CHAPTER I GENERAL PROVISIONS
The purpose of this Act is to prevent double taxation and tax avoidance and to facilitate cooperation in tax affairs among countries by prescribing matters regarding adjustment of tax on international transactions, international cooperation in tax administration, reports on foreign assets and submission of related data, and imposition of global anti-base erosion tax. <Amended on Dec. 31, 2022>
| (1) | The terms used in this Act are defined as follows: |
| 1. | The term “international transaction” means a transaction in which either or both of the parties are nonresidents or foreign corporations (excluding a domestic place of business of a nonresident or foreign corporation), including trading or leasing tangible or intangible assets, providing services, lending or borrowing money, and all other transactions involving profits or losses and property of the parties; |
| 2. | The term “domestic place of business” means the following: |
| 3. | The term “special relationship” means any of the following relationships, for which the detailed criteria shall be prescribed by Presidential Decree: |
| (a) | A relationship between the parties to a transaction where either party to a transaction owns directly or indirectly at least 50 percent of the voting stocks (including the equity shares; hereinafter the same shall apply) of the other party; |
| (b) | A relationship between the parties to a transaction where a third party or a person prescribed by Presidential Decree including his or her relatives owns directly or indirectly at least 50 percent of voting stocks of both parties; |
| (c) | A relationship between the parties to a transaction where both parties have a common interest in the adjustment of income depending on the equity investment relationship, transaction relations of goods and services, monetary lending relationship, etc. and either party to the transaction has the power to substantially determine the business policy of the other party; |
| (d) | A relationship between the parties to a transaction where both parties have a common interest in the adjustment of income depending on the equity investment relationship, transaction relations of goods and services, monetary lending relationship, etc. and a third party has the power to substantially determine the business policies of both parties; |
| 4. | The term “foreign related party” means a nonresident or foreign corporation (excluding a domestic place of business of a nonresident or foreign corporation) in a special relationship with a resident, domestic corporation, or domestic place of business; |
| 5. | The term “arm’s length price” means a price that is applied or deemed to be applied by a resident, domestic corporation, or domestic place of business in an ordinary transaction with a person other than a foreign related party; |
| 6. | The term “tax authority” means the head of a tax office having jurisdiction over the place for tax payment or the commissioner of a regional tax office; |
| 7. | The term “tax treaty” means any type of international agreement governed by international law, such as treaties, conventions, agreements, or notes which the Republic of Korea enters into with another State (including a region to which unique tax laws apply) with respect to taxation on income, capital, and property or cooperation in tax administration; |
| 8. | The term “Contracting State” means any country that enters into a tax treaty with the Republic of Korea; |
| 9. | The term "competent authority" means the following persons: |
| (a) | For the Republic of Korea: The Minister of Economy and Finance or any person delegated with his or her authority; |
| (b) | For a Contracting State: A person designated as the competent authority in a tax treaty; |
| 10. | The term “mutual agreement procedure” means a procedure by which application and interpretation of tax treaties, unreasonable taxation, or adjustment of taxable income is resolved through consultations between the competent authority of the Republic of Korea and that of the other Contracting State. |
| Article 3 (Substance over Form Principle regarding International Transactions) |
| (1) | In an international transaction, if any ownership of the taxable income, earnings, property, act, or transaction is just nominal and there is another person to whom such income, etc., belongs, the other person shall be liable to pay taxes and governed by tax treaties. |
| (2) | In an international transaction, tax treaties shall apply to the provisions regarding the computation of tax base according to the substance of a transaction, regardless of the name or form of the taxable income, earnings, property, act, or transaction. |
| (3) | In an international transaction, if deemed that both parties have conducted such transaction either indirectly through a third party or via at least two acts or transactions (hereafter in this Article referred to as “roundabout transaction”) to benefit wrongfully from this Act and tax treaties, this Act and tax treaties shall apply according to the economic substance of the transaction, assuming that such transaction has been conducted directly by both parties or such acts or transactions are a single continuous act or transaction. |
| (4) | 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 (excluding where the amount of the relevant roundabout transaction, the reduced amount of the tax burden to be paid to the Republic of Korea, and other relevant factor meet the requirements prescribed by Presidential Decree), paragraph (3) shall apply on the presumption that such transaction is made to benefit wrongfully from this Act and tax treaties unless it is verified that the taxpayer has no intention of avoiding taxes, such as the fact that the relevant roundabout transaction has a legitimate business objective. |
| (5) | For the purposes of paragraph (4), the calculation of the tax burden to be paid to the Republic of Korea and other necessary matters shall be prescribed by Presidential Decree. |
| Article 4 (Relationship to Other Statutes) |
| (1) | This Act shall take precedence over other statues providing for national taxes and local taxes. |
| Article 5 (Relationship between Tax Laws and Tax Treaties) |
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 6 (Reporting and Rectification Claim by Arm’s Length Price) |
In an international transaction with a foreign related party in which the transfer price is lower or higher than the arm’s length price, a resident (including a domestic corporation and a domestic place of business; hereafter in this Section the same shall apply) may file a report on, or a rectification claim for, the tax base or the amount of tax adjusted based on the arm’s length price with the head of a tax office having jurisdiction over the place for tax payment by any of the following deadlines, along with a report on adjustment of transfer price prescribed by Ordinance of the Ministry of Economy and Finance: <Amended on Dec. 21, 2021>
| Article 7 (Determination and Rectification by Arm’s Length Price) |
| (1) | In an international transaction between a resident and a foreign related party in which relevant transfer price is lower or higher than the arm's length price, the tax authority may determine or rectify the resident's tax base and tax amount on the basis of the arm's length price. |
| (2) | For the purposes of applying paragraph (1), where a tax authority computes an arm's length price for at least two taxable years by applying the same arm’s length pricing method among the methods prescribed in Article 8 and determines or rectifies the tax base and tax amount for some taxable years on the basis of the arm's length price, the tax authority shall also determine or rectify the tax base and tax amount on the basis of such arm's length price for the remaining taxable years. |
| (3) | Paragraphs (1) and (2) shall not apply where a taxpayer clearly proves that he or she is not in any of the special relationships provided in Article 2 (1) 3 (c) or (d). |
| Article 8 (Arm’s Length Pricing Method) |
| (1) | The arm’s length price shall be calculated by the most reasonable method among the following methods, in consideration of the terms and conditions of transaction, such as the characteristics and functions of goods or services and the economic environment, which are applied or deemed to be applied in an ordinary transaction with a person other than a foreign related party: Provided, That the method provided in subparagraph 6 shall apply only where the arm’s length price may not be computed by the methods provided in subparagraphs 1 through 5: |
| 1. | Comparable uncontrolled price method: A method of regarding the transfer price between the independent, unrelated parties as the arm’s length price in a transaction similar to an international transaction between a resident and a foreign related party; |
| 2. | Resale price method: In cases where a purchaser who is one party in an international transaction between a resident and a foreign related party makes resale to any unrelated person, a method of regarding the amount computed by deducting the amount viewable as arm’s length profits of the purchaser from the resale price, as the arm’s length price; |
| 3. | Cost plus method: In cases where one party in an international transaction between a resident and a foreign related party produces or sells assets or provides services, a method of regarding the price computed by adding the amount viewable as arm's length profits of the seller of assets or the service provider to the cost incurred in the course of production or sale of the assets or provision of the services, as the arm's length price; |
| 4. | Transactional net margin method: A method of regarding a transfer price calculated on the basis of an ordinary transactional net profit ratio realized in a transaction between a resident and an unrelated person among transactions similar to international transactions between a resident and a foreign related party, as the arm's length price; |
| 5. | Profit split method: A method of sharing a net trade profit created by both parties in an international transaction between a resident and a foreign related party, in proportion to each party's relative contribution which has been measured by reasonable allocation standards; and regarding the transfer price calculated on the basis of such shared profit as the arm's length price; |
| 6. | Other methods deemed reasonable as prescribed by Presidential Decree. |
| (2) | For the purposes of applying paragraph (1), the tax authority shall clearly grasp the substantial content of the relevant international transaction, considering commercial or financial relations between the resident and the foreign related party and the important transactional terms and conditions in such international transaction, and shall decide on whether such international transaction is commercially rational in comparison with transactions between independent, unrelated parties in circumstances involving transactions similar to the aforesaid international transaction. |
| (3) | Where a decision made pursuant to paragraph (2) finds that the international transaction between the resident and the foreign related party is not commercially rational and that it is significantly difficult to compute an arm’s length price based on such international transaction, the tax authority may, based on the economic substance of that transaction, consider such transaction as if it had not occurred, or apply paragraph (1) by re-characterizing it as a new transaction in a rational manner. |
| (4) | Detailed matters regarding the arm’s length pricing method provided in paragraphs (1) through (3) shall be prescribed by Presidential Decree. |
| Article 9 (Determination and Rectification by Arm’s Length Cost Sharing) |
| (1) | Where a resident and a foreign related party conclude an agreement on the sharing of costs, expenses, and risks (hereafter in this Article referred to as “costs, etc.”) in advance and thereunder jointly develop or secure an intangible asset (hereafter in this Article referred to as "joint development”), the tax authority may determine or rectify the tax base and tax amount of the resident based on the arm’s length share of costs, if the amount of the costs, etc. allotted to the resident is less or more than the arm’s length share of costs. |
| (2) | The arm’s length share of costs under paragraph (1) is the allotted amount applied or deemed to be applied by a resident in an agreement on arm’s length cost sharing with a person other than a foreign related party and shall be calculated by allotting the costs, etc. for jointly developing an intangible asset in proportion to the benefits expected from such intangible asset (hereafter in this Article referred to as "expected benefits”): Provided, That where costs, etc. are deemed not shared in accordance with the initial agreement due to a natural disaster or any other force majeure cause, the amount recalculated in consideration of the relevant cause may be the arm's length share of costs. <Amended on Dec. 21, 2021> |
| (3) | Where a resident and a foreign related party conclude an agreement to determine shares of respective participants by reasonably allotting the costs, etc. for a jointly developed intangible asset but the expected benefits from such intangible asset are subsequently changed by not less than the rate prescribed by Presidential Decree, comparing to the expected benefits initially assessed as at the time of concluding the agreement, the tax authority may determine or rectify the tax base and tax amount of the resident by adjusting the original shares of the participants based on the expected benefits as changed. |
| (4) | For the purposes of applying paragraphs (1) through (3), the scope of intangible assets, the assessment of the arm’s length share of costs and expected benefits, the computation of the changed shares of participants, and other necessary matters shall be prescribed by Presidential Decree. |
| Article 10 (Transaction Involving Third Party) |
Even when a resident engages in an international transaction with a person, other than a foreign related party, if the transaction satisfies all of the following criteria, Articles 6 through 9 shall apply to the transaction assuming that such transaction is conducted with a foreign related party: | 1. | The relevant resident and a foreign related party have made prior arrangements (including where a substantial agreement is deemed to have been reached in advance based on evidence of transaction; hereinafter the same shall apply) for the transaction; |
| 2. | The terms and conditions of the transaction have been substantially determined between the relevant resident and a foreign related party. |
| Article 11 (Recognition of Offset Transactions) |
