 Special Rules
 Article 126 (Special Cases on De Minimis Exclusion)
(1) Pursuant to the provisions, other than the subparagraphs, of Article 74 (1) of the Act, a filing constituent entity may treat the top-up taxes of each constituent entity located in the relevant country to nil by an optional method annually.
(2) "The average revenue of the country prescribed by Presidential Decree" in Article 74 (1) 1 of the Act means the average of the sales of each constituent entity located in the relevant country in the relevant business year and the two immediately preceding business years (referring to an amount calculated by reflecting the adjustments provided in Article 66 (1) of the Act).
(2) "The average GloBE income or loss of the country prescribed by Presidential Decree" in Article 74 (1) 2 of the Act means the average of GloBE income or GloBE loss of each constituent entity located in the relevant country for the relevant business year and the two immediately preceding business.
(2) The specific calculation methods of the average amount referred in paragraphs (2) and (3) shall be prescribed by Ordinance of the Ministry of Economy and Finance.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 127 (Minority-Owned Subgroup)
"A group prescribed by Presidential Decree" in Article 75 (1) of the Act means a group consisting of a minority-owned parent equity under subparagraph 1 and minority-owned subsidiaries under subparagraph 2:
1. Minority-owned parent entity: It referrers to a minority-owned constituent entity which meets all of the following requirements:
a. The relevant minority-owned constituent entity shall directly or indirectly own a controlling interest in any other minority-owned constituent entity;
b. The relevant minority-owned constituent entity shall not directly or indirectly own a controlling interest in any other minority-owned constituent entity;
2. Minority-owned subsidiary: It referrers to a minority-owned constituent entity in which the controlling interest is directly or indirectly owned by a minority-equity parent entity referred to in subparagraph 1.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 128 (Treatment of Constituent Entity in Reorganization)
(1) If a target entity provided in the main clause of Article 76 (1) of the Act (hereafter referred to as "target entity" in this Article) becomes a constituent entity of a MNE Group (including the cases where a target entity becomes the UPE of a new MEN Group) or if it is excluded from a constituent entity of a MNE Group, Chapter 5 and this Chapter shall apply to the business year of transfer (referring to the business year in which the direct or indirect ownership interest in the target entity is transferred; hereafter the same shall apply in this Article) in a manner specified in the following subparagraphs; In such cases, the methods of specific application of the relevant provisions shall be prescribed by Ordinance of the Ministry of Strategy and Finance:
1. In the case of a target entity: Where part of the assets, liabilities, revenues, expenses, or cash flows of the relevant entity are itemized in the consolidated financial statements of the UPE of a MNE Group, the relevant entity shall be treated as a constituent entity of the relevant MEN Group;
2. In the case of a MNE Group: Only an amount included in the consolidated financial statements of the UPE of the relevant MNE Group, out of the net profit or loss in accounting and the adjusted covered taxes of a target entity, shall be included in the calculation of the GloBe income and loss and adjusted covered taxes of the relevant target entity.
(2) "Cases prescribed by Presidential Decree" in the proviso to Article 76 (1) of the Act means the cases where the transfer of the ownership interest in a target entity in the country of residence of the target entity that is a constituent enterprise (referring to a country where the relevant asset is located, if the target entity is a tax transparent entity) is deemed the transfer of assets and liabilities of the target entity for tax purposes or similar thereto, and the difference between the taxable value of the relevant assets and liabilities and the consideration of transfer of ownership interests or the fair value of the relevant assets and liabilities are taxed on the entities similar thereto. It means a case of taxation on the disposing company.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 129 (Special Cases concerning GloBE Reorganization)
(1) "Where assets and liabilities are disposed of or acquired as part of a reorganization meeting the requirements prescribed by Presidential Decree" in the former part, with the exception of the subparagraphs, of Article 76 (3) of the Act, means the transfer of assets and liabilities or reorganization resulting from merger, division, liquidation, and similar transactions fulfilling the requirements specified in the following subparagraphs (hereafter referred to as "GloBE reorganization" in this Article). In such cases, a qualified merger under Article 44 (2) of the Corporate Tax Act, a qualified division under Article 46 (2) of that Act, and reorganization under Article 78 of that Act shall be deemed a GloBE reorganization:
1. All or part of the consideration for the transfer of assets and liabilities shall be the investment shares of a constituent entity that acquires the assets and liabilities (hereafter referred to as "acquiring constituent entity" in this Article) or of a specially related person (in the case of liquidation, referring to the investment share of a constituent entity that disposes of assets and liabilities (hereafter referred to as a "disposing constituent entity" in this Article), regardless of whether the investment share has economic value);
2. All or part of the gains and losses on the disposal of assets of a disposing constituent entity shall not be taxed;
3. The acquiring constituent entity shall calculate the taxable income after the acquisition date, using the value obtained by adjusting the gains or losses on ineligible disposal pursuant to paragraph (3) 2 to the book value of the assets of a disposal constituent entity before the disposal, in accordance with the tax laws of the country of residence.
(2) "If a disposing constituent entity recognizes part of any loss or gain arising in connection with a reorganization, as prescribed by Presidential Decree" in the latter part, with the exception of the subparagraphs, of Article 76 (3) of the Act means the cases where the lesser of the following amounts (hereafter referred to as "loss or gains on non-qualified disposition" in this Article) are recognized):
1. The amount of gain or loss on disposal taxable in the country of residence of a disposing constituent entity in connection with the reorganization of GloBE reorganization;
2. The amount of gain or loss on disposal in accounting in connection with the GloBE reorganization.
(3) Pursuant to the latter part, with the exception of the subparagraphs, of Article 76 (3) of the Act, gains and losses on non-qualified disposition shall be dealt with in the following manners:
1. A disposing constituent entity: Any gains or losses on the non-qualified disposition shall be included in the calculation of GloBe income or loss;
2. An acquiring constituent entity: It shall calculate the Globe income and loss after acquisition, using the value after the adjustment of gains or losses on non-qualified disposition (in the case of assets, referring to addition of an amount of gain on non-qualified disposition and deduction of an amount of loss on non-qualified disposition; in the case of liabilities, referring to deduction of an amount of gain on non-qualified disposition and addition of an amount of loss on non-qualified disposition) to the book value of a disposing constituent entity.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 130 (Special Cases concerning Joint Entities)
(1) "Entities prescribed by Presidential Decree" in the part, with the exception of the subparagraphs, of Article 77 (1) of the Act means an entity not specified in any of the following subparagraphs:
1. The UPE of a MNE Group to which Chapter V of the Act applies;
2. Excluded entities specified in any subparagraphs 1 through 6 of Article 102 (1);
3. Any of the following entities that constitute other excluded entities under Article 102 (1) 7 (limited to cases where a controlling entity under the aforesaid subparagraph directly holds ownership shares):
a. An entity that exclusively or almost exclusively carries out business activities in which it holds assets or invests funds for its investors;
b. An entity that conducts activities incidental to the activities performed by the controlling entity under Article 102 (1) 7;
c. An entity whose income is wholly or almost entirely dividend income under Article 104 (1) 2 or equity gains or losses under subparagraph 4 of the same paragraph;
4. An entity of which ownership shares are held by a MNE Group consisting only of excluded entities;
5. Subsidiaries of joint ventures under paragraph (2).
(2) "A subsidiary of the joint venture prescribed by Presidential Decree" in the provisions, with the exception of the subparagraphs, of Article 77 (1) of the Act, means an entity connected to a joint venture provided in the provisions, with the exception of the subparagraphs, of that paragraph (hereinafter referred to as a "joint venture") in accordance with the accredited accounting standards, or an entity that shall be connected to a joint venture assuming that it is governed by the accredited accounting standards (hereafter referred to as "joint venture subsidiary" in this Article). In such cases, a joint venture or a permanent establishment of a joint venture subsidiary shall be deemed a separate joint venture subsidiary.
(3) In regard to a parent entity that directly or indirectly holds ownership shares in a joint venture or a joint venture subsidiary pursuant to Article 77 (1) 2 of the Act, Articles 72 and 73 shall apply as specified in the following subparagraphs:
1. The relevant parent entity shall pay the amount of top-up taxes allocated to a parent entity under Article 72, out of the top-up taxes allocated to each constituent entity of a MNE Group consisting of joint ventures and joint venture subsidiaries;
2. An amount remaining after deducting the amount imposed on each parent entity pursuant to the Qualified IIR from the total amount of top-up taxes allocated to the UPE among top-up taxes allocated to each constituent entity of a MNE Group under subparagraph 1 shall be included in the UTPR top-up taxes of the relevant MNE Group under Article 73 of the Act.