| (1) | Even in an international transaction in which the transfer price is lower or higher than the arm's length price, if all of the following requirements are met, Articles 6 through 8 shall apply treating all the international transactions so offset as a single international transaction: |
| 1. | A resident shall enter into an agreement in advance with the same foreign related party to offset the difference through another international transaction conducted during the same taxable year; |
| 2. | The relevant resident shall prove the prior agreement and details of the offset transaction. |
| Article 12 (Countermeasures against Tax Adjustment by Contracting States) |
| (1) | Where any Contracting State adjusts a transfer price between a resident and a foreign related party at the arm’s length price and the mutual agreement procedure thereon is completed, the tax authority may adjust and calculate the tax base and tax amount of the resident for each taxable year according to the relevant agreement. |
| (2) | A resident who intends to have the tax base and tax amount adjusted for each taxable year pursuant to paragraph (1) shall file a revised return or a rectification claim, as prescribed by Presidential Decree. |
| Article 13 (Disposal of Income and Tax Adjustment) |
| (1) | Pursuant to Articles 6, 7, 9, 12, and 15, where it is not verified that the amount to be included in gains of a domestic corporation has been returned by a foreign related party to such corporation as prescribed by Presidential Decree, such amount shall be disposed of as a dividend to, or adjusted as an investment in, the foreign related party as prescribed by Presidential Decree, notwithstanding Article 67 of the Corporate Tax Act. |
| (2) | The amount not returned to a foreign related party among the income of a resident, the amount of which has been reduced pursuant to Articles 6, 7, 9, 12, and 15, shall be deemed the income not included in the gross income pursuant to subparagraph 2 of Article 18 of the Corporate Tax Act, and thereby shall not be included in the gross income of a domestic corporation or shall not be deemed the income of a resident (referring to a resident other than a domestic corporation). |
| (3) | For the purposes of applying paragraphs (1) and (2), the method of disposal of income and other necessary matters shall be prescribed by Presidential Decree. |
Sub-Section 2 Advance Pricing Agreements
| Article 14 (Application for Advance Pricing Agreements and Approval Therefor) |
| (1) | Where a resident intends to apply a specific arm's length pricing method for a specific period of taxable years, he or she may file an application for an advance pricing agreement with the Commissioner of the National Tax Service by the day before the start date of the first taxable year among the specific period of taxable years to which the arm’s length pricing method is to be applied, as prescribed by Presidential Decree. |
| (2) | Upon receipt of a resident’s application for an advance pricing agreement pursuant to paragraph (1), the Commissioner of the National Tax Service may accept such application if agreed with the competent authority of the other Contracting State by mutual agreement, as prescribed by Presidential Decree: Provided, That the Commissioner may accept such application even without undergoing the mutual agreement procedure (hereinafter referred to as “unilateral advance pricing agreement”) in cases prescribed by Presidential Decree. |
| (3) | Where a resident files an application for the retroactive application of an arm's length pricing method to a taxable year before the proposed period of the advance pricing agreement along with an application for an advance pricing agreement under paragraph (1), the Commissioner of the National Tax Service may approve the retroactive application of the method, to the extent that the exclusion period for the imposition of national taxes under the proviso of Article 26-2 (1) of the Framework Act on National Taxes (or the time limit specified in the main clause, with the exception of the subparagraphs, of Article 45-2 (1) of that Act, in cases of a unilateral advance pricing agreement) has not elapsed. |
| Article 15 (Compliance with Terms and Conditions of Advance Pricing Agreements) |
| (1) | Where an arm's length pricing method is agreed upon pursuant to Article 14, the relevant resident and the Commissioner of the National Tax Service shall follow the agreed method: Provided, That the agreed method need not be followed in cases prescribed by Presidential Decree. |
| (2) | Where an arm's length pricing method is agreed upon pursuant to Article 14, the relevant resident shall report the tax base and tax amount computed by the approved method to the head of a tax office having jurisdiction over the place for tax payment by the deadline specified in subparagraph 1 of Article 6 every year; and if necessary, the resident shall file a revised return or a rectification claim, as prescribed by Presidential Decree. |
| (3) | Where an arm's length pricing method is agreed upon pursuant to Article 14, the relevant resident shall submit a report containing the arm's length price computed by the method and the process of computation, etc. to the Commissioner of the National Tax Service each year within the taxable period under Article 5 of the Income Tax Act or within 12 months from the end of the month in which the end date of the business year under Article 6 of the Corporate Tax Act falls, as prescribed by Presidential Decree. |
Sub-Section 3 Submission of Data on International Transactions and Special Cases on Application of Penalty Taxes
| Article 16 (Obligation to Submit Data on International Transactions) |
| (1) | The following taxpayers shall submit a Master File, Local Files, and Country-by-Country Reports prescribed by Presidential Decree regarding their business activities, the details of transactions, etc. (hereinafter referred to as “consolidated report on international transaction information”) to the head of a tax office having jurisdiction over the place for tax payment within 12 months from the end of the month in which the end date of the business year under Article 6 of the Corporate Tax Act falls, as classified in the following: |
| 1. | A taxpayer who meets the requirements prescribed by Presidential Decree, in terms of the turnover and the volume of international transactions with a foreign related party: A Master File and Local Files; |
| 2. | A taxpayer who meets the requirements prescribed by Presidential Decree, in terms of turnover, etc.: Country-by-Country Reports. |
| (2) | A taxpayer that conducts international transactions with a foreign related party (excluding a taxpayer required to submit a Master File and Local Files under paragraph (1) 1) shall submit the following documents to the head of a tax office having jurisdiction over the place for tax payment within the taxable period under Article 5 of the Income Tax Act or within six months from the end of the month in which the end date of the business year under Article 6 of the Corporate Tax Act falls: Provided, That where the taxpayer meets the requirements prescribed by Presidential Decree, he or she shall be exempted from the obligation to submit the documents specified in subparagraphs 1 through 3: <Amended on Dec. 31, 2022> |
| 1. | A statement of international transactions in the form prescribed by Ordinance of the Ministry of Economy and Finance (hereinafter referred to as “statement of international transactions”); |
| 2. | A summary income statement of a foreign related party in the form prescribed by Ordinance of the Ministry of Economy and Finance (hereafter in this Article referred to as "summary income statement”); |
| 3. | A report on arm's length pricing method in the form prescribed by Ordinance of the Ministry of Economy and Finance (hereafter in this Article referred to as "report on arm's length pricing method”). |
| (3) | Where a taxpayer is unable to submit a consolidated report on international transaction information, a statement of international transactions, a summary income statement, or a report on arm's length pricing method by the deadline specified in paragraph (1) or (2) due to any unavoidable cause prescribed by Presidential Decree and files an application to extend such deadline, the head of a tax office having jurisdiction over the place for tax payment may extend the deadline for submission by up to one year. |
| (4) | For the purposes of applying Articles 7 through 9, the tax authority may request a taxpayer to submit related data, such as the method of computing transfer prices, as prescribed by Presidential Decree. |
| (5) | A taxpayer in receipt of a request to submit data pursuant to paragraph (4) shall submit the relevant data within 60 days from the date of receiving such request: Provided, That where a taxpayer applies for an extension of the deadline for submission for good cause prescribed by Presidential Decree, the tax authority may approve the extension of the deadline for submission only once by up to 60 days. |
| (6) | Where a taxpayer in receipt of a request to submit data pursuant to paragraph (4) fails to submit data by the deadline without good cause prescribed by Presidential Decree and submits the data at the time of applying for appeal, or of undergoing the mutual agreement procedure, the tax authority and related agencies need not use such data for taxation. |
| (7) | Where a taxpayer required to submit a Master File and Local Files pursuant to paragraph (1) 1 or a taxpayer in receipt of a request to submit data prescribed by Presidential Decree regarding the calculation of arm's length price, among the data referred to in paragraph (4), fails to submit the data by the deadline without good cause prescribed by Presidential Decree, the tax authority may apply Articles 7 and 9 presuming the arm’s length price and the arm’s length share of costs in a rational manner, on the basis of data available to the tax authority including data acquired from business entities engaging in similar business. |
| (8) | Matters necessary for the detailed scope, methods, procedures, etc. of the submission of a consolidated report on international transaction information or a statement of international transactions shall be prescribed by Presidential Decree. |
| Article 17 (Special Cases regarding Application of Penalty Taxes) |
| 1. | Where it is verified by the mutual agreement procedure that a taxpayer has not been negligent with regard to the difference between the transfer price reported by the taxpayer and the arm’s length price; |
| 2. | Where a taxpayer has entered into a unilateral advance pricing agreement, and the Commissioner of the National Tax Service determines that the taxpayer has not been negligent with regard to the difference between the transfer price reported and the arm’s length price; |
| 3. | Where a taxpayer keeps and provides data verifying the arm's length pricing method applied in filing his or her income tax or corporate tax return or submits Local Files pursuant to Article 16 (1) by the deadline, and is acknowledged as having selected and applied the arm's length pricing method based on rational decision-making. |
| (2) | Whether a taxpayer has been negligent or made rational decisions under the subparagraphs of paragraph (1) shall be determined in accordance with the standards prescribed by Presidential Decree. |
Sub-Section 4 Adjustment of Arm’s Length Prices for National Taxes and Customs Value
| Article 18 (Pre-Adjustment of Arm’s Length Pricing Method for National Taxes and Method for Customs Valuation) |
| (1) | A resident who applies for an advance pricing agreement on national tax pursuant to Article 14 (1) (limited to cases subject to a unilateral advance pricing agreement) may file an application for advance agreement on the method for customs valuation under Article 37 (1) 3 of the Customs Act (hereafter in this Article referred to as “advance customs value agreement”) with the Commissioner of the National Tax Service, for pre-adjustment of the arm’s length price for national tax and the customs value (hereafter in this Article referred to as “pre-adjustment”). |
| (2) | Upon receipt of an application under paragraph (1), the Commissioner of the National Tax Service shall notify the Commissioner of the Korea Customs Service of such receipt, along with an application for advance customs valuation agreement, and shall consult with the Commissioner of the Korea Customs Service about the arm's length pricing method, the method for customs valuation, and the range of price to be pre-adjusted, as prescribed by Presidential Decree. |
| (3) | The Commissioner of the National Tax Service shall make a pre-adjustment based on the results of consultation under paragraph (2). |
| (4) | The Commissioner of the National Tax Service shall notify the applicant for pre-adjustment and the Minister of Economy and Finance of the results of processing the application under paragraph (1). |
| (5) | Matters necessary for the methods and procedures, etc. for filing an application for pre-adjustment under paragraphs (1) through (4) shall be prescribed by Presidential Decree. |
| Article 19 (Requests for Rectification of National Taxes Following Rectification of Customs Value) |
| (1) | Where a taxpayer has submitted a return on his or her income tax base or corporate tax base to the tax authority in connection with the import transaction of goods from a foreign related party and, subsequently, any difference occurs between the customs value and the transfer price used for computing the tax base and tax amount of the income tax or corporate tax returned due to a rectification made by the head of a customs office under Article 38-3 (6) of the Customs Act, the taxpayer may file a claim for rectifying the tax base and tax amount of the income tax or corporate tax with the tax authority, as prescribed by Presidential Decree. In such cases, the taxpayer shall file a rectification claim within three months from the date he or she becomes aware of the rectification by the head of the customs office (or from the date of receipt, where he or she receives notice of such rectification). |
| (2) | Upon receipt of a claim for rectification under paragraph (1), the tax authority may rectify the tax amount if he or she deems that, in connection with the relevant transaction, the method of, and grounds, etc. for, computation of the transfer price of the imported goods used for calculating the tax base and tax amount of the income tax or corporate tax conform to Article 8. |
| (3) | The tax authority shall rectify the tax base and tax amount or notify the claimant of the purport that no ground exists to make a rectification, within two months from the date of receiving the claim for rectification under paragraph (1). |
| Article 20 (Adjustment of Taxation on Arm’s Length Prices for National Taxes and Customs Value) |
| (1) | A taxpayer may file an application with the Minister of Economy and Finance for adjustment of the arm’s length price for national tax and the customs value within 30 days from the date of receiving notice under Article 19 (3) (or upon expiration of two months if he or she receives no notice within two months). |
| (2) | Where a taxpayer files an application for adjustment pursuant to paragraph (1), the Minister of Economy and Finance may recommend the competent tax authority or the head of the relevant customs office to adjust the arm’s length price for national tax and the customs value. In such cases, the Minister of Economy and Finance shall request an implementation plan for the recommendation for adjustment (in cases of non-implementation, including the grounds therefor) from the tax authority or the head of the customs office and shall notify the taxpayer thereof within 90 days from the date of receiving such application for adjustment. |
| (3) | Matters necessary for filing an application for adjustment, the methods of adjustment, etc. under paragraphs (1) and (2) shall be prescribed by Presidential Decree. |
| Article 21 (Provision of Information on Taxation of Customs Value) |
| (1) | The tax authority may request information or data prescribed by Presidential Decree from the head of a customs office where necessary to impose and collect taxes in relation of an international transaction and to adjust the arm’s length price for national tax and the customs value. |
| (2) | The head of a customs office in receipt of a request under paragraph (1) shall comply therewith unless there is a good reason not to do so. |
SECTION 2 ADJUSTMENT OF TAX ON INTEREST PAID TO FOREIGN CONTROLLING STOCKHOLDERS
| Article 22 (Exclusion of Interest Paid on Excessive Borrowings Compared to Amount of Investment from Deductible Expenses) |
| (1) | For the purposes of this Section, the term "foreign controlling stockholder" means a person classified in the following who substantially controls either a domestic corporation or a domestic place of business of a foreign corporation, for which the specific criteria shall be prescribed by Presidential Decree: |
| 1. | In cases of a domestic corporation: Any of the following persons: |
| (a) | A foreign stockholder or investor (hereinafter referred to as "foreign stockholder"); |
| (b) | A foreign corporation financed by a foreign stockholder under item (a); |
| 2. | In cases of a domestic place of business of a foreign corporation: Any of the following persons: |
| (a) | The head office or a branch office of the foreign corporation; |
| (b) | A foreign stockholder of the foreign corporation; |
| (c) | Another foreign corporation financed by the foreign corporation and by a foreign stockholder under item (b). |
| (2) | Where the sum of the following amounts among the borrowings of a domestic corporation (including a domestic place of business of a foreign corporation; hereafter in this Section the same shall apply) exceeds twice the amount invested by the relevant foreign controlling stockholder, the interest and discount fees paid in relation to the excess amount (hereafter in this Section referred to as “interest, etc.”) shall be excluded from deductible expenses of the domestic corporation and shall be deemed to have been disposed of as a dividend of, or an outflow from, the domestic corporation pursuant to Article 67 of the Corporate Tax Act, as prescribed by Presidential Decree. In such cases, the scope of borrowings and the methods of computing the amount of investment and the amount excluded from deductible expense shall be prescribed by Presidential Decree: |
| 1. | Funds borrowed from a foreign controlling stockholder; |
| 3. | Funds borrowed from a third party under a payment guarantee (including de facto payment guarantees, such as provision of security) by a foreign controlling stockholder. |
| (3) | The multiplier of the borrowings against the amount of investment by a foreign controlling stockholder provided in paragraph (2) may be separately prescribed by Presidential Decree for each type of business, if necessary, in consideration of characteristics, etc. of the business type. |
| (4) | Where a domestic corporation attests that the amount borrowed pursuant to the subparagraphs of paragraph (2) and conditions of borrowings are identical or similar to the amount and conditions of ordinary borrowings between unrelated parties, as prescribed by Presidential Decree, paragraphs (2) and (3) shall not apply to the interest, etc. paid in relation to such borrowings. |
| (5) | Where a domestic corporation subject to paragraph (2) has withheld income tax or corporate tax on the interest, etc. that it has paid to a foreign controlling stockholder in each business year, it shall offset such withheld tax amount against the income tax or corporate tax assessed on the dividend provided in paragraph (2). |
| (6) | For the purposes of applying paragraphs (2) through (5), if there exist different interest, etc. whereto separate interest rates apply, the interest, etc. shall be excluded from deductible expenses in order of those subject to a higher interest rate. |
| Article 23 (Borrowing Transactions through Third Party) |
Where funds borrowed by a domestic corporation from a person who is not a foreign controlling stockholder satisfy all of the following requirements, Article 22 shall apply to the funds, assuming that such funds are borrowed directly from a foreign controlling stockholder: Provided, That Article 22 shall apply even when only the requirement provided in subparagraph 2 is satisfied if the domestic corporation has borrowed funds from a foreign related party other than a foreign controlling stockholder: | 1. | The domestic corporation and the foreign controlling stockholder have made prior agreements for the borrowing (including where a substantial agreement is deemed to have been reached in advance based on evidence related to the borrowing); |
| 2. | The conditions for the borrowing shall be substantially determined between the domestic corporation and the foreign controlling stockholder. |
| Article 24 (Exclusion of Interest Overpaid Compared to Income from Deductible Expenses) |
| (1) | The terms used in this Article are defined as follows: |
| 1. | The term "net interest expense" means an amount calculated by subtracting the amount of interest income received from a foreign related party from the interest, etc. paid to the foreign related party; |
| 2. | The term "adjusted gross income" means the amount of income before subtracting both the depreciation cost and the net interest expense. |
| (2) | If the net interest expense on funds borrowed by a domestic corporation from its foreign related parties exceeds 30 percent of the adjusted gross income, the excess amount shall be excluded from deductible expenses and deemed disposed of as other outflow from the domestic corporation pursuant to Article 67 of the Corporate Tax Act. |
| (3) | Paragraph (2) shall not apply to any domestic corporation prescribed by Presidential Decree that engages in financial business or other similar business. |
| (4) | For the purposes of applying paragraph (2), if there exist different interest, etc. whereto separate interest rates apply, the interest, etc. shall be excluded from deductible expenses in order of those subject to a higher interest rate. |
| (5) | The method of computing the net interest expense and adjusted gross income and other necessary matters shall be prescribed by Presidential Decree. |
| Article 25 (Exclusion of Interest Paid on Hybrid Financial Instrument Transactions from Deductible Expenses) |
| (1) | The term "hybrid financial instrument" in this Article means a financial instrument prescribed by Presidential Decree that has the nature of both capital and liabilities. |
| (2) | The interest, etc. paid by a domestic corporation in relation to hybrid financial instrument transactions with a foreign related party, which are not included in the income of the counter-party to such transactions nor taxable in the country where the counter-party is located within the period prescribed by Presidential Decree (hereafter in this Article referred to as “reasonable period”), shall be included in gains, as prescribed by Presidential Decree, in calculating the amount of income for the business year in which the end date of the reasonable period falls and shall be deemed disposed of as other outflow from the domestic corporation pursuant to Article 67 of the Corporate Tax Act. In such cases, the domestic corporation shall additionally pay an amount equivalent to interest calculated as prescribed by Presidential Decree, plus the corporate tax for the business year in which the end date of the reasonable period falls. |
| (3) | A domestic corporation which includes any amount in gains under the former part of paragraph (2) shall submit data on hybrid financial instrument transactions to the head of a tax office having jurisdiction over the place for tax payment by the filing deadline specified in Articles 60 (1) and 76-17 (1) of the Corporate Tax Act based on the business year in which the end date of the reasonable period falls. <Newly Inserted on Dec. 31, 2022> |
| (4) | The scope of hybrid financial instrument transactions, the scope of non-taxable amounts, and other necessary matters shall be prescribed by Presidential Decree. <Amended on Dec. 31, 2022> |
| Article 26 (Order of Applying Exclusion of Paid Interest from Deductible Expenses) |
| (1) | Where Articles 22 and 24 are concurrently applicable, the Article that precludes the inclusion of larger amount in deductible expenses shall apply. In such cases, if the amounts calculated according to both Articles are the same, Article 22 shall apply. |
SECTION 3 ACCUMULATIVE TAXATION OF RETAINED EARNINGS OF SPECIFIC FOREIGN CORPORATIONS
| Article 27 (Specific Foreign Corporations’ Retained Earnings Deemed Dividends) |
| (1) | Where a Korean national invests in a foreign corporation which satisfies all of the following requirements (hereinafter referred to as "specific foreign corporation"), the amount attributable to the Korean national out of the specific foreign corporation’s retained earnings distributable as at the end of each business year shall be deemed a dividend paid to the Korean national: <Amended on Dec. 21, 2021> |
| 1. | The actual tax burden in a country or region in which the head office, principal office, or actual place of management of the foreign corporation is located shall not exceed the amount calculated in accordance with the following formula: |
| 2. | The foreign corporation shall be in a special relationship (when determining whether it is in the relationship provided in Article 2 (1) 3 (a), stocks owned directly or indirectly by a person prescribed by Presidential Decree, including a relative of the Korean national, shall be included) with the Korean national who invests in the foreign corporation. |
| (2) | Korean nationals to whom paragraph (1) is applicable shall be those who directly or indirectly hold at least 10 percent of the total outstanding stocks or the total equity investment of a specific foreign corporation as at the end of each business year. In such cases, outstanding stocks or equity investment held directly by the related persons of a Korean national specified in subparagraph 20 (a) or (b) of Article 2 of the Framework Act on National Taxes shall be included for the purposes of determining 10 percent of the total outstanding stocks or the total equity investment. |
| (3) | Where a Korean national directly or indirectly owns any beneficial interest of a foreign trust (referring to a trust that is established under foreign statutes or regulations and similar to a trust prescribed in any of the subparagraphs of Article 5 (2) of the Corporate Tax Act), paragraphs (1) and (2) shall apply as each trust property is deemed one foreign corporation. <Amended on Dec. 21, 2021> |
| (4) | The actual tax burden of a specific foreign corporation under paragraph (1) 1, the scope of the income actually earned by such corporation, and other matters shall be prescribed by Presidential Decree. <Amended on Dec. 21, 2021> |
| Article 28 (Exclusion of Application of Specific Foreign Corporations’ Retained Earnings Deemed Dividends) |
| Article 27 shall not apply to a specific foreign corporation falling under any of the following cases: <Amended on Dec. 21, 2021; Dec. 31, 2022> |
| 1. | Where the income actually earned by a specific foreign corporation as of the end of each business year does not exceed the amount prescribed by Presidential Decree; |
| 2. | Where a specific foreign corporation owns a permanent establishment, such as an office, a store, or a factory, that is required for business activities in a country or region in which it is located; and engages in business activities mainly in such country or region by managing, controlling, or operating the business for itself; |
| 3. | Where a specific foreign corporation, whose primary business is to hold stocks in compliance with requirements prescribed by Presidential Decree (hereafter in this subparagraph referred to as “foreign holding company”), holds stocks issued by its affiliate (referring to a foreign corporation that meets all the requirements prescribed by Presidential Decree; hereafter in this subparagraph the same shall apply) in compliance with all of the following requirements: |
| (a) | The foreign holding company shall have held stocks issued by all of its affiliates for at least six consecutive months as of the date of record for dividends by the affiliates; |
| (b) | The rate of income calculated by the following formula, considering the interest income, dividend income, etc. received by the foreign holding company that holds stocks issued by its affiliates in compliance with the requirements specified in item (a), from its affiliates, shall be equal to or exceed the rate prescribed by Presidential Decree as of the end of each business year. |
The rate of income = A / B-C-D
A: The total amount of interest income, dividend income, and other income prescribed by Presidential Decree that the foreign holding company has received from any of its affiliates having its head office or principal office in the same country as the foreign holding company or the same region prescribed by Ordinance of the Ministry of Economy and Finance (hereafter in Article 29 referred to as “same country, etc.”) among the affiliates whose stocks are held by the foreign holding company in compliance with the requirements specified in item (a); B: The income amount of the foreign holding company;
C: The income amount that the foreign holding company generates by actually engaging in any business other than those provided in the subparagraphs of Article 29 (1) at its permanent establishment, such as an office, a store, or a factory; D: The income amount generated as the foreign holding company disposes of the stocks issued by its affiliates that it has held in compliance with the requirements specified in item (a).