[This Article Newly Inserted on Dec. 29, 2023]
[Enforcement Date: Jan. 1, 2025]
 Article 131 (Special Cases concerning Multi-Parented MNE Group)
(1) Chapter V of the Act and this Chapter shall apply to one MNE Group and two or more groups deemed to be its constituent entities (hereafter referred to in this Article as "multi-parented MNE Group") and to the entities of each relevant group pursuant to Article 77 (2) of the Act, as set forth in the following subparagraphs:
1. The UPE of each group consisting of the multi-parented MNE Group shall be respectively deemed the UPE of the relevant multi-parented MNE Group;
2. The consolidated financial statements prepared by the UPE of each group consisting of a multi-parented MNE Group in accordance with the stapled structure under Article 77 (2) 1 (a) of the Act or the dual-listed arrangement under the item (b) of the same subparagraph shall be deemed the consolidated financial statements of the relevant multi-parented MNE Group;
3. The income inclusion rules under Article 72 of the Act shall apply to the parent entity (including the UPE) of a multi-parented MNE Group located in the Republic of Korea.
4. The UTPR under Article 73 of the Act shall apply to a constituent entity of a multi-parented MNE Group located in the Republic of Korea;
5. A multi-parented MNE Group shall file a GloBE information return under Article 83 of the Act to the head of a competent tax office having jurisdiction over the place of tax payment, as prescribed by Ordinance of the Ministry of Economy and Finance.
(2) "An arrangement prescribed by Presidential Decree" in Article 77 (2) 1 (a) of the Act means an agreement satisfying all of the following requirements:
1. Not less than 50/100 of ownership shares owned by the UPE of each group are mutually combined according to the form of ownership, restrictions on transfer, or other restrictions and conditions, and thus cannot be transferred or traded independently on the capital market, and the ownership shares listed on the stock exchange shall be quoted at a single price;
2. One of the UPE shall prepare the consolidated financial statements (referring to the consolidated financial statements in which the assets, liabilities, revenues, expenses and cash flows of the entities are presented together as a single economic unit) for the entities belonging to all groups in the relevant arrangement in accordance with the recognized accounting standards, and the external audit of those financial statements shall be mandatory.
(3) "Arrangement prescribed by Presidential Decree" in Article 77 (2) 1 (b) of the Act means an agreement satisfying all of the following requirements:
1. If the UPE pay dividends and liquidation to their shareholders, they shall agree to distribute them in a mutually fixed ratio;
2. Each group shall maintain a separate legal identity, but all its activities shall be managed as if by a single economic entity under the relevant arrangement;
3. The ownership shares of each UPE shall be quoted, traded, and transferred independently in different capital markets;
4. The UPE shall prepare the consolidated financial statements (referring to the consolidated financial statements in which the assets, liabilities, revenues, expenses and cash flows of the entities are presented together as a single economic unit) for the entities belonging to all groups in the relevant arrangement in accordance with the recognized accounting standards, and the external audit of those financial statements shall be mandatory.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 132 (Special Cases concerning UPE That is Flow-Through Entity)
"Ownership interests prescribed by Presidential Decree ... subject to tax at a rate equal to or higher than the minimum rate" in Article 77 (3) 1 of the Act means the ownership shares attributable to any of the following persons:
1. The holder of ownership shares, if the GloBE income reverted to the ownership shares in the taxable period terminating within 12 months from the date following the end date of the relevant business year of the UPE that is a flow-through entity (hereafter referred to as "amount of devolved income" in this Article) falls under any of the following cases:
a. Where the entire amount of imputed income is taxed at the nominal tax rate not less than the minimum tax rate (if a progressive tax rate is applied, it refers to the maximum tax rate applied to the holder of the relevant ownership shares, assuming that the imputed income is all taxable income of the holder of the relevant ownership shares; hereafter the same shall apply in Article 133);
b. Where it is reasonably expected that the aggregate of the adjusted covered taxes of the relevant flow-through entity for the imputed incomes and the taxes imposed on the holder of the ownership shares are not less than the amount computed by multiplying the whole amount of the relevant imputed income by the minimum tax rate;
2. A natural person who satisfies all of the following requirements:
a. The person shall be a resident under the tax laws of the country of residence of the relevant UPE;
b. The person shall directly hold ownership shares that carry rights to not more than 5/100 of the profits and assets of the relevant UPE, as of the end of the relevant business year;
3. A governmental institution under Article 102 (1) 1, an international organization under subparagraph 2 of the aforesaid paragraph, a non-profit organization under subparagraph 3 of the aforesaid paragraph, or a pension fund under subparagraph 4 of the aforesaid paragraph, which meets all of the following requirements:
a. The person shall be a resident under the tax laws of the country of residence of the relevant UPE;
b. The person shall directly hold ownership shares that carry rights to not more than 5/100 of the profits and assets of the relevant UPE, as of the end of the relevant business year;
[This Article Newly Inserted on Dec. 29, 2023]
 Article 133 (Special Cases concerning UPE Subject to Dividend Tax Credit)
(1) "A regime prescribed by Presidential Decree" in Article 77 (4) of the Act means a system in which, if the relevant entity distributes profits to its shareholders, employees, or contributors (hereafter referred to as "shareholders, etc." in this Article) (including distribution on purchase to the members of a cooperatives prescribed by Ordinance of the Ministry of Economy and Finance (hereafter referred to as "cooperatives" in this Article)), the distributed amount of profits is deducted from the income of the relevant entity, so that the distributed amount of profits is taxable only at the level of shareholders, etc. of an entity (including a tax exemption system for a cooperatives, hereafter referred to as "dividend tax credit" in this Article).
(2) "Dividends prescribed by Presidential Decree" in Article 77 (4) of the Act means the distribution of profits (including the amount of dividend on purchase for the members of a cooperative) deducted from the taxable income of the relevant UPE under the tax laws of the country of residence of the relevant UPE, when the UPE governed by the dividend tax credit pays the distribution of profits, which is distributed to any of the following persons:
1. If the amount distributed to a dividend payee (hereafter in this article, referred to as "amount of attributable distribution") in the taxable period ending within 12 months from the date following the end date of the business year in which the GloBE income of a MNE Group arises falls under any of the following cases, referring to the relevant dividend payee:
a. Where the entire amount of imputed distribution is taxed at a nominal tax rate equal to or higher than the minimum tax rate (in the case of dividend on purchase distributed to the members of a cooperatives who are not natural persons, expenses or costs deducted from the calculation of taxable income of the dividend payee shall be deemed to be taxed; hereafter the same shall apply in this Article);
b. Where it is reasonably expected that the aggregate of the adjusted covered taxes of the UPE for the income that is the source of the imputed distribution and the taxes imposed to the dividend payees for the relevant imputed distribution will be not less than the amount computed by multiplying the whole amount of the relevant imputed distribution by the minimum tax rate;
c. Where a dividend payee is a natural person and the amount of the relevant imputed distribution is dividend on purchase received from a cooperatives (limited to a cooperatives that purchases goods or services from a third party and supplies it to its members);
2. A natural person who satisfies all of the following requirements:
a. The person shall be a resident under the tax laws of the country of residence of the relevant UPE;
b. The person shall directly hold ownership shares that carry rights to not more than 5/100 of the profits and assets respectively of the relevant UPE, as of the end of the relevant business year;
3. A governmental agency under Article 102 (1) 1, an international organization under subparagraph 2 of the same paragraph, a non-profit organization under subparagraph 3 of the aforesaid paragraph, or a pension fund under subparagraph 4 of the aforesaid paragraph (excluding a pension fund under item (b) of the aforesaid subparagraph) established and operated in the country of residence of the UPE.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 134 (Special Cases concerning Eligible Distribution Tax System)
(1) "Tax system prescribed by Presidential Decree" in Article 78 (1) of the Act means a taxation system that satisfies all of the following requirements (hereafter referred to as "eligible distribution tax system" in this Article):
1. Corporate tax shall be imposed on the relevant profits only when the profits of a corporation are distributed (including cases deemed to be distributed) to shareholders, or corporate tax shall be levied on the relevant expenses only when specific business-related expenses prescribed by the State that levies the corporate tax at the time of distribution of profits of the corporation;
2. It shall be taxed at a tax rate not less than the minimum tax rate;
3. It shall have entered into force before July 1, 2021.
(2) "Amount prescribed by Presidential Decree, such as the amount necessary to increase the effective tax rate to the minimum rate" in Article 78 (1) of the Act means the lesser of the following amounts (hereafter referred to as "amount of deemed distribution tax" in this Article):
1. Adjusted covered taxes additionally necessary for the effective tax rate under Article 69 of the Act of the relevant country (referring to the amount calculated without including the amount related to dividend payable out of the total adjusted amount of deferred corporate taxes under Article 67 of the Act) to reach the minimum tax rate for the relevant business year;
2. The amount of corporate taxes that would be incurred if all the constituent entities of the relevant country distributed in the relevant business year all of the incomes subject to the eligible distribution tax system accrued in the relevant business year.