| Article 29 (Exceptional Application of Specific Foreign Corporations’ Retained Earnings Deemed Dividends) |
| (1) | Even in cases of a specific foreign corporation to which Article 27 is not applicable pursuant to subparagraph 2 of Article 28, where such corporation falls under any of the following, Article 27 shall apply: Provided, That Article 27 shall not apply where a specific foreign corporation that engages in wholesale trade referred to in subparagraph 1 (a) makes a sale to an unrelated person in the same country, etc., and such sale satisfies the requirements prescribed by Presidential Decree: <Amended on Dec. 31, 2022> |
| 1. | A specific foreign corporation satisfying the requirements prescribed by Presidential Decree that engages in the following types of business under the Korean Standard Industrial Classification prepared and publicly notified by the Commissioner of the Statistics Korea pursuant to Article 22 of the Statistics Act: |
| (b) | Financial and insurance activities; |
| (c) | Real estate activities; |
| (d) | Professional, scientific, and technical activities (excluding architectural, engineering, and related technical services); |
| (e) | Business facilities management, business support, and leasing services; |
| 2. | A corporation whose primary business is to engage in the following activities, for which the criteria for determining the primary business shall be prescribed by Presidential Decree: |
| (a) | Holding stocks or bonds; |
| (b) | Provision of intellectual property rights; |
| (c) | Lease of ships, aircraft, or equipment; |
| (d) | Investing in investment trusts or funds. |
| (2) | Even in cases of a specific foreign corporation to which Article 27 is not applicable pursuant to subparagraph 2 of Article 28 or the proviso, with the exception of the subparagraphs, of paragraph (1) of this Article, where the following income (hereafter in this Section referred to as "passive income”) meets the standards prescribed by Presidential Decree, Article 27 shall apply to the relevant income: <Amended on Dec. 31, 2022> |
| 1. | Income generated from the activities specified in the items of paragraph (1) 2; |
| 2. | Profits and losses from the sale of assets related to income generated from the activities specified in the items of paragraph (1) 2 (where a specific foreign corporation that engages in financial and insurance activities under the Korean Standard Industrial Classification prepared and publicly notified by the Commissioner of the Statistics Korea under Article 22 of the Statistics Act holds assets related to income generated from the activities specified in paragraph (1) 2 (a) in connection with the performance of financial and insurance activities or a specific foreign corporation directly uses assets related to income generated from the activities prescribed in paragraph (1) 2 (d) for its business, the relevant assets shall be excluded). |
| Article 30 (Computation of Distributable Retained Earnings and Amounts Deemed Dividends) |
| (1) | The amount deemed a dividend to be distributed to a Korean national pursuant to Article 27 (1) (hereafter in this Section referred to as "amount deemed a dividend”) shall be computed according to the following formula: |
The distributable retained earnings of a specific foreign corporation as of the end of each business year X the stockholding ratio of the relevant Korean national in the specific foreign corporation.
| (2) | Notwithstanding paragraph (1), where Article 29 (2) is applied, the amount deemed a dividend shall be computed according to the following formula: |
The distributable retained earnings of a specific foreign corporation as of the end of each business year X the stockholding ratio of the relevant Korean national in the specific foreign corporation X {(the sum of passive income - the amount prescribed by Presidential Decree) / the total income of the specific foreign corporation}.
| (3) | Matters necessary for calculating the amount deemed a dividend, such as the method of calculating the distributable retained earnings and the ratio of holding stocks under paragraphs (1) and (2), shall be prescribed by Presidential Decree. |
| Article 31 (Timing of Treating Dividends as Taxable Gains) |
The amount deemed a dividend shall be included in a Korean national’s gains or dividend income (hereafter in this Section referred to as “gains, etc.”) for the taxable year in which the 60th day falls from the date following the end of the pertinent business year of the specific foreign corporation.
| Article 32 (Exclusion of Actual Dividends from Taxable Gains) |
| (2) | Where the amount deemed a dividend is included in the gains, etc. of a Korean national under Article 31 and the Korean national transfers stocks of the relevant specific foreign corporation, the amount calculated according to the following formula (if the amount so calculated is not more than zero, it shall be deemed zero) shall be deemed the income not included in the gains pursuant to subparagraph 2 of Article 18 of the Corporate Tax Act or deemed not to fall within the income generated from the transfer of stocks, as provided in Article 94 (1) 3 (c) of the Income Tax Act, up to the amount of the gains on transfer: |
(The amount equivalent to the sum of the amounts deemed the dividends on the transferred stocks) - (the amount of actually distributed dividends on the transferred stocks).
| (3) | The books of account and evidentiary documents necessary for calculating the amount pursuant to paragraphs (1) and (2) shall be preserved until the expiration of the statutory deadline for filing a return for the taxable year in which the date of dividend payment or transfer falls, notwithstanding Article 85-3 (2) of the Framework Act on National Taxes. |
| Article 32 (Exclusion of Actual Dividends from Taxable Gains) |
| (2) | Where the amount deemed a dividend is included in the gains, etc. of a Korean national under Article 31 and the Korean national transfers the stocks of the relevant specific foreign corporation, the amount calculated in accordance with the following formula (if the amount so calculated is not more than zero, it shall be deemed zero) shall be deemed the income not included in the gains pursuant to subparagraph 2 of Article 18 of the Corporate Tax Act or deemed not to fall within the financial investment income, as provided in Article 87-6 (1) 1 of the Income Tax Act, up to the amount of the gains on transfer: |
(The amount equivalent to the sum of the amounts deemed the dividends on the transferred stocks) - (the amount of actually distributed dividends on the transferred stocks). <Amended on Dec. 21, 2021>
| (3) | The books of account and evidentiary documents necessary for calculating the amount pursuant to paragraphs (1) and (2) shall be preserved until the expiration of the statutory deadline for filing a return for the taxable year in which the date of dividend payment or transfer falls, notwithstanding Article 85-3 (2) of the Framework Act on National Taxes. |
| Article 33 (Deduction of Taxes Paid to Foreign Countries and Rectification Claims Therefor) |
| (1) | Where a specific foreign corporation actually distributes a dividend to a Korean national, if such corporation has paid taxes to a foreign country, a deemed dividend for the taxable year, which is included in gains, etc. pursuant to Article 31, shall be deemed an income generated in a foreign country, while the taxes paid to the foreign country as at the time of the actual distribution shall be deemed paid to the foreign country in the taxable year during which the amount is included in gains, etc. pursuant to Article 31, and therefore Article 57 (1) and (2) of the Income Tax Act and Article 57 (1) and (2) of the Corporate Tax Act shall apply thereto. |
| (2) | A person who seeks application of paragraph (1) shall file a rectification claim with the head of a tax office having jurisdiction over the place for tax payment, as prescribed by Presidential Decree, within one year from the deadline for filing the income tax or corporate tax return of the taxable year in which he or she has actually received a dividend. |
| Article 34 (Submission of Data on Specific Foreign Corporations) |
| 1. | Financial statements of a specific foreign corporation; |
| 2. | A corporate tax return of a specific foreign corporation and supporting documents; |
| 3. | A detailed statement on calculation of retained earnings of a specific foreign corporation; |
| 4. | Other documents prescribed by Presidential Decree. |
SECTION 3-2 Special Cases concerning Imposition of Tax on Income Attributable to Foreign Transparent Entities
| Article 34-2 (Special Cases concerning Imposition of Tax on Income Attributable to Foreign Transparent Entities) |
| (1) | The term "foreign transparent entity" in this Article means an entity that satisfies all of the following requirements: |
| 2. | In a country in which a foreign corporation, etc. is established or its head office or principal office is located, a stockholder, investor, or beneficiary (hereafter in this Article referred to as “investor, etc.”) of a foreign corporation, etc. other than the relevant foreign corporation, etc. shall be directly liable to pay a tax on its income in accordance with the tax laws of such country. |
| (2) | Where a resident or domestic corporation prescribed by Presidential Decree that constitutes an investor, etc. of a foreign transparent entity files an application for applying special cases concerning the imposition of tax prescribed in this Article (hereinafter referred to as "special cases concerning the imposition of tax on a foreign transparent entity") pursuant to paragraph (3), the Income Tax Act or the Corporate Tax Act shall apply as the income attributable to a foreign transparent entity is deemed attributable to such investor, etc. |
| (3) | An investor, etc. who intends to be subject to the application of paragraph (2) shall file an application for applying special cases concerning the imposition of tax on a foreign transparent entity with the head of a tax office having jurisdiction over the place for tax payment, as prescribed by Presidential Decree. |
| (4) | An investor, etc. shall not renounce the application of special cases concerning the imposition of tax on a foreign transparent entity except for cases prescribed by Presidential Decree, such as where the foreign transparent entity fails to meet the requirements prescribed in the subparagraphs of paragraph (1) after the investor, etc. subject to the application of paragraph (2) files an application for applying such special cases. |
| (5) | Paragraphs (2) through (4) shall apply to an investment trust, investment limited partnership, and undisclosed investment association under the Financial Investment Services and Capital Markets Act (hereafter in this paragraph referred to as "investment trust, etc.") as such investment trust, etc. are deemed domestic corporations. |
| (6) | Where paragraph (2) is applicable, the income attributable to an investor, etc. shall be in accordance with the classification of the income attributable to a foreign transparent entity, and the income shall be deemed immediately attributable to the investor, etc. when it is attributable to the foreign transparent entity. |
| (7) | The income of a foreign transparent entity that is included in the total earnings or gains of an investor, etc. and that is actually distributed by the foreign transparent entity to the investor, etc. pursuant to paragraph (2) shall be deemed the income not included in the total earnings or gains. |
| (8) | The amount of tax imposed on an investor, etc. in a foreign country with regard to the income of a foreign transparent entity that is deemed directly attributable to the investor, etc. under paragraph (2) shall be deemed the amount of foreign income tax or the amount of foreign corporate tax entitled to the application of a tax credit under Article 57 (1) of the Income Tax Act or Article 57 (1) of the Corporate Tax Act, as prescribed by Presidential Decree. |
| (9) | Where paragraph (2) is applicable, provisions of Article 27 regarding specific foreign corporations' retained earnings deemed dividends shall not apply. |
| (10) | The calculation and allocation of the income, deficits, etc. of an investor, etc. subject to the application of paragraph (2), and other necessary matters shall be prescribed by Presidential Decree. |
[This Article Newly Inserted on Dec. 31, 2022]
SECTION 4 Special Cases regarding Imposition of Gift Tax on Overseas Donation
| Article 35 (Special Cases regarding Imposition of Gift Tax on Overseas Donation) |
| (1) | The terms used in this Section are defined as follows: |
| (2) | Where a resident donates his or her foreign property (excluding a donation that takes effect upon the death of a donor) to a nonresident, the donor is liable to pay gift tax pursuant to this Act. |
| (3) | Notwithstanding paragraph (2), where all of the following requirements are met, the gift tax shall be exempted: |
| 2. | The relevant donated property shall be subject to gift tax (including taxes of a substantially similar thereto) imposed pursuant to statutes or regulations of the relevant foreign country, which includes exemption of the tax amount. |
| (4) | For the purposes of applying paragraph (2), the value of donated property shall be based on its assessed value reflecting the situations as at the time of such donation in the foreign country wherein the donated property is located, but the matters regarding the computation of such assessed value shall be prescribed by Presidential Decree: Provided, That when it is impracticable to compute the assessed value, the methods prescribed by Presidential Decree shall apply, taking account of the type, scale, and circumstances of the transaction of the relevant property. |
| (5) | For the purposes of applying paragraph (2), where gift tax has been paid pursuant to statutes or regulations of the relevant foreign country, the amount equivalent to the gift tax paid shall be deducted from the amount of the gift tax computed, as prescribed by Presidential Decree. |
CHAPTER III INTERNATIONAL COOPERATION IN TAX ADMINISTRATION
SECTION 1 International Cooperation in Tax Affairs
| Article 36 (Exchange of Tax and Financial Information) |