(3) The selection of a filing constituent entity under Article 78 (1) of the Act shall be made annually, and shall be applied to each country.
(4) Where a filing constituent entity selects to add the deemed distribution taxes pursuant to paragraph (3), the MNE Group shall, for each business year subject to the selection, make a separate account equal to the deemed distribution taxes of the relevant business year (hereafter referred to as "reversal account for deemed distribution tax" in this Article) for each country.
(5) "Period prescribed by Presidential Decree" in Article 78 (2) of the Act means the period from the start date of the business year in which the date on which the reversal account for deemed distribution tax is established pursuant to paragraph (4) falls to the end date of the third business year thereafter.
(6) "Cases prescribed by Presidential Decree, such as where an amount equivalent to that of deemed distribution tax added is not actually imposed" in Article 78 (2) of the Act means where an amount equivalent to the deemed distribution tax is not taxed within the period under paragraph (5) and the balance remains in the relevant reversal account of the deemed distribution tax as of the end date of the relevant period.
(7) In cases falling under paragraph (6), after deducting the balance remaining in the account of reversal of deemed distribution tax amount from the tax amount subject to national adjustment for the business year in which the relevant account is established pursuant to Article 78 (2) of the Act, the effective tax rate and the addition thereof. Recalculate the tax amount.
(8) Except as otherwise provided for in paragraphs (4) through (7), the operation methods of the reversal account for deemed distribution tax shall be prescribed by Ordinance of the Ministry of Economy and Finance.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 135 (Special Cases concerning Investment Constituent Entities)
(1) In the former part, with the exception of the calculation formula, of Article 79 (1) of the Act, "a constituent entity prescribed by Presidential Decree ... that is ... an investment fund or real estate investment vehicle" means a constituent entity falling under any of the following subparagraphs (excluding the case where it constitutes a transparent entity").
1. Investment entity: An entity falling under any of the following items:
a. Investment funds under Article 102 (1) 5 (b) or real estate investment vehicles under subparagraph 6 (b) of the same paragraph;
b. An entity in whose case the ratio of ownership shares (calculated as prescribed by Ordinance of the Ministry of Economy and Finance; hereafter in this subparagraph referred to as "equity holdings value ratio") held directly by an entity specified in item (a) or indirectly through one or more entities specified in item (a) is not less than 95/100, which carries out only business activities for the purpose of holding assets or investing funds by calculation of an entity specified in item (a);
c. An entity whose equity holdings value ratio is not less than 85/100 and whose income is wholly or almost entirely of dividend income under Article 104 (1) 2 or equity gains or losses under subparagraph 4 of the aforesaid paragraph;
2. Insurance investment entity: An entity that meets all of the following requirements:
a. It shall be the investment funds under Article 102 (1) 5 (b) or real estate investment vehicles under subparagraph 6 (b) of the same paragraph;
b. It shall be wholly owned by an entity established in connection with the obligations under an insurance or annuity insurance contract and regulated as an insurance company in the country of residence;
(2) In applying the formula under Article 79 (1) of the Act, the following amounts shall be set as the amounts prescribed in the relevant subparagraph:
1. The amount of adjusted covered taxes of each investment constituent entity: The amount of adjusted covered taxes corresponding to the GloBE income amount allocated to the relevant investment constituent entity under subparagraph 2 and the amount of adjusted covered taxes allocated to the relevant investment constituent entity under Article 67 of the Act;
2. The amount of GloBe income allocated to the relevant investment constituent entity: An amount calculated by multiplying the amount under item (a) by the ratio under item (b):
a. The amount of GloBE income allocated to the relevant investment constituent entity;
b. Income inclusion ratio (IIR) corresponding to the ownership shares to which the selection under Article 79 (5) or (6) of the Act is not applied (hereafter in this Article, referred to as "adjusted IIR") among the IIR of the UPE of the relevant MNE Group for the relevant investment constituent entity;
3. GloBE loss allocated to each investment constituent entity: An amount computed by multiplying the GloBE losses of the relevant investment constituent entity by the adjusted IIR.
(3) In applying the calculation formula under Article 79 (3) of the Act, the following ratios and amounts shall be those set forth in the relevant subparagraphs:
1. The ratio of the top-up taxes of investment constituent entities located in the relevant country: The ratio of deducting the effective tax rate of the investment constituent entities under Article 79 (1) of the Act from the minimum tax rate (where the result of the calculation is negative, it shall be deemed nil);
2. The amount of excess profits of investment constituent entities located in the relevant country: An amount obtained by deducting the amount under item (b) from the amount under item (a) (where the result of calculation is negative, it shall be deemed nil):
a. Amount obtained by deducting amount under (ii) from (i);
(i) The total amount of GloBE incomes allocated to each investment constituent entity under paragraph (2) 2;
(ii) The total amount of GloBE losses allocated to each investment constituent entity under paragraph (2) 3;
b. The total amount of substance-based income exclusion allocated to each investment constituent entity (referring to an amount reduced by applying the adjusted IIR of the relevant investment constituent entity to the amount of substance-based income exclusion for each investment constituent entity);
3. The additional current top-up taxes of the investment constituent entities located in the relevant country: The aggregate of additional current top-up taxes computed by applying Article 119 mutatis mutandis to each investment constituent entity;
4. The amount of qualified domestic minimum top-up taxes of investment constituent entities located in the relevant country: An amount paid or to be paid under the qualified domestic minimum top-up tax system under Article 70 (5) of the Act in relation to the relevant investment constituent entities.
(4) In applying the calculation formula under Article 79 (3) of the Act, if the deduction of the qualified domestic minimum top-up taxes under paragraph (3) 4 of this Article results in nil or negative amount of top-up taxes of investment constituent entities located in the relevant country, it shall be deemed there is no amount of additional top-up taxes for the relevant business year.
(5) Notwithstanding Article 122 (1), when calculating the top-up taxes allocated to the parent entity under Article 72 (2) of the Act in regard to the top-up taxes of investment constituent entities under Article 79 (4) of the Act, the IIR shall be the value specified in the following subparagraphs:
1. Where top-up taxes allocated to the UPE is calculated: 1;
2. Where top-up taxes allocated to a parent entity other than the UPE is calculated: Rate prescribed by Ordinance of the Ministry of Economy and Finance.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 136 (Selection of Tax Transparent Entity)
(1) Where a filing constituent entity selects to regard an investment constituent entity as a flow-through entity pursuant to Article 79 (5) of the Act, Articles 108 (1) and 111 (1) 2 shall apply, deeming the relevant investment constituent entity as a tax transparent entity among flow-through entities.
(2) The selection of a filing constituent entity under paragraph (1) shall be a five-year option, which shall be applied to all the ownership shares of investment constituent entities held by a constituent entity-owner for each constituent entity-owner.
(3) Where a filing constituent entity cancels an option under paragraph (2), the gain or loss on the disposal of assets or liabilities upon calculating the GloBE income and loss of the relevant investment constituent entity shall be estimated on the basis of the fair value of the relevant assets or liabilities as at the commencement date of the business year of cancellation.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 137 (Selection of Application of Tax Allocation Method)
(1) When applying the method referred to in each subparagraph of Article 79 (6) of the Act, pursuant to the part, with the exception of the subparagraphs, of Article 79 (6), if there is any amount deducted from the tax amount incurred to the constituent entity-owner in relation to the distributions, etc. under paragraph (2), which is a covered tax to be paid by the relevant investment constituent entity, such amount shall be included in the GloBE income and adjusted covered taxes of the relevant constituent entity-owner.
(2) "An amount prescribed by Presidential Decree, such as the amount of the investment entity's global anti-base erosion income that is distributed to the constituent-entity owner" in Article 79 (6) 1 of the Act means profits and surplus that are distributed or deemed distributed by the investment constituent entities to the constituent entity-owners (hereafter referred to as "dividends, etc." in this Article). In such cases, the amount deemed distributed shall include an amount attributed to the ownership interests subject to transfer out of the undistributed net GloBE income under paragraph (3) of the relevant investment constituent entity as of the date immediately preceding the date of transfer, if the ownership interests of an investment constituent entity held directly or indirectly by the constituent entity-owner.
(3) In Article 79 (6) 2 of the Act, "amount prescribed by Presidential Decree on the last day of each business year, such as the amount of an investment entity's undistributed global anti-base erosion income for the third business year" means an amount calculated by deducting the following amounts from the GloBE income of investment constituent entities (to be deducted only until the relevant GloBE income becomes nil; hereafter referred to as "undistributed net GloBE income" in this Article), in the third business year before the commencement of each business year (hereafter referred to as "target business year" in this Article):
1. The amount of covered taxes of the relevant investment constituent entities;
2. The dividends, etc. to the constituent entity-owners of the relevant investment constituent entities during the target period (referring to the period from the commencement date of the target business year to the end date of each business year, during which a MNE Group to which the relevant investment constituent entity belongs holds the ownership interests of the relevant investment constituent entity; hereafter the same shall apply in this Article);
3. The amount of GloBE loss of the relevant investment constituent entity during the target period (where the relevant amount is used to calculate the undistributed net GloBE income in the previous business year, such amount shall be excluded; and the remaining balance after the target period elapses shall be carried over to the following business year).
(4) The selection of a filing constituent entity pursuant to Article 79 (6) of the Act shall be a five-year option, which shall be applied to the whole ownership interests of the investment constituent entities held by the constituent entity-owners for each constituent entity owner.
(5) Where a filing constituent entity cancels an option under paragraph (4), if there is a balance of the undistributed net GloBE income reverted to the ownership interests held by the relevant constituent entity-owners as at the end of the business year immediately preceding the business year of cancellation, such balance shall be deemed the GloBE income of the relevant investment constituent entity in the business year of cancellation, and an amount calculated by multiplying the aforesaid amount by the minimum tax rate shall be deemed the top-up taxes of the relevant investment constituent entity under Article 71 of the Act.
(6) Except as otherwise provided in paragraphs (1) through (5), detailed matters necessary for a filing constituent entity to apply the methods referred to in each subparagraph of Article 79 (6) of the Act, such as the calculation of top-up tax amount on investment constituent entities, shall be prescribed by Ordinance of the Ministry of Economy and Finance.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 138 (Exemption from Application of Transition Period)
(1) In the main clause of Article 80 of the Act, "a country that meets the requirements for exemption from application prescribed by Presidential Decree" means a country that meets any of the following requirements for each business year which commences before December 31, 2026 and ends before June 30, 2028 (hereafter referred to as "transitional business year" in this Article):
1. De minimis requirement: The total revenues and the pre-tax profits and losses prescribed by Ordinance of the Ministry of Economy and Finance of the relevant country in accordance with a report by country (hereafter referred to as "qualified report by country" in this Article) prepared and submitted by a MNE Group based on the financial statements prescribed by Ordinance of the Ministry of Economy and Finance shall be less than EUR 10 million and EUR 1 million, respectively;
2. Requirement for simplified effective tax rate: The effective tax rate calculated as prescribed by Ordinance of the Ministry of Economy and Finance shall be not below the following rates:
a. For a transitional business year of which commencement date falls in 2024: 15 percent;
b. For a transitional business year of which commencement date falls in 2025: 16 percent;
c. For a transitional business year of which commencement date falls in 2026: 17 percent;
3. Excess profit requirements: The amount of pre-tax profit or loss under subparagraph 1 shall fall under any of the following cases:
a. Where the amount of loss has accrued;
b. Where a profit has accrued and the amount of profit is less than or equal to the total amount of substance-based income exclusion of all constituent entities of the relevant country according to a qualified report by country;
(2) The selection of filing constituent entities under the main clause of Article 80 of the Act shall be made annually.
(2) "Requirements ... prescribed by Presidential Decree" in the proviso of Article 80 of the Act means the following requirements:
1. The country concerned falls under any of the subparagraphs of paragraph (1);
2. The relevant country is not a country over which a filing constituent entity selects to add deemed distribution taxes pursuant to Article 78 (1) of the Act;
3. Where the relevant MNE Group is a multi-parented MNE Group, a single qualified report by country shall not omit even part of the details of the two or more groups;
4. The relevant constituent entities are not stateless constituent entities;
5. Where in the transitional business year of a MNE Group subject to the GloBE Rule internationally agreed upon, the relevant country is not applied an exemption of application under the main clause of Article 80 of the Act in the transitional business year (excluding cases where the relevant MNE Group does not establish a constituent entity in the relevant country during the first transitional business year), the relevant transitional business year shall not be corresponding to the transitional business year thereafter of the relevant country.
(4) "Cases specified by Presidential Decree" in the proviso of Article 80 of the Act means the cases that satisfy any of the following subparagraphs:
1. The effective tax rate of the relevant country is lower than the minimum tax rate, in which cases the Republic of Korea may impose top-up taxes;
2. The Korean tax authorities have notified the domestic constituent entities that would have been liable to pay the top-up taxes in the absence of the exemption of application under the main clause of Article 80 of the Act, as prescribed by the Ministry of Strategy and Finance, of matters that may have a significant impact on fulfillment of the requirements under paragraph (3), and have requested a statement on the impact;
3. The domestic constituent entities which have been notified under subparagraph 2 shall have failed to prove the fact that the relevant matters did have a significant impact on the fulfillment of the requirements under paragraph (3) within six months from the date of receipt of such notification.
(5) In applying paragraph (1) to joint ventures, the details, etc. necessary for applying the requirements specified in subparagraphs of the same paragraph, such as the method of calculation of the total revenues and the pre-tax profits or losses under subparagraph 1 of the aforesaid paragraph shall be prescribed by Ordinance of the Ministry of Economy and Finance.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 139 (Calculation of Total Deferred Tax Adjustment for Year of Initial Application)
(1) Pursuant to Article 81 (1) of the Act, the deferred tax assets and deferred tax liabilities that are included in the calculation of the total deferred tax adjustment amount for the first business year (hereinafter referred to in this Article as the "initial year of application") to which Chapter 5 of the Act and this chapter or the equivalent statutes and regulations of other countries (hereafter referred to in this Article as the "GloBE Rules") apply shall be taxed at the lower of the domestic tax rate of the country of residence and the minimum tax.
(2) Notwithstanding paragraph (1), in the case where the relevant MNE Group vindicates that if the GloBE Rule had been applied in the business year in which deferred tax assets applied with a domestic tax rate lower than the minimum tax rate are accrued, the relevant deferred tax assets would have arisen due to GloBE tax loss, the relevant deferred tax assets may be recalculated by applying the minimum tax rate.
(3) The total deferred tax adjustment amount for the year of initial application under paragraph (1) shall be calculated in accordance with the following standards:
1. Deferred tax assets arising from tax credits carried forward under Article 112 (1) 1 (b) (iii) shall be treated according to the following classifications; In this case, the change in the amount of deferred tax assets resulting from the recalculation under each of the following items shall not be included in the calculation of the total deferred tax adjustment amount:
A. Where the domestic tax rate applicable to the calculation of the relevant deferred tax assets is equal to or higher than the minimum tax rate: To recalculate by multiplying the relevant deferred tax assets by the ratio obtained by dividing the minimum tax rate by the domestic tax rate;
b. Where the domestic tax rate applicable to calculate the relevant deferred tax assets changes after the year of initial application (limited to the cases where the rate remains at or above the minimum tax rate): To recalculate by multiplying the amount of the deferred tax asset remaining in accounting immediately before the changed domestic tax rate applies by the ratio of the minimum tax rate divided by the changed domestic tax rate;
2. Deferred tax assets under Article 81 (1) of the Act shall also include the amount of deferred tax assets that arose in a business year preceding the first year of application but were not appropriated as deferred tax assets in the accounts at the start date of the first year of application because they did not meet the accounting recognition criteria in the business year in which they arose or in a subsequent business year (limited to the business year before the first year of application);
3. Where a non-qualified refundable tax credit accrued in the business year preceding the year of initial application is settled by tax credit or cash payment in the year of initial application, the amount shall not be deducted from the covered tax for the relevant business year, notwithstanding subparagraph 2 (b) of Article 110;
4. Article 67 (3) of the Act shall not apply to deferred tax liabilities to which Article 81 (1) of the Act applies.
(2) Except as otherwise provided for in paragraphs (1) through (3), detailed matters necessary to calculate the effective tax rate for the first year of application, including the calculation of the total deferred tax adjustment amount for the first year of application, shall be prescribed by Ordinance of the Ministry of Economy and Finance.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 140 (MNE Group in Early Stage of Overseas Expansion)
"MNE Group prescribed by Presidential Decree " in the main clause, with the exception of the subparagraphs, of the Act, means a MNE Group that meets all of the following requirements in each business year:
1. The constituent entities of the relevant MNE Group shall be located in six or fewer countries. In this case, the stateless constituent entities of the MNE Group is considered to have no country of residence;
2. The aggregate net book value of the tangible assets owned by the relevant MNE Group with respect to its every constituent entity located in the countries other than the reference country (referring to the country in which the total net book value of tangible assets under Article 125 (2) owned by the MNE Group for each country is the largest amount in the business year in which the MNE Group is governed by the GloBE Rule; hereafter the same shall apply in this Article) shall be EUR 50 million or less. In this case, the tangle assets of a stateless constituent entity of the relevant MNE Group shall be included in the calculation of the net book value of tangible assets under the former part of the said paragraph, deeming that the MNE Group is located in the country other than the reference country, if the MNE Group fails to vindicate that the tangible assets are located in the reference country.