| (1) | The competent authority of the Republic of Korea may obtain tax information [including information on an individual who ultimately controls or exercises power over a taxpayer (hereinafter referred to as “actual owner”); hereinafter the same shall apply)] necessary for the imposition and collection of taxes, review of tax appeals, and criminal prosecution, etc., as well as tax information generalized by international practices to the extent not in contravention of other statutes, and may exchange such information with the other Contracting State. |
| (2) | Where it is necessary to exchange tax information under paragraph (1), the tax authority may request a taxpayer to provide information on the actual owner of the taxpayer; and the scope of information on the actual owner that the tax authority may request from the taxpayer and matters necessary for requesting and submitting information on the actual owner shall be prescribed by Presidential Decree. |
| (3) | Where the competent authority of the other Contracting State demands financial information (referring to information or data relating to the details of financial transactions defined in subparagraph 3 of Article 2 of the Act on Real Name Financial Transactions and Confidentiality; hereafter in this Article the same shall apply) on residents and domestic corporations or nonresidents and foreign corporations under the tax treaty, the competent authority of the Republic of Korea may request a specific branch of a financial company, etc. (referring to a financial company, etc. defined in subparagraph 1 of Article 2 of the aforesaid Act; hereinafter the same shall apply) to provide any of the following financial information, notwithstanding Article 4 of the aforesaid Act; and an employee of the financial company, etc. shall provide the financial information requested: |
| 1. | Financial information that constitutes data for taxation that shall be submitted under tax-related statutes; |
| 2. | Financial information necessary to verify property acquired by inheritance or donation; |
| 3. | Financial information necessary for the competent authority of the other Contracting State to verify data sufficient to prove a suspicion of tax evasion; |
| 4. | Financial information necessary to inquiry about the property of a delinquent taxpayer of the other Contracting State; |
| (4) | Where any information requested by the competent authority of the other Contracting State pursuant to paragraph (3) falls under the following cases, the competent authority of the Republic of Korea may request the head of the relevant financial company, etc. to provide such financial information, in which case an employee of the financial company, etc. shall provide the financial information requested: |
| 1. | Where the relevant information is related to a group that is unable to specify the personal information of a title holder related to the specific financial transaction; |
| (5) | Notwithstanding paragraphs (3) and (4), the competent authority of the Republic of Korea may restrict the provision of financial information to the other Contracting State on the principle of reciprocity. |
| (6) | The competent authority of the Republic of Korea may request the head of a financial company, etc. to provide financial information on residents and domestic corporations or nonresidents and foreign corporations, necessary for the imposition and collection of taxes and management of tax payment by the other Contracting State where necessary for regularly exchanging financial information with the other Contracting State on the principle of reciprocity under the tax treaty, notwithstanding Article 4 of the Act on Real Name Financial Transactions and Confidentiality. In such cases, an employee of the financial company, etc. shall provide such financial information, as prescribed by Presidential Decree. |
| (7) | Although no request is made pursuant to paragraph (6), a financial company, etc. may verify and maintain beforehand personal information, including taxpayer identification numbers (referring to unique numbers assigned to each taxpayer by an individual country for identification purposes) of the counter-parties to financial transactions (including the counter-parties to financial transactions of countries other than the other Contracting State under the tax treaty; hereinafter the same shall apply) of the financial company, etc. to the minimum extent necessary for the purpose of using such information to support the exchange of financial information among countries. |
| (8) | The head of a financial company, etc. who intends to provide financial information under paragraph (6) or to verify financial information under paragraph (7) may request the counter-party to a financial transaction to submit data necessary to verify the party's personal information, etc. |
| (9) | Where it is impracticable to provide the financial information referred to in paragraph (6) to the competent authority of the Republic of Korea or it is impossible to verify the personal information, etc. as provided in paragraph (7) because the counter-party to financial transactions requested to submit data pursuant to paragraph (8) fails to submit the requested data, the head of the relevant financial company, etc. may refuse to open an account of the counter-party to the financial transaction. |
| (10) | Detailed matters regarding the exchange of tax information under paragraph (1); exchange and provision of financial information under paragraphs (3), (4), and (6); and verification of personal information, etc. under paragraph (8) shall be prescribed by Presidential Decree. |
| Article 37 (Inquiry and Verification) |
| (1) | Where it is deemed necessary for the provision of financial information under Article 36 (6), a tax official may inquire an employee of a financial company, etc. for the verification of personal information, etc. of the counter-party to a financial transaction under Article 36 (8) and may verify documents, etc. |
| (2) | In cases of an inquiry or verification under paragraph (1), a tax official shall not abuse his or her authority for purposes other than those necessary for performing his or her duties. |
| Article 38 (Confidentiality) |
| (1) | None of the following persons shall unreasonably interfere with or delay the acquisition, exchange, or provision of any tax or financial information under Article 36: |
| 1. | A person related to the tax or financial information under Article 36 (1), (3), (4), or (6); |
| 2. | A counter-party to financial transactions under Article 36 (7). |
| (2) | Where the provision of financial information is requested in violation of Article 36 (3), (4), or (6), an employee of a financial company, etc. shall refuse such request. |
| (3) | No person who has become aware of financial information under Article 36 (3), (4), (6), or (7) shall provide or divulge such information to any third person, other than the competent authority of the other Contracting State, or misappropriate such information; and no person shall request any person that has become aware of financial information to provide such financial information. |
| (4) | No person who has obtained financial information provided or divulged in violation of paragraph (3) or Article 36 (3), (4), or (6) shall provide or divulge such financial information to any third person if he or she becomes aware of the violation. |
| Article 39 (Cooperation in Tax Audit) |
| (1) | Where it is deemed necessary to conduct a tax audit on a transaction with a person to whom the tax treaty applies, the competent authority of the Republic of Korea may conduct the following acts on the transaction: |
| 1. | Conducting a tax audit on the transaction at the same time as the other Contracting State; |
| 2. | Dispatching a tax official to the other Contracting State to directly conduct a tax audit or to participate in a tax audit by the other Contracting State. |
| (2) | Where the other Contracting State requests cooperation in a tax audit under the tax treaty, the competent authority of the Republic of Korea may accept such request. |
| Article 40 (Entrustment of Tax Collection) |
| (1) | The head of a tax office having jurisdiction over the place for tax payment or the head of a local government may request the Commissioner of the National Tax Service to take measures necessary to collect taxes in the other Contracting State, where it is deemed inevitable that the other Contracting State collects the taxes payable as it is impracticable to collect such taxes in the Republic of Korea. |
| (2) | Upon receipt of a request under paragraph (1), the Commissioner of the National Tax Service may entrust the competent authority of the other Contracting State with the collection of the relevant taxes, as prescribed by Presidential Decree. |
| (3) | Where the competent authority of the other Contracting State entrusts the collection of taxes payable to the other Contracting State to the Republic of Korea under the tax treaty, the Minister of Economy and Finance or the Commissioner of the National Tax Service may have the head of a tax office having jurisdiction over the place for tax payment collect such taxes in the same manner as national taxes are collected, as prescribed by Presidential Decree. |
| Article 41 (Issuance of Resident Certificates) |
Where a resident or a domestic corporation files an application for the issuance of a document substantiating that he, she, or it is a resident or domestic corporation in any of the following cases, the tax authority may issue the relevant certificate, as prescribed by Presidential Decree:
| 1. | Where he, she, or it intends to be entitled to non-taxation, exemption, or a limited tax rate (referring to the maximum tax rate at which a Contracting State may impose a tax on the resident or domestic corporation under a tax treaty) under a tax treaty; |
| 2. | Where it is necessary to implement a tax treaty, such as tax and exchange of financial information; |
| 3. | Other cases where it is necessary to substantiate that he, she, or it is a resident or domestic corporation for any tax purpose. |
[This Article Wholly Amended on Dec. 21, 2021]
SECTION 2 Mutual Agreement Procedure
| Article 42 (Conditions for Commencing Mutual Agreement Procedure) |
| (1) | A resident or domestic corporation or a nonresident or foreign corporation may apply for commencing a mutual agreement procedure to the relevant person specified in the following, as prescribed by Presidential Decree: |
| 1. | Where it is necessary to consult with the other Contracting State on the application and interpretation of the tax treaty: The Minister of Economy and Finance; |
| 2. | Where such person or corporation has been or is likely to be subject to taxation by the tax authority of the other Contracting State, not complying with the provisions of the tax treaty: The Commissioner of the National Tax Service; |
| 3. | Where a tax adjustment is required under the tax treaty between the Republic of Korea and the other Contracting State: The Commissioner of the National Tax Service. |
| (2) | Upon receipt of an application for commencing a mutual agreement procedure under paragraph (1), the Minister of Economy and Finance or the Commissioner of the National Tax Service shall request the competent authority of the other Contracting State to commence a mutual agreement procedure and shall notify the resident or domestic corporation and the nonresident or foreign corporation who has applied for commencing a mutual agreement procedure (hereafter in this Section referred to as "applicant”) of such request, except in any of the following cases: |
| 1. | Where the final ruling has been made by a domestic or foreign court: Provided, That cases prescribed by Presidential Decree shall be excluded, such as where a response to the tax adjustment by the other Contracting State is required; |
| 2. | Where the application has been filed by a person ineligible under the tax treaty; |
| 3. | Where it is recognized that the taxpayer intends to exploit a mutual agreement procedure for tax avoidance; |
| 4. | Where the application has been filed three years after the applicant became aware of the taxation. |
| (3) | In the case of paragraph (1) 1, the Minister of Economy and Finance may ex officio request the competent authority of the other Contracting State to commence the mutual agreement procedure. |
| (4) | In the case of paragraph (1) 2 or 3, the Commissioner of the National Tax Service may ex officio request the competent authority of the other Contracting State to commence the mutual agreement procedure. |
| (5) | Upon receiving an application under paragraph (1) or ex officio requesting the commencement of the mutual agreement procedure pursuant to paragraph (4), the Commissioner of the National Tax Service shall report thereon to the Minister of Economy and Finance; and the Minister of Economy and Finance may give an instruction as to the mutual agreement procedure, if necessary. |
| Article 43 (Arbitration for Mutual Agreement) |
| (1) | Where no agreement is reached between the competent authorities of the Republic of Korea and the other Contracting State after the commencement of the mutual agreement procedure and within the period specified in the tax treaty, the applicant may request the Minister of Economy and Finance or the Commissioner of the National Tax Service to commence the procedures for resolving disputes (hereinafter referred to as "arbitration") through the group of arbitrators, appointed by the competent authorities, respectively, as prescribed by the tax treaty. |
| (2) | Detailed matters regarding arbitration, including persons eligible to file an application for arbitration, the timing for filing an application, the scope of applicable cases, the formation of the arbitrators group, the methods of making a decision, and the validity of the arbitration decision, shall be governed by the tax treaty. |
| (3) | Detailed procedures for implementing the tax treaty stipulating specific matters regarding arbitration, including the procedure for filing an arbitration application, the appointment of arbitrators, and the burden of expenses, shall be prescribed by Presidential Decree. |
| Article 44 (Applicants’ Obligations to Cooperate) |
| (1) | The Minister of Economy and Finance or the Commissioner of the National Tax Service may request an applicant to submit data necessary for proceeding with the mutual agreement procedure. |
| (2) | The Minister of Economy and Finance or the Commissioner of the National Tax Service may terminate ex officio the mutual agreement procedure if the applicant fails to comply conscientiously with a request to submit data under paragraph (1). |