[This Article Newly Inserted on Dec. 29, 2023]
SECTION 5 Return and Payment
 Article 141 (Filing of GloBE Information Reports)
(1) Pursuant to Article 83 (1) of the Act, a domestic constituent entity shall submit a GloBe information report prescribed by Ordinance of the Ministry of Economy and Finance to the head of the competent tax office having jurisdiction over the place of tax payment within 15 months (18 months in the case of the first application year) from the end of each business year through the information and communications network. In such cases, all amounts included in a GloBe information report shall be presented in the currency used in the consolidated financial statements of the relevant MNE Group.
(2) "An entity prescribed by Presidential Decree" in Article 83 (2) of the Act means another domestic constituent entity that may file a GloBe information report pursuant to Article 83 (1) of the Act on behalf of a domestic constituent enterprise belonging to the same multinational group or is located in a foreign country pursuant to Article 83 (4) of the Act. Refers to an enterprise designated as another constituent enterprise of the Republic of Korea which may report matters concerning the constituent enterprise, as prescribed by Ordinance of the Ministry of Strategy and Finance.
(3) In Article 83 (3) of the Act, "cases prescribed by Presidential Decree" refers to the case where a constituent entity located in a foreign country under the same paragraph is located in a country where an agreement between the competent authorities providing for the annual automatic exchange of information on the GloBE information report for the business year covered by the report is in effect.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 142 (Return and Payment of Top-Up Taxes)
(1) A domestic constituent entity that intends to return the allocation of top-up taxes to the head of the competent tax office in charge of the place of tax payment pursuant to the former part of Article 84 (1) of the Act shall submit a top-up tax report prescribed by the Ordinance of the Ministry of Economy and Finance. In this case, where the top-up tax allocation is converted to KOR currency under the latter part of Article 84 (1) of the Act, the average exchange rate in the relevant business year prescribed by Ordinance of the Ministry of Economy and Finance shall apply.
(2) A domestic constituent entity that pays the top-up tax allocation pursuant to Article 84 (2) of the Act shall pay it to the head of the competent tax office having jurisdiction over the place of tax payment along with a return filed under paragraph (1) of the same Article, or pay it to the Bank of Korea (including an agency thereof) or to the postal office, attaching a payment slip under Article 5 of the National Tax Collection Act.
(3) Article 101 (2) of the Enforcement Decree of the Corporate Tax Act shall apply mutatis mutandis to the installment payment under Article 84 (3) of the Act.
[This Article Newly Inserted on Dec. 29, 2023]
 Article 143 (Reasons for Occasional Imposition)
(1) "Any ground prescribed by Presidential Decree" in the former part of Article 85 (5) of the Act refers to the cases where a domestic constituent entity falls under any of the following cases:
1. Where it relocates its place of business without filing a report;
2. Where the business is suspended or closed due to a slump in business or other reasons;
3. Where there are reasonable grounds to believe that it may evade tax.
(2) Where the head of the competent tax office having jurisdiction over the place of tax payment or the commissioner of the competent regional tax office occasionally imposes tax on a domestic constituent entity for which the grounds referred to in the subparagraphs of paragraph (1) of this Article has occurred, pursuant to the former part of Article 85 (5) of the Act, he/she shall make such occasional imposition on the basis of books or other certifying documents.
(3) Where the head of the competent tax office having jurisdiction over the place of tax payment or the commissioner of the competent regional tax office notifies, pursuant to Article 85 (8) of the Act, the relevant entity of the top-up tax allocation determined or corrected under paragraphs (1) and (2) of that Article, a statement of calculation of the top-up tax allocation shall be attached to the relevant tax payment notice, and if there is no amount of top-up tax allocation for each business year, the details thereof shall be notified.
④ When applying paragraph (3), a domestic constituent entity whose place of tax payment is not clear shall be notified by the method of service by public notice.
[This Article Newly Inserted on Dec. 29, 2023]
CHAPTER VI PENALTY PROVISIONS
 Article 144 (Criteria for Imposition of Administrative Fines for Failure to Fulfill Obligation to Submit Data on International Transactions)
(1) "Unavoidable cause prescribed by Presidential Decree" in the provisions, with the exception of the subparagraphs, of Article 87 (1) of the Act means the causes specified in the subparagraphs of Article 37 (1). <Amended on Feb. 28, 2023>
(2) The criteria for imposing administrative fines for the failure to submit all or part of the following data or for the submission of any false data pursuant to Article 87 (1) of the Act shall be classified as follows: <Amended on Feb. 28, 2023; Dec. 29, 2023>
1. A consolidated business report, individual business report, or a report by country under Article 16 (1) of the Act: KRW 30 million per report;
2. A statement of international transactions under Article 16 (2) 1 of the Act: KRW five million for each foreign related party;
3. Data requested by the tax authorities pursuant to Article 16 (4) of the Act: The following amounts:
a. Data specified in Article 38 (1) 1 through 3: KRW 30 million;
b. Data specified in subparagraphs 4 through 13 of Article 38: KRW 50 million;
c. Data specified in subparagraph 14 of Article 38: KRW 70 million;
4. GloBE information report under Article 83 (1) of the Act: KRW 100 million;
5. Report data on matters related to a constituent entity located in a foreign country under Article 83 (4) of the Act: KRW 100 million.
(3) Administrative fines under Article 87 (2) of the Act shall be calculated in accordance with the following formula; In such cases, no administrative fine shall exceed the maximum limit prescribed in Article 87 (2) of the Act: <Amended on Feb. 28, 2023>
(이미지 있음)<}100{>(1+deferred period/30) x Amount specified in each subparagraph of paragraph (1)
* The delay period (referring to the period from the day after the end date of the 30-day implementation period set by the tax authorities to the date of submitting data or complying with the request for correction) is divided by 30, and decimal points are discarded)
(4) The administrative fines calculated pursuant to paragraph (2) or (3) may be reduced or increased by up to 50 percent of the relevant administrative fines, taking into account the severity of the violation, the number of violations, the motives and consequences of the violation, etc: Provided, That where the administrative fines are increased, the amount shall not exceed the upper limit of the administrative fines under Article 87 (1) and (2) of the Act. <Amended on Feb. 28, 2023>
(5) In the following cases, administrative fines calculated pursuant to paragraphs (2) through (4) shall be imposed after being reduced by applying the following rates specified in the relevant subparagraphs: Provided, That this shall not apply where a taxpayer submits data with prior knowledge of an administrative fine imposed by the tax authorities: <Newly Inserted on Feb. 15, 2022>
1. Where a person has submitted supplemented data after the deadline for submission referred to in Article 16 (1) and (2) of the Act (hereafter in this Article referred to as "deadline for submission") by adding omitted data or correcting false data: The rates classified as follows:
Date of Supplement SubmissionReduction Rate
a. Within six months after the submission deadline90%
b. Within one year but more than 6 months after the submission deadline70%
c. Within two years but more one year after the submission deadline50%
d. Within four years but more than two years after the submission deadline30%
2. Where a person has submitted data after the deadline for submission: The rates classified as follows:
)
(6) In imposing administrative fines under paragraph (2) or (3), where a person submitting data fails to submit part of data or causes mistakes in some items due to a minor mistake, the tax authorities need not impose administrative fines, upon receiving the corrected data. <Amended on Feb. 15, 2022>
[Title Amended on Feb. 15, 2022]
[Moved from Article 100 <Dec. 29, 2023]]
 Article 145 (Criteria for Imposition of Administrative Fines for Failure to Fulfill Obligation to Submit Data Related to Transactions of Hybrid Financial Instruments)
(1) The criteria for imposing administrative fines under Article 88 (1) of the Act shall be as follows:
1. In cases of a failure to submit a statement of adjustment of interest expenses related to hybrid financial instruments under Article 60 (hereafter in this paragraph, referred to as "adjustment statement") by the filing deadline specified in Article 25 (3) of the Act: KRW 20 million for each hybrid financial instrument;
2. In cases of submission of a false adjustment statement: KRW 10 million for each hybrid financial instrument.
(2) An administrative fine under paragraph (1) may be reduced or increased by up to 50 percent of the relevant administrative fines in consideration of the severity of violation, frequency of violation, motive for and consequences of violation, and other factors: Provided, That in cases of increasing the administrative fines, it shall not exceed the upper limit of an administrative fine imposed under Article 88 (1) of the Act.
[This Article Newly Inserted on Feb. 28, 2023]
[Moved from Article 101 <Dec. 29, 2023>]
 Article 146 (Standards for Imposition of Administrative Fines for Non-Performance of Provision of Financial Information)
(1) The criteria for imposing administrative fines under Article 89 (1) of the Act shall be classified as follows: Provided, That where the head of a financial company, etc. makes a correction by the deadline in response to a request for correction from the competent authority of the Republic of Korea under Article 75 (5), the relevant administrative fine need not be imposed: <Amended on Feb. 28, 2023>
1. Where he or she fails to provide all of the financial information requested by the competent authority or provides any false financial information: KRW 20 million;
2. Where he or she fails to provide part of the financial information requested by the competent authority: KRW 10 million.
(2) An administrative fine calculated pursuant to paragraph (1) may be reduced or increased by up to 50 percent of the relevant administrative fines in consideration of the severity of violation, frequency of violation, motive for and consequences of violation, and other factors: Provided, That in cases of increasing an administrative fine, it shall not exceed the upper limit of an administrative fine set forth in Article 89 (1) of the Act. <Amended on Feb. 28, 2023>
[Moved from Article 102 <Dec. 29, 2023>]
 Article 147 (Criteria for Imposition of Administrative Fines for Non-Fulfillment of Obligation to Report Overseas Financial Accounts)
(1) The criteria for imposing administrative fines under Article 90 (1) of the Act and the main clause of paragraph (2) of that Article shall be classified as follows: <Amended on Feb. 28, 2023>
1. Where a person required to report his or her account fails to report his or her foreign financial account information or has under-declared the relevant amount by the declaration deadline: Administrative fines specified in the following table:
The sum of undeclared and underdeclared amount for each reportable accountAdministrative fines
If the sum of undeclared and underdeclared amounts for each reportable account is KRW 2 billion or less.
In case of non-declaration
The sum of undeclared amount for each reportable account x 10 percent
In case of under-declarationThe sum of underreported amount (referring to the amount required to be declared minus the actually declared amount; hereinafter the same shall apply) x 10% for each reportable account
If the sum of undeclared and underdeclared amount for each reportable account exceeds KRW 2 billion and does not exceed KRW 5 billion.
In case of non-declarationKRW 200 million + (the sum of underdeclared amount for each reportable account - KRW 2 billion) x 15 percent
In case of under-declarationKRW 200 million + (the sum of underreported amount for each reportable account - KRW 2 billion) x 15 percent
If the sum of undeclared and underdeclared amount for each reportable account exceeds KRW 5 billion
In case of non-declarationThe lesser of [650 million won + (the sum of undeclared amount for each reportable account - 5 billion won) x 20 percent] or 2 billion won.
In case of under-declarationThe lesser of (KRW 650 million + (the sum of underdeclared amount for each reportable account - KRW 5 billion)
)
.
2. Where a person required to report his or her account fails to explain the source of the amounts not declared or gives a false explanation: The amount unexplained or falsely explained × 20 percent.
(2) An administrative fine calculated under paragraph (1) may be reduced or increased by up to 50 percent of the relevant amount in consideration of the severity of the relevant violation, frequency of violation, motive for and consequences of violation, and other factors: Provided, That in cases of increasing the administrative fine, it shall not exceed the upper limit of an administrative fine specified in Article 90 (1) and (2) of the Act. <Amended on Feb. 28, 2023>
(3) Where a person subject to an administrative fine under Article 90 (1) of the Act submits a report on the current status of the balance of deposits traded overseas pursuant to Article 20 of the Foreign Exchange Transactions Act, the tax authorities may impose an administrative fine after reducing the amount of an administrative fine referred to in paragraph (1) by up to 50 percent. <Amended on Feb. 28, 2023>
(4) In any of the following cases, an administrative fine calculated pursuant to paragraphs (1) through (3) shall be subject to the following reduction rates: Provided, That the same shall not apply where a person required to report his or her account has filed a report knowing in advance the imposition of an administrative fine by the tax authority:
1. Where a person files a revised report pursuant to Article 55 (1) of the Act after the reporting deadline prescribed in Article 53 (1) of the Act (hereafter in this Article referred to as "reporting deadline"): The rates classified in the following table:
Date of Revised ReportReduction Rate
a. Within six months after the reporting deadline90%
b. Within one year but more than six months after the reporting deadline70%
c. Within two years but more than one year after the reporting deadline50%
d. Within four years but more than two years after the reporting deadline30%
2. Where an overdue report is filed pursuant to Article 55 (2) of the Act after the reporting deadline: The rate classified as follows:
Date of Report after DeadlineReduction Rate
a. Within one month after the reporting deadline90%
b. Within six months but more than one month after the reporting deadline70%
c. Within one year but more six months after the reporting deadline50%
d. Within two years but more than one year after the reporting deadline30%
(5) "Where there exists any unavoidable cause prescribed by Presidential Decree, such as a natural disaster" in the proviso of Article 90 (2) of the Act means the following cases: <Amended on Feb. 28, 2023>
1. Where it is impossible to give an explanation because evidentiary documents, etc. no longer exist due to any unavoidable causes, such natural disasters, fire, disasters, or theft;
2. Where it is impossible for a person required to report his or her account to explain the source of the noncompliance amount due to the circumstances of a country in which a foreign financial account is located and similar reasons.
(6) In imposing an administrative fine under paragraph (1), if there are reasons to believe that a report was not filed because of simple mistakes, such as an error in adding up the balance of foreign financial accounts, the administrative fine may not be imposed.
(7) If an account undeclared or under-declared is additionally discovered in imposing an administrative fine under paragraph (1), the administrative fines to be additionally imposed shall be the amount calculated by subtracting the administrative fines already imposed from the administrative fines to be imposed based on the total amount of undeclared or under-declared amount.
[Moved from Article 103 <Dec. 29, 2023>]
 Article 148 (Standards for Imposition of Administrative Fines for Non-Fulfillment of Obligations of Data Submission by Overseas Local Corporations)
(1) The standards for imposing administrative fines under Article 91 (1) and (2) of the Act shall be as specified in the attached Table. <Amended on Feb. 28, 2023>
(2) "Unavoidable cause prescribed by Presidential Decree, such as where it is deemed impracticable ... to submit data by the deadline" in the provisos, with the exception of the subparagraphs, of Article 91 (1) and (2) of the Act and in the provisos, with the exception of the subparagraphs, of that Article means any cause specified in the subparagraphs of Article 97 (3). <Amended on Feb. 28, 2023>
(3) "Acquisition value, disposal value, and income from investment operations of the overseas real estate, etc. prescribed by Presidential Decree" in the main clause, with the exception of the subparagraphs, of Article 91 (2) of the Act means the amounts classified as follows: <Amended on Feb. 28, 2023>
1. An acquisition value: The value calculated by subtracting the amount declared under Article 18 of the Foreign Exchange Transactions Act with respect to the acquisition of the relevant overseas real estate, etc. from the acquisition values classified as follows:
(a) Residents: An acquisition value under Article 118-4 (1) 1 of the Income Tax Act;
(b) Domestic corporations: An acquisition value under Article 41 of the Corporate Tax Act;
2. Disposal value: The value calculated by subtracting the amount declared under Article 20 of the Foreign Exchange Transactions Act with respect to the disposal of the relevant overseas real estate, etc. from the transfer value under Article 118-3 of the Income Tax Act;
3. Income from investment operations: The amount classified as follows related to the investment operations of overseas real estate, etc.:
(a) Residents: The total amount of income prescribed in Article 24 of the Income Tax Act;
(b) Domestic corporations: Gross income prescribed in Article 15 of the Corporate Tax Act.
(4) "Where there exists any natural disaster or any unavoidable cause prescribed by Presidential Decree" in the proviso of Article 91 (3) of the Act means the following cases: <Amended on Feb. 28, 2023>
1. Where it is impossible to give an explanation because evidentiary documents, etc. no longer exist due to any unavoidable causes, such as natural disasters, fire, disasters, or theft;
2. Where it is impossible to give an explanation due to the circumstances and similar reasons of a country in which the relevant overseas subsidiaries, overseas real estate, and others are located.