| Article 45 (Start Date of Mutual Agreement Procedure) |
The start date of the mutual agreement procedure shall be either of the following dates:
| 1. | Where the competent authority of the other Contracting State makes a request to commence the mutual agreement procedure: The date of notifying the competent authority of the other Contracting State of the intent to accept the request; |
| 2. | Where a request to commence the mutual agreement procedure is forwarded to the competent authority of the other Contracting State: The date of receiving the intent to accept the request from the competent authority of the other Contracting State. |
| Article 46 (End Date of Mutual Agreement Procedure) |
| (1) | The end date of the mutual agreement procedure shall be the date the competent authority of the Republic of Korea enters into a written agreement with the other Contracting State: Provided, That where no mutual agreement is reached, the end date of the mutual agreement procedure shall be the date five years elapse from the date following the start date. |
| (2) | Where the competent authorities of the Republic of Korea and the other Contracting State agree to continue the mutual agreement procedure, such procedure shall continue to be in force, notwithstanding the proviso of paragraph (1). In such cases, the end date of the mutual agreement procedure shall not exceed eight years from the date following the start date. |
| (3) | In any of the following cases, a date classified accordingly shall be the end date of the mutual agreement procedure, notwithstanding paragraphs (1) and (2): Provided, That subparagraph 1 shall not apply to cases prescribed by Presidential Decree, such as where a response to the tax adjustment by the other Contracting State is required: |
| 1. | Where the final ruling is made by a court in the course of the mutual agreement procedure: The date the final ruling is made; |
| 2. | Where the applicant withdraws his or her application for commencing the mutual agreement procedure in the course of such procedure: The date the application is withdrawn; |
| 3. | Where the Minister of Economy and Finance or the Commissioner of the National Tax Service terminates ex officio the mutual agreement procedure under Article 44 (2): The date the applicant is notified of the termination of such procedure. |
| Article 47 (Enforcement of Terms and Conditions Mutually Agreed Upon) |
| (1) | The Commissioner of the National Tax Service shall report the terms and conditions mutually agreed upon to the Minister of Economy and Finance at the end of the mutual agreement procedure. |
| (2) | After the end of the mutual agreement procedure, the Minister of Economy and Finance or the Commissioner of the National Tax Service shall notify the tax authority, the head of a local government, the Director of the Tax Tribunal, other relevant agencies, and the applicant, of the terms and conditions mutually agreed upon within 15 days from the date following the end date of the mutual agreement procedure. In such cases, the Minister of Economy and Finance shall immediately give public notice of the contents of the agreement under Article 42 (1) 1. |
| (3) | Where the Minister of Economy and Finance or the Commissioner of the National Tax Service has commenced the mutual agreement procedure and reaches an agreement in writing and all of the following requirements are met, he or she shall implement the agreement without delay: |
| 1. | Where the applicant accepts the terms and conditions mutually agreed upon; |
| 2. | Where the mutual agreement procedure and the appeal are proceeding at the same time, and the applicant withdraws the appeal against the terms and conditions mutually agreed upon. |
| (4) | The tax authority or the head of a local government shall assess taxes, determine to make a rectification, or take other necessary action under the tax laws pursuant to the terms and conditions mutually agreed upon. |
| Article 48 (Extended Application of Terms and Conditions Mutually Agreed Upon) |
| (1) | An applicant may file an application with the tax authority or the head of a local government for applying the terms and conditions mutually agreed upon to transactions between the applicant and a foreign related party in a country other than the country bound by the mutual agreement, within three years from the date the notice of the end of the mutual agreement procedure is delivered pursuant to Article 47 (2), as prescribed by Presidential Decree. |
| (2) | Where the application under paragraph (1) meets all of the following requirements, the tax authority or the head of the relevant local government may apply the terms and conditions mutually agreed upon to the transactions with a foreign related party in a country other than the country bound by the mutual agreement: |
| 1. | The transactions are of the same type as that upon which the terms and conditions were mutually agreed; |
| 2. | Taxes have been imposed in the same manner as stipulated in the terms and conditions mutually agreed upon; |
| 3. | Other requirements prescribed by Presidential Decree are met. |
| (3) | Article 47 shall apply mutatis mutandis to the extended application of the terms and conditions mutually agreed upon to a foreign related party in a country other than the country bound by the mutual agreement, as provided in paragraphs (1) and (2). |
| Article 49 (Special Cases on Application of Extension of Deadline for Payment) |
| (2) | Where the mutual agreement procedure has commenced before a notice of the amount of tax payable is given, the head of the tax office having jurisdiction over the place for tax payment or the head of the local government in receipt of an application under paragraph (1) may defer payment notice under Article 14 of the National Tax Collection Act (including the deferment of notice and the notice to make payments in installments under Article 25 of the Local Tax Collection Act; hereafter in this Article referred to as “deferment of payment notice”) until the end date of the mutual agreement procedure. In such cases, the head of the tax office having jurisdiction over the place for tax payment or the head of the local government shall notify the amount of tax payable within 30 days from the date following the end date of the mutual agreement procedure. |
| (3) | Where the mutual agreement procedure has commenced after the notice of tax payment or a demand notice was served on the taxpayer, the head of the tax office having jurisdiction over the place for tax payment or the head of the local government in receipt of application under paragraph (1) may either extend the payment deadline, etc. or defer the seizure or the sale from the start date to the end date of the mutual agreement procedure. In such cases, the head of the tax office having jurisdiction over the place for tax payment or the head of the local government shall set a new payment deadline and collect the tax amount with the extended payment deadline or the deferred tax amount, within 30 days from the date following the end date of the mutual agreement procedure. |
| (4) | Paragraphs (2) and (3) shall apply only where the other Contracting State allows the extension of the payment deadline, etc. or the deferment of the seizure or the sale, in the course of the mutual agreement procedure. |
| (5) | Where the head of the tax office having jurisdiction over the place for tax payment or the head of the local government allows the extension of the payment deadline, etc. or the deferment of the seizure or the sale pursuant to paragraph (3), he or she shall additionally collect the amount equivalent to the interest for the relevant period as calculated as prescribed by Presidential Decree. |
| (6) | Where any of the deferred notice of payment, the extension of the payment deadline, etc., or the deferment of the seizure or the sale (hereafter in this paragraph referred to as “deferred notice, etc.”) is applied to the amount of income tax or corporate tax under paragraph (2) or (3), the deferred notice, etc. shall also be applied, as it stands, to the amount of local tax to be added to the amount of income tax or corporate tax without undergoing any separate procedure provided in this Article. In such cases, the Commissioner of the National Tax Service shall notify the head of the relevant local government of the deferred notice, etc., as prescribed by Presidential Decree. |
| Article 50 (Special Cases on Application of Period of Appeal and Period of Decision on Appeal) |
Where the mutual agreement procedure commences, the period from the start date to the end date of such procedure shall not be counted in the following periods: <Amended on Dec. 31, 2022>
| Article 51 (Special Cases regarding Statute of Limitations Period for Tax Assessment) |
| (1) | Where the mutual agreement procedure commences, no national taxes shall be assessed after the expiration of the period coming later between the following periods: |
| 1. | The one-year period beginning on the date following the end date of the mutual agreement procedure; |
| (2) | Where the mutual agreement procedure commences, no local taxes shall be assessed after the expiration of the period coming later between the following periods: |
| 1. | The one-year period beginning on the date following the end date of the mutual agreement procedure; |
CHAPTER IV REPORTING ON FOREIGN ASSETS AND SUBMISSION OF DATA
SECTION 1 Reporting on Foreign Financial Accounts
The terms used in this Chapter are defined as follows: <Amended on Jul. 18, 2023>
| 1. | The term "foreign financial company, etc." means the following entities located in a foreign country and prescribed by Presidential Decree, which include a domestic corporation’s places of business in foreign countries but exclude a foreign corporation’s places of business in the Republic of Korea: |
| (a) | A financial company that engages in the finance and insurance business and similar types of business; |
| (e) | An account, other than those prescribed in items (a) through (d), which is opened with a foreign financial company, etc. for other financial transactions or virtual asset transactions; |
| 3. | The term "foreign financial account information" means the following: |
| (a) | Information on the identity of the account holder, such as the name and address; |
| (b) | Information on the account held, such as the account number, the name of the foreign financial company, etc., and the largest balance of the account as at the end of each month; |
| (c) | Information on persons related to foreign financial accounts referred to in Article 53 (2). |
| Article 53 (Reporting on Foreign Financial Accounts) |
| (1) | A resident or domestic corporation holding a foreign financial account, the balance of which (or the aggregate balance of all foreign financial accounts, if the resident or domestic corporation holds more than one account) as at the last day of any month of the relevant year exceeds the amount prescribed by Presidential Decree (hereinafter referred to as “person required to report his or her account”), shall report the foreign financial account information to the head of a tax office having jurisdiction over the place for tax payment from June 1 to 30 of the following year. |
| (2) | For the purposes of applying paragraph (1), each of the following persons (hereafter in this Chapter referred to as “person related to a foreign financial account”) shall be deemed to hold the relevant foreign financial account: |
| 1. | Where the actual holder of a foreign financial account is different from the nominal account holder, such as an account not under a real name: The nominal holder and the actual holder; |
| 2. | Where a foreign financial account is an account in joint names: Each joint holder. |
| (3) | Matters necessary for reporting foreign financial accounts under paragraphs (1) and (2), such as standards for determining persons required to report their accounts, methods of computing the balance of foreign financial accounts, methods of reporting, and standards for determining actual holders, shall be prescribed by Presidential Decree. |
| Article 54 (Exemption from Obligation to Report Foreign Financial Accounts) |
A person required to report his or her account shall be exempt from the obligation to report under Article 53 in any of the following cases: | 3. | A financial company, etc.; |
| 4. | A 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; |
| 5. | An institution prescribed by Presidential Decree, which is subject to management and supervision by the State under other statutes or regulations. |
| Article 55 (Revised and Overdue Reports of Foreign Financial Accounts) |
| (1) | A person who has reported his or her foreign financial account information by the reporting deadline prescribed in Article 53 (1) but has under-reported the amount thereof, may file a revised report on such information before the tax authority imposes an administrative fine under Article 90 (1). <Amended on Dec. 31, 2022> |
| (2) | A person who has failed to report his or her foreign financial account information by the reporting deadline prescribed in Article 53 (1) may report such information before the tax authority imposes an administrative fine under Article 90 (1). <Amended on Dec. 31, 2022> |
| (3) | Methods of filing revised or overdue reports on foreign financial accounts pursuant to paragraphs (1) and (2) and other necessary matters shall be prescribed by Presidential Decree. |
| Article 56 (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 under Article 53 (1) fails to report the relevant foreign financial account information by the reporting deadline or has under-reported the relevant amount, the relevant tax authority may request the person to explain the source of the amount that remains unreported by the reporting deadline or has been under-reported (hereinafter referred to as “noncompliance amount”). |
| (2) | Upon receipt of a request for explanation under paragraph (1), the person required to report his or her account shall give an explanation in a manner prescribed by Presidential Decree within 90 days from the date of receiving such request (hereafter in this paragraph referred to as “period for explanation”): Provided, That where the person requests an extension of the period for explanation on account of unavoidable circumstances prescribed by Presidential Decree, such as where collecting and preparing data requires considerable time, the tax authority may extend the period for explanation by up to 60 days only once. |
| (3) | Paragraphs (1) and (2) shall not apply where a person required to report his or her account files a revised or overdue report pursuant to Article 55: Provided, That paragraphs (1) and (2) shall apply where the person files such report, knowing beforehand the intent of the tax authority to impose an administrative fine. |
| Article 57 (Confidentiality of Foreign Financial Account Information) |
| (1) | No tax official shall offer or divulge any foreign financial account information to any third person or misappropriate such information: Provided, That a tax official may provide foreign financial account information within the limits of the purposes in the circumstances provided in any subparagraph of Article 81-13 (1) of the Framework Act on National Taxes. |
| (2) | No person who has become aware of foreign financial account information under paragraph (1) shall provide or divulge such information to any third person or misappropriate it. |
SECTION 2 Submission of Data on Overseas Subsidiaries
| Article 58 (Obligation to Submit Data on Overseas Subsidiaries) |
| (1) | A resident (excluding a foreign resident under the proviso of Article 3 (1) of the Income Tax Act; hereafter in this Section, the same shall apply) or a domestic corporation that makes an overseas direct investment under Article 3 (1) 18 of the Foreign Exchange Transactions Act (hereafter in this paragraph referred to as "overseas direct investment") shall submit the following data (hereinafter referred to as "statement, etc. of an overseas direct investment") to the head of a tax office having jurisdiction over the place for tax payment within the taxable period under the Income Tax Act or within six months from the end of the month in which the end date of the business year under the Corporate Tax Act falls, as prescribed by Presidential Decree. This shall also apply where the stocks or investment shares of a foreign corporation which has attracted an overseas direct investment are transferred during the taxable period under the Income Tax Act or the business year under the Corporate Tax Act or where a foreign corporation which has attracted an overseas direct investment is liquidated and such investment is no longer valid: <Amended on Dec. 21, 2021; Dec. 31, 2022> |
| 1. | A statement of overseas direct investments; |
| 2. | The financial position of the foreign corporation that has attracted overseas direct investments (including the financial position of other foreign corporations in which the foreign corporation that has attracted overseas direct investments has made investments); |
| 3. | Losses on transactions of the resident or domestic corporation that has made overseas direct investments (limited to the loss on transactions with the foreign corporation that has attracted overseas direct investments); |
| 4. | Losses on transactions of the foreign corporation that has attracted overseas direct investments (excluding the loss on transactions with the domestic corporation that has made overseas direct investments); |
| 5. | Current status of establishment of overseas business offices; |
| 6. | Other data prescribed by Presidential Decree in relation to overseas direct investments; |
| 7. | Deleted. <Dec. 21, 2021> |
| (2) | Where a resident or a domestic corporation that acquires and owns or disposes of real estate in a foreign country or any right in relation to such real estate (hereinafter referred to as "overseas real estate, etc.") through a capital transaction defined in Article 3 (1) 19 of the Foreign Exchange Transactions Act falls under any of the following cases, he, she, or it shall submit the following data (hereinafter referred to as "statement of overseas real estate, etc.") to the head of a tax office having jurisdiction over the place for tax payment within the taxable period under the Income Tax Act or within six months from the end of the month in which the end date of the business year under the Corporate Tax Act falls, as prescribed by Presidential Decree: <Newly Inserted on Dec. 21, 2021> |
| 1. | Where the acquisition value of overseas real estate, etc. is at least 200 million won: The statement of the acquisition, investment operations (including a lease), and disposal of overseas real estate, etc., and the current status of holding overseas real estate, etc. as of the taxable period or the end date of the business year; |
| 2. | Where the acquisition value of overseas real estate, etc. is less than 200 million won but the disposal value thereof is at least 200 million won: The statement of the disposal of overseas real estate, etc. |
| (3) | Where a resident or a domestic corporation fails to submit the statement, etc. of an overseas direct investment or the statement of overseas real estate, etc. (hereinafter referred to as "statement, etc. of overseas subsidiaries") or submits a false statement, etc. of overseas subsidiaries, the tax authority may request the submission or supplementation of the statement, etc. of overseas subsidiaries: Provided, That no request for the submission or supplementation of the statement, etc. of overseas subsidiaries may be made if two years have passed from the day following the deadline specified in the provisions, with the exception of the subparagraphs, of paragraph (1) or (2). <Amended on Dec. 21, 2021> |
| (4) | A person upon receipt of a request to submit or supplement data under paragraph (3) shall submit the relevant data within 60 days from the date of receiving such request. <Amended on Dec. 21, 2021> |
| (5) | For the purposes of applying paragraph (2), an acquisition value and a disposal value shall be calculated as follows, in which cases, the conversion of a foreign currency into the won is calculated by applying a basic exchange rate or an arbitrage exchange rate under the Foreign Exchange Transactions Act as of the day of receiving or paying the foreign currency: <Amended on Dec. 21, 2021> |
| 1. | An acquisition value: The amount classified as follows: |
| Article 59 (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 that has acquired, within 10 years before the date of requesting the explanation, the stocks or investment shares of a foreign corporation which has attracted an overseas direct investment or any overseas real estate, etc. falls under any of the following cases, the tax authority may request such resident or domestic corporation to explain the source of the following amounts (excluding the amount reported pursuant to Article 18 of the Foreign Exchange Transactions Act; hereinafter referred as “amount subject to explanation about the source of funds for acquisition”): <Amended on Dec. 21, 2021; Dec. 31, 2022> |
| 1. | Where a resident or domestic corporation that has made an overseas direct investment under Article 3 (1) 18 (a) of the Foreign Exchange Transactions Act directly or indirectly owns at least 10 percent of the total number of issued stocks or the total amount of investment of a corporation that has attracted an overseas direct investment and such resident or domestic corporation fails to submit the data prescribed in Article 58 (1) 1 within the deadline specified in the former part, with the exception of the subparagraphs, of Article 58 (1) or submits false data: The amount paid to acquire the stocks or investment shares of a foreign corporation that has attracted an overseas direct investment under Article 3 (1) 18 (a) of the Foreign Exchange Transactions Act; |
| 2. | Where a resident or domestic corporation fails to submit the data prescribed in subparagraph 1 or 2 of Article 58 (2) within the deadline specified in the provisions, with the exception of the subparagraphs, of Article 58 (2) or submits false data: The amount paid to acquire overseas real estate, etc. |
| (2) | A resident or domestic corporation requested to give an explanation under paragraph (1) shall give an explanation in a manner prescribed by Presidential Decree within 90 days (hereafter in this Article referred to as “period for explanation”) from the date of receiving the notice for explanation. In such cases, if the resident or domestic corporation requested to give an explanation explains the source of at least 80 percent of the amount requested to be explained, the source of the whole amount requested shall be deemed explained. |
| (3) | Notwithstanding paragraph (2), where a resident or domestic corporation requests an extension of the period for explanation on account of unavoidable circumstances prescribed by Presidential Decree, such as where collecting and preparing data requires considerable time, the tax authority may extend the period for explanation up to 60 days only once. |
CHAPTER V IMPOSITION OF GLOBAL ANTI-BASE EROSION TAX
SECTION 1 Common Provisions
| Article 60 (Purpose of Global Anti-Base Erosion Tax) |
The purpose of this Chapter is to prescribe matters necessary to apply the internationally agreed Global Anti-Base Erosion Rules that are established to respond to tax avoidance and base erosion by multinational enterprise groups through profit shifting, thereby ensuring that multinational enterprise groups pay an appropriate level of tax on their income.
[This Article Newly Inserted on Dec. 31, 2022]
[Previous Article 60 moved to Article 87 <Dec. 31, 2022>]
| (1) | The terms used in this Chapter are defined as follows: |
| 1. | The term "entity" means the following: |
| (b) | An arrangement that prepares separate financial accounts, such as a partnership or trust; |
| 2. | The term "group” means the following: |
| (a) | A collection of entities prescribed by Presidential Decree that are related through ownership or control; |
| (b) | An entity that is not included in a group specified in item (a) and has at least one permanent establishment in a country other than the country in which the relevant entity is located [including a region that has fiscal autonomy, and such region shall be deemed a separate country; hereafter in this Chapter, the same shall apply]; |
| 3. | The term "permanent establishment” means a fixed place of business that performs all or part of business and falls under the following: |
| (b) | A place of business prescribed by Presidential Decree, such as a place of business similar to the place of business specified in item (a) that is located in a foreign country; |
| 4. | The term "multinational enterprise group” means a group that includes an entity or permanent establishment in a country other than the country in which the ultimate parent entity is located; |
| 5. | The term "parent entity” means an ultimate parent entity that is not an excluded entity prescribed in Article 62 (3), an intermediate parent entity, or a partially-owned parent entity; |
| 6. | The term “ultimate parent entity” means the following: |
| (a) | An entity that satisfies all of the following requirements: |
| (i) | The relevant entity shall directly or indirectly own a controlling interest in any other entity; |
| (ii) | The relevant entity shall not be owned, with a controlling interest, directly or indirectly by another entity; |
| (b) | An entity that falls under subparagraph 2 (b); |
| 7. | The term “intermediate parent entity” means a constituent entity that owns directly or indirectly an ownership interest in another constituent entity of the same multinational enterprise group and that is a parent entity other than an ultimate parent entity, permanent establishment, partially-owned parent entity, or investment entity specified in Article 79 (1); |
| 8. | The term “partially-owned parent entity” means a constituent entity that owns directly or indirectly an ownership interest in another constituent entity of the same multinational enterprise group and has more than 20/100 of its ownership interests held by persons that are not constituent entities of the multinational enterprise group and that is an intermediate parent entity other than an ultimate parent entity, permanent establishment, or investment entity specified in Article 79 (1); |
| 9. | The term “constituent entity” means the ultimate parent entity of a multinational enterprise group, an entity consolidated by the ultimate parent entity, and a permanent establishment that has such entity as its main entity (referring to an entity that includes the financial accounting net income or loss of the permanent establishment in its financial statements; hereafter in this Chapter, the same shall apply). In such cases, each permanent establishment shall be deemed separate from the main entity and any other permanent establishment of such main entity; |
| 10. | The term “ownership interest” means a share or equity interest that carries rights to the profits, capital, or reserves of an entity (including the profits, capital, or reserves of a main entity’s permanent establishments) or rights to interests similar thereto. In such cases, a main entity shall be deemed to have all of the ownership interests in its permanent establishments; |
| 11. | The term “controlling interest” means an ownership interest in an entity that any ownership interest holder is required to consolidate in accordance with a financial accounting standard, etc., as prescribed by Presidential Decree. In such cases, a main entity shall be deemed to have the controlling interests of its permanent establishments; |
| 12. | The term “consolidated financial statements” means financial statements that include consolidated financial statements defined in subparagraph 3 of Article 2 of the Act on External Audit of Stock Companies and 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; |
| 13. | The term “financial accounting net income or loss” means the net income or loss that is determined for the relevant constituent entity in preparing consolidated financial statements of the ultimate parent entity and that is an amount in which any consolidation adjustments made for the elimination, etc. of intra-group transactions are not yet reflected; |
| 14. | The term “filing constituent entity” means an entity that files a global anti-base erosion information return under Article 83 (where a constituent entity located in a foreign country files a global anti-base erosion information return with the tax authority of the foreign country, referring to such constituent entity); |
| 15. | The term “constituent entity-owner” means a constituent entity that directly or indirectly owns an ownership interest in another constituent entity of the same multinational enterprise group; |