(5) The head of the tax office having jurisdiction over the place for tax payment may reduce or increase an administrative fine under Article 91 (3) of the Act and the attached Table by up to 50 percent of the relevant amount, in consideration of the degree of the violation, frequency of the violation, motive for and consequences of the violation, and other factors: Provided, That in cases of increasing the administrative fine, it shall not exceed the maximum limit of administrative fines under Article 91 (1) through (3) of the Act. <Amended on Feb. 28, 2023>
[Moved from Article 143 <Dec. 29, 2023>]
ADDENDA <Presidential Decree No. 31448, Feb. 17, 2021>
Article 1 (Enforcement Date)
This Decree shall enter into force on the date of its promulgation: Provided, That the amended provisions of Article 92 (1) (limited to the parts concerning virtual asset service providers and virtual assets) and Article 93 (1) 6 shall enter into force on January 1, 2022.
Article 2 (Period for Existence of Tax Adjustment Review Committee for International Transfer Price)
The amended provision of Articles 42 and 43 regarding the Tax Adjustment Review Committee for International Transfer Price shall remain effective until June 30, 2022.
Article 3 (General Applicability)
This Decree shall begin to apply to the taxable years that commence on or after January 1, 2021.
Article 4 (Applicability to Substance over Form Principle regarding International Transactions)
The amended provisions of Article 3 shall begin to apply to the taxable years that commence on or after January 1, 2020.
Article 5 (Applicability to Arm's Length Pricing Methods for Intangible Assets)
The amended provisions of Article 13 (2) 1 and (3) through (6) shall begin to apply to the taxable years that commence on or after January 1, 2019.
Article 6 (Applicability to Application for Advance Pricing Agreements)
The amended provisions of Article 26 (1) shall begin to apply to applications for advance pricing agreements filed after this Decree enters into force.
Article 7 (Applicability to Application for Adjustment of Tax Base and Tax Amount under Advance Pricing Agreements)
The amended provisions of Article 31 (1) shall begin to apply to cases where a notice of an advance pricing agreement is received after this Decree enters into force.
Article 8 (Applicability to Submission of Annual Reports under Advance Pricing Agreements)
The amended provisions of Article 32 (1) shall begin to apply to cases where annual reports must be submitted after this Decree enters into force.
Article 9 (Applicability to Submission of Master File and Local Files)
The amended provisions of the latter part of Article 34 (1) 2 shall begin to apply to cases where the Master File and Local Files for the taxable year in which the enforcement date of this Decree falls must be submitted.
Article 10 (Applicability to Scope of Data Requested by Tax Authority and Method of Submission Thereof)
The amended provisions of Article 38 (2) shall begin to apply to the taxable years that commence on or after January 1, 2020.
Article 11 (Applicability to Scope of Information on Beneficial Owner)
The amended provisions of Article 73 shall begin to apply to the taxable years that commence on or after January 1, 2020.
Article 12 (Applicability to Applications for Commencing Mutual Agreement Procedures)
The amended provisions of Article 83 (5) shall also apply where applications for commencing mutual agreement procedures have been filed from February 7, 2017 until this Decree enters into force.
Article 13 (Applicability to Extension of Deadline for Payment upon Mutual Agreement)
The amended provisions of Article 91 (2) 1 shall begin to apply to applications for extension of the payment deadline, etc. upon mutual agreement filed after this Decree enters into force.
Article 14 (Applicability to Criteria for Imposing Administrative Fines for Noncompliance with Obligation to Report Foreign Financial Accounts)
The amended provisions of Article 102 (3) shall begin to apply to cases where a person must file a report on foreign financial accounts held by him or her during the year in which the enforcement date of this Decree falls.
Article 15 (General Transitional Measures)
Notwithstanding the amended provisions of this Decree, the previous provisions shall apply to income tax and corporate tax imposed or to be imposed pursuant to the previous provisions as at the time this Decree enters into force.
Article 16 (Transitional Measures concerning Scope of Special Relationship)
(1) Notwithstanding the amended provisions of Article 2, the previous Enforcement Decree of the Adjustment of International Taxes Act (referring to all the previous provisions excluding the provisions which have already lost their effect due to the lapse of the period, etc.) before this Decree enters into force shall apply to the taxable years that commence before January 1, 2021.
(2) For the purposes of paragraph (1), Article 2 (1) 4 and 5 of the Enforcement Decree of the Adjustment of International Taxes Act (Presidential Decree No. 19650) shall begin to apply to the taxable year in which August 24, 2006 falls.
(3) For the purposes of paragraph (1), Article 2 (1) and (2) of the Enforcement Decree of the Adjustment of International Taxes Act (Presidential Decree No. 17832) shall begin to apply to transactions made after January 1, 2003.
(4) For the purposes of paragraph (1), Article 2 (1) 4 (a) of the Enforcement Decree of the Adjustment of International Taxes Act (Presidential Decree No. 17045) shall begin to apply to cases where a former executive officer or former employee of one corporation on or before January 1, 2001 becomes the representative director or an executive officer of the other corporation after January 1, 2001.
Article 17 (Transitional Measures concerning Supplementation for Arm's Length Pricing Methods)
Notwithstanding the amended provisions of Article 11, Article 6 (7) of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 27837 shall apply to fund transactions made between a resident and a foreign related party before February 7, 2017.
Article 18 (Transitional Measures concerning Arm's Length Pricing Methods for Intra-Group Services)
(1) Notwithstanding the amended provisions of Article 12, Article 6-2 of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 30405 shall apply to the taxable years that commence before January 1, 2020.
(2) For the purposes of paragraph (1), Article 6-2 of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 29525 shall apply where a payment guarantee agreement was concluded before February 12, 2019, notwithstanding Article 6-2 (4) of the Enforcement Decree of the Adjustment of International Taxes Act (Presidential Decree No. 29525). In such cases, Article 6-2 (3) through (5) of the Enforcement Decree of the Adjustment of International Taxes Act (Presidential Decree No. 24365) shall begin to apply to cases where a payment guarantee is provided after February 15, 2013.
Article 19 (Transitional Measures concerning Order of Return of Amount to Be Included in Gains)
Notwithstanding the amended provisions of Article 22 (3), Article 15-2 of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 24365 shall apply where the amount included in gains was returned before February 15, 2013.
Article 20 (Transitional Measures concerning Application for Adjustment of Tax Base and Tax Amount under Advance Pricing Agreements)
Notwithstanding the amended provisions of Article 31 (1), the previous Article 17 (1) shall apply where three months have passed after the results of a mutual agreement was notified pursuant to Article 47 (2) of the Act before this Decree enters into force.
Article 21 (Transitional Measures concerning Submission of Consolidated Reports on International Transaction Information through Information and Communications Networks)
Notwithstanding the amended provisions of Articles 34 (3) and 35 (4), Article 21-2 (5) of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 30405 shall apply to a Master File and Local Files that were obliged to be submitted before February 11, 2020.
Article 22 (Transitional Measures concerning Method of Calculating Non-Deductible Expenses)
(1) Notwithstanding the amended provisions of Articles 45, 48, and 50, Articles 25 and 27 of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 26078 shall apply to the taxable years that commence before January 1, 2015.
(2) For the purposes of paragraph (1), Articles 25 (1) and 27 (2) of the Enforcement Decree of the Adjustment of International Taxes Act (Presidential Decree No. 22574) shall begin to apply to the portion not included in deductible expenses after December 30, 2010.
Article 23 (Transitional Measures concerning Amount Equivalent to Interest Paid on Hybrid Financial Instrument Transactions)
Notwithstanding Article 28-4 (7) 2 of the Enforcement Decree of the Adjustment of International Taxes Act (Presidential Decree No. 29525), Article 28-4 (7) 2 of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 29525 shall apply to the interest rate for the period until the day preceding February 12, 2019, during the period that is the basis for calculating the amount equivalent to interest under the amended provisions of Article 59 (3) 2, where a tax is paid or assessed on or after February 12, 2019.
Article 24 (Transitional Measures concerning Scope of Specific Country)
(1) An area designated and publicly notified pursuant to Article 30 (1) of the Enforcement Decree of the Adjustment of International Taxes Act (Presidential Decree No. 19650) before February 18, 2010 shall be deemed a specific country, etc. under the amended provisions of Article 62.
(2) Notwithstanding the amended provisions of Article 62 (1), Article 30 (2) of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 18628 shall apply to the taxable years that commence before January 1, 2005.
Article 25 (Transitional Measures concerning Scope of Related Persons)
Notwithstanding the amended provisions of Article 63, Article 30-2 of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 26078 shall apply to the taxable years that commence before January 1, 2015. In such cases, Article 30-2 of the Enforcement Decree of the Adjustment of International Taxes Act (Presidential Decree No. 24365) shall begin to apply to the taxable year in which February 15, 2013 falls.
Article 26 (Transitional Measures concerning Scope of Controlled Foreign Companies Excluded from Accumulative Taxation on Retained Earnings)
Notwithstanding the amended provisions of Article 64 (3), Article 36-3 (1) of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 23600 shall apply to the requirements regarding the scope of a controlled foreign company not subject to the accumulative taxation on retained earnings for the taxable year reported before February 2, 2012.
Article 27 (Transitional Measures concerning Requirements for Judgment of Scope of Application)
(1) Notwithstanding the amended provisions of Article 65, Article 35 of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 24365 shall apply to the taxable year that commenced before February 15, 2013, which is not the taxable year in which February 15, 2013 falls.
(2) For the purposes of paragraph (1), the proviso of Article 35 (1) 1 of the Enforcement Decree of the Adjustment of International Taxes Act (Presidential Decree No. 19650) shall apply, counting from the business year in which August 24, 2006 falls, and Article 35 (2) of the Enforcement Decree of the Adjustment of International Taxes Act (Presidential Decree No. 17832) shall begin to apply to transactions made after January 1, 2003.
Article 28 (Transitional Measures concerning Judgment on Exceptional Application of Controlled Foreign Companies’ Retained Earnings Deemed Dividends)
(1) Notwithstanding the amended provisions of Article 65 (4), Article 36-3 (1) of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 30405 shall apply to the taxable years that commence before January 1, 2020.
(2) For the purposes of paragraph (1), the amended provisions of Article 36-3 (1) of the Enforcement Decree of the Adjustment of International Taxes Act (Presidential Decree No. 25200) shall begin to apply to the taxable year in which January 1, 2015 falls.
Article 29 (Transitional Measures concerning Method for Exclusion of Actual Dividends from Taxable Gains)
(1) Notwithstanding the amended provisions of Article 68, Article 36-5 of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 23600 shall apply where a taxable year reported before February 2, 2012 is not the taxable year in which February 2, 2012 falls.
(2) For the purposes of paragraph (1), Article 36-5 (1) and (2) of the Enforcement Decree of the Adjustment of International Taxes Act (Presidential Decree No. 19650) shall begin to apply to dividends that a controlled foreign company has actually paid to Korean nationals after August 24, 2006.
Article 30 (Transitional Measures concerning Submission of Taxable Data regarding Controlled Foreign Companies)
Notwithstanding the amended provisions of Article 70 (2), Article 37 (2) of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 30405 shall apply to the taxable years that commence before January 1, 2020.
Article 31 (Transitional Measures concerning Public Notice Given under Previous Provisions)
Public notice given by the Minister of Economy and Finance pursuant to Article 47 (11) of the Enforcement Decree of the Adjustment of International Taxes Act (Presidential Decree No. 26958) (including public notice given by the Financial Services Commission pursuant to Article 47 (9) of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 26958) shall be deemed given by the Minister of Economy and Finance pursuant to the amended provisions of Article 76.
Article 32 (Transitional Measures concerning Reporting on Foreign Financial Accounts)
(1) Notwithstanding the amended provisions of Articles 93 (2) and 94, Article 50 (2) and (4) of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 29525 shall apply where the obligation to report a foreign financial account arose before the taxable year in which February 12, 2019 falls.
(2) Notwithstanding the amended provisions of Articles 92 (3), Article 49 (1) of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 28643 shall apply where a person files a report on foreign financial accounts held by him or her during the taxable year before February 13, 2018, which is not the taxable year in which February 13, 2018 falls.
Article 33 (Transitional Measures concerning Change of Reduction Rates of Administrative Fines for Noncompliance with Obligation to Report Foreign Financial Accounts)
Notwithstanding the amended provisions of Article 102 (4) 1 and 2, Article 51 (6) 1 and 2 of the Enforcement Decree of the Adjustment of International Taxes Act before being amended by Presidential Decree No. 30405 shall apply to revised reports or overdue reports filed before February 11, 2020.
Article 34 (Transitional Measures concerning Scope of Application of Previous Addenda)
The provisions of the Addenda following the amendment of the Enforcement Decree of the Adjustment of International Taxes Act before this Decree enters into force shall remain effective even after this Decree enters into force, except for those which have already been invalidated due to the lapse of the period, etc.
Article 35 Omitted.
Article 36 (Relationship to Other Statutes or Regulations)
A citation of any provision of the previous Enforcement Decree of the Adjustment of International Taxes Act in other statutes or regulations as at the time this Decree enters into force shall be deemed a citation of the relevant provisions of this Decree in lieu of the previous provisions, if such relevant provisions exist herein.
ADDENDA <Presidential Decree No. 32274, Dec. 28, 2021>
Article 1 (Enforcement Date)
This Decree shall enter into force on December 30, 2021.
Articles 2 through 14 Omitted.
ADDENDA <Presidential Decree No. 32423, Feb. 15, 2022>
Article 1 (Enforcement Date)
This Decree shall enter into force on the date of its promulgation: Provided, That the amended provisions of Articles 42 and 43-2 shall enter into force on July 1, 2022.
Article 2 (General Application)
This Decree shall begin to apply to the taxable years that commence after January 1, 2022.
Article 3 (Applicability to Methods for Calculating Normal Interest Rate on Monetary Loan Transactions)
The amended provisions of Article 11 (2) 1 and 2 shall also apply where a normal interest rate on a monetary loan transaction which occurred in the taxable year that includes the date on which this Decree enters into force.
Article 4 (Applicability to Arm's Length Pricing Methods for Cash Pooling Transactions)
The amended provisions of Article 11-2 shall also apply to cases where the arm's length price is computed for cash pooling transactions incurred in the taxable year that includes the date on which this Decree enters into force.
Article 5 (Applicability to Application of Arm's Length Pricing Methods)
The amended provisions of Article 15 (7) shall begin to apply to reports on, or determinations or rectifications of, the tax base and tax amount filed after this Decree enters into force.
Article 6 (Applicability to Deadline for Filing Application for Foreign Tax Credits for Overseas Donation)
The amended provisions of Article 72 (5) shall also apply to cases where a notice of gift tax was received by a foreign government before this Decree enters into force and three months have not passed since the date of such notice as at the time this Decree entered into force.
Article 7 (Transitional Measures concerning Expiration of Period of Existence of Tax Adjustment Review Committee)
(1) Where a person liable to pay tax applies for an adjustment of the arm’s length price for national tax and the customs value pursuant to Article 20 (1) of the Act before the date of the enforcement of the proviso of Article 1 of the Addenda, the relevant tax adjustment shall be made by the Tax Adjustment Review Committee pursuant to the previous provisions, notwithstanding the amended provisions of Articles 42 and 43.
(2) Notwithstanding Article 2 of the Addenda wholly amended by the Enforcement Decree of the Adjustment of International Taxes Act (Presidential Decree No. 31448), the Tax Adjustment Review Committee shall continue to exist until the tax adjustment is completed pursuant to paragraph (1).
Article 8 (Transitional Measures concerning Rates Applicable to Calculation of Amount Equivalent to Interests on Hybrid Financial Instruments Paid following Inclusion in Gains)
Where the corporate tax plus the amount equivalent to interests is paid under the latter part of Article 25 (2) of the Act after this Decree enters into force, the previous provisions shall apply to the rate applicable to the calculation of the amount equivalent to interest for the period until this Decree enters into force notwithstanding the amended provisions of Article 59 (3) 2, and the amended provisions of Article 59 (3) 2 shall apply to the rate applicable to the calculation of the amount equivalent to interest for the period after this Decree enters into force.
ADDENDA<Presidential Decree No. 33140, Dec. 27, 2022>
Article 1 (Enforcement Date)
This Decree shall enter into force on the date of its promulgation.
Article 2 Omitted
Articles 3 Omitted.
ADDENDA <Presidential Decree No. 33272, Feb. 28, 2023>
Article 1 (Enforcement Date)
This Decree shall enter into force on the date of its promulgation.
Article 2 (Applicability to Exemption from Obligation to Submit Data on International Transactions)
The amended provisions of Article 36 shall begin to apply to international transactions in the taxable year that begins after January 1, 2023.
ADDENDA <Presidential Decree No. 34064, Dec. 29, 2023>
This Decree shall enter into force on January 1, 2024: Provided, That the following amended provisions shall enter into force on January 1, 2025:
1. Amended provisions of Article 109 (2) 3;
2. The amended part of "and Article 73" in the amended provisions of Article 121 (2);
3. Amended provisions of Article 125;
4. The amended part of "and Article 73" in the amended provisions, with the exception of the subparagraphs, of Article 130 (3), and the amended provisions of subparagraph 2 of the aforesaid paragraph;
5. Amended provisions of Article 131 (1) 4;
6. Amended provisions of Article 140.