| 16. | The term “minority-owned constituent entity” means a constituent entity of the same multinational enterprise group where the ultimate parent entity has a direct or indirect ownership interest in such entity of not more than 30/100; |
| 17. | The term “low-taxed constituent entity” means a constituent entity of the multinational enterprise group that is located in a country where an effective tax rate calculated under Article 69 is lower than the minimum rate (referring to 15/100; hereafter in this Chapter, the same shall apply). |
| (2) | Terms that are not otherwise defined in paragraph (1) and other provisions of this Chapter but defined in the International Financial Reporting Standards shall have the meanings prescribed in the International Financial Reporting Standards. |
[This Article Newly Inserted on Dec. 31, 2022]
[Previous Article 61 moved to Article 89 <Dec. 31, 2022>]
| Article 62 (Entities Subject to Application of This Chapter) |
| (1) | This Chapter shall apply to constituent entities that are members of a multinational enterprise group that has an annual revenue of at least 750 million euros in the consolidated financial statements of its ultimate parent entity (hereafter in this Chapter referred to as “consolidated revenue”) in at least two of the four business years immediately preceding each business year (referring to the accounting period with respect to which the ultimate parent entity of the multinational enterprise group prepares its consolidated financial statements; hereafter in this Chapter, the same shall apply). In such cases, if any of the business years is of a period other than 12 months, the consolidated revenue shall be adjusted proportionally to correspond to a 12-month business year. |
| (2) | Where there arises any reason prescribed by Presidential Decree, including a merger or demerger, the methods of applying paragraph (1) and the exchange rate to convert a consolidated revenue or any other amount necessary for the application of this Chapter into euro shall be prescribed by Presidential Decree. |
| (3) | This Chapter shall not apply to the following institutions, etc. (hereafter in this Chapter referred to as "excluded entities") as they are not deemed constituent entities: |
| 1. | A governmental entity; |
| 2. | An international organization; |
| 3. | A non-profit organization; |
| 5. | An Investment fund that is an ultimate parent entity; |
| 6. | A real estate investment vehicle that is an ultimate parent entity; |
| 7. | Any other entity prescribed by Presidential Decree, where an institution, etc. prescribed in subparagraphs 1 through 6 directly or indirectly own the value of its ownership interests (referring to the total value of all types of ownership interests issued by an entity). |
| (4) | Notwithstanding paragraph (3), this Chapter may apply to filing constituent entities as excluded entities are deemed constituent entities at the election of the relevant filing constituent entity. |
| (5) | Matters necessary for the specific scope of an excluded entity under paragraph (3), the election of a filing constituent entity under paragraph (4), etc. shall be prescribed by Presidential Decree. |
[This Article Newly Inserted on Dec. 31, 2022]
[Previous Article 62 moved to Article 90 <Dec. 31, 2022>]
A constituent entity that is in the same multinational enterprise group and located in the Republic of Korea (hereinafter referred to as "local constituent entity") shall be liable to pay, as a corporate tax, the top-up tax allocated to the local constituent entity that is the parent entity under Article 72 and the top-up tax allocated to local constituent entities under Article 73. [This Article Newly Inserted on Dec. 31, 2022]
[Previous Article 63 moved to Article 91 <Dec. 31, 2022>]
| Article 64 (Locations of Entities) |
| (1) | For purposes of applying this Chapter, the country in which an entity is located (hereafter in this Chapter referred to as "country of residence”) shall be classified as follows: |
| 1. | In the case of an entity whose income, etc. are deemed directly attributable to its owner and which is not an entity prescribed by Presidential Decree (hereafter in this Chapter referred to as "flow-through entity"): The countries classified as follows: |
| (a) | In the case of an entity liable to pay a tax in a country based on its actual place of management or establishment, or similar criteria (excluding where an entity is liable to pay a tax in a country only on the income sourced in such country): The relevant country; |
| (b) | In the case of an entity other than that specified in item (a): The country where the entity is established and registered under its statutes or regulations; |
| 2. | In the case of an entity which is a flow-through entity and the ultimate parent entity of a multinational enterprise group or which is a constituent entity required to apply the qualified income inclusion rule prescribed in Article 72 (4) 1: The country where the entity is established and registered under its statutes or regulations. |
| (2) | In the case of a flow-through entity, other than that specified in paragraph (1) 2, no country of residence shall be deemed to exist. |
| (3) | The country of residence of a permanent establishment shall be prescribed by Presidential Decree, taking into account whether a tax treaty (including a tax treaty to which the Republic of Korea is not a contracting party) is applicable, the details of such tax treaty, and other matters. |
| (4) | Except as provided in paragraphs (1) through (3), matters necessary for the country of residence of an entity, such as determining the country of residence if at least two countries of residence exist, shall be prescribed by Presidential Decree. |
[This Article Newly Inserted on Dec. 31, 2022]
[This Article Newly Inserted on Dec. 31, 2022]
SECTION 2 Calculation of Top-Up Tax
| Article 66 (Calculation of Global Anti-Base Erosion Income or Loss) |
| (1) | The global anti-base erosion income or loss of a constituent entity for each business year (referring to the income or loss of a constituent entity for calculating an effective tax rate under Article 69, and if such income or loss is a positive amount, the amount shall be referred to as “global anti-base erosion income” but if it is zero or a negative amount, the amount as “global anti-base erosion loss”; hereafter in this Chapter, the same shall apply) shall be calculated by reflecting the adjustments prescribed by Presidential Decree, such as addition of net taxes expenses to, exclusion of dividends from, and addition of policy disallowed expenses including bribes to, the financial accounting net income or loss for the relevant business year. |
| (2) | Where it is impracticable to calculate the financial accounting net income or loss of a constituent entity specified in paragraph (1) based on the accounting standards used in preparing the consolidated financial statements of the ultimate parent entity (hereafter in this Chapter referred to as “accounting standards of the ultimate parent entity”) and where the requirements prescribed by Presidential Decree are satisfied, the financial accounting net income or loss of such constituent entity may be calculated using the accounting standards prescribed by Presidential Decree other than that of the ultimate parent entity. |
| (3) | Any international shipping income or loss prescribed by Presidential Decree, such as the income obtained from the transportation of passengers or cargo by ships operated in international traffic that is included in the financial accounting net income or loss of a constituent entity, and any qualified ancillary international shipping income or loss prescribed by Presidential Decree that arises from the activities performed in connection with the transportation of passengers or cargo by ships operated in international traffic shall be excluded from the calculation of the global anti-base erosion income or loss of the relevant constituent entity. |
| (4) | The financial accounting net income or loss of a permanent establishment that is a constituent entity shall be calculated, as prescribed by Presidential Decree, by taking into account whether the permanent establishment prepares separate financial statements, profits and costs to be attributable to the permanent establishment, and other matters. |
| (5) | The financial accounting net income or loss of a permanent establishment calculated under paragraph (4) shall not be included in the calculation of the global anti-base erosion income or loss of its main entity. |
| (6) | The financial accounting net income or loss of a flow-through entity that is a constituent entity shall be allocated to a permanent establishment through which its business is conducted, a constituent entity-owner, or any other constituent entity, as prescribed by Presidential Decree, and the amount allocated shall be deducted from the financial accounting net income or loss of such flow-through entity. |
| (7) | Except as provided in paragraphs (1) through (6), matters necessary to calculate any global anti-base erosion income or loss and financial accounting net income or loss, and other matters shall be prescribed by Presidential Decree. |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 67 (Calculation of Adjusted Covered Taxes) |
| (1) | The adjusted covered taxes of a constituent entity for each business year shall be calculated by reflecting the total deferred tax adjustment amount and other adjustments prescribed by Presidential Decree in the amount of taxes recorded as the current tax expense in its financial accounts for the relevant business year, which are prescribed by Presidential Decree, such as taxes imposed on the income or profits of the constituent entity for the relevant business year (hereafter in this Chapter referred to as “covered taxes”). In such cases, covered taxes related to the income of a permanent establishment, dividend income received from another constituent entity, etc. shall be allocated to other constituent entities by taking into account the allocation of related income, etc., as prescribed by Presidential Decree. |
| (2) | When any adjustment is reflected in covered taxes under paragraph (1), the total deferred tax adjustment amount of a constituent entity for each business year shall be calculated by reflecting the 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 global anti-erosion income or loss from the calculation of the deferred tax expense in its financial accounts for the relevant business year. In such cases, if the tax rate applicable to the calculation of the deferred tax expense in the financial accounts exceeds the minimum rate, a re-calculation shall be made based on the minimum rate. |
| (3) | For purposes of applying paragraph (2), where a constituent entity fails to pay a tax related to its deferred tax liabilities reflected in the total deferred tax adjustment amount (excluding any amount prescribed by Presidential Decree, such as the amount of deferred tax liabilities changed in relation to depreciation of tangible assets) by the last day of the business year in which the date of the fifth anniversary of recording such deferred tax liabilities falls, the relevant amount shall be deducted from the covered taxes for the business year in which the date of such recording falls and the effective tax rate under Article 69 and the top-up tax under Articles 70 and 71 for the relevant business year shall be re-calculated. |
| (4) | Except as provided in paragraphs (1) through (3), matters necessary to calculate adjusted covered taxes and the total deferred tax adjustment amount, and other matters shall be prescribed by Presidential Decree. |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 68 (Post-Filing Adjustments and Tax Rate Changes) |
| (1) | Where the amount of a constituent entity’s covered taxes for a previous business year recorded in its financial accounts increases or decreases in each business year due to any determination, rectification, etc. after a global anti-base erosion information return is filed under Article 83 (1), the increased or decreased amount shall be added to the covered taxes for the business year in which the date any determination, rectification, etc. is made falls (hereafter in this Article referred to as “business year for rectification”) or shall be added to or deducted from the adjusted covered taxes for a previous business year in which any determination, rectification, etc. is to be made (hereafter in this Article referred to as “business year subject to rectification”) in accordance with the following classification: |
| 1. | Where the amount of covered taxes for a business year subject to rectification increases: The increased amount of covered taxes shall be added to the covered taxes for the business year for rectification; |
| 2. | Where the amount of covered taxes for a business year subject to rectification decreases: The decreased amount of covered taxes shall be deducted from the adjusted covered taxes for a business year subject to rectification, and the effective tax rate under Article 69 and the top-up tax under Articles 70 and 71 for a business year subject to rectification shall be re-calculated, as prescribed by Presidential Decree. |
| (2) | Notwithstanding paragraph (1) 2, where the decreased amount of covered taxes for a business year subject to rectification is an insignificant amount prescribed by Presidential Decree, such decreased amount may be deducted from the covered taxes of a constituent entity for the business year for rectification at the election of a filing constituent entity. |
| (3) | Where any change is made to the tax rate applicable to the calculation of a constituent entity’s deferred tax expense in the country of residence, covered taxes shall be adjusted, as prescribed by Presidential Decree. |
| (4) | Where a constituent entity fails to pay an amount exceeding one million euros that is recorded in its financial accounts as its current tax expense and included in adjusted covered taxes for a previous business year within three years from the last day of such previous business year, the unpaid amount shall be deducted from adjusted covered taxes for the previous business year and the effective tax rate under Article 69 and the top-up tax under Articles 70 and 71 for such year shall be re-calculated, as prescribed by Presidential Decree. |
| (5) | Except as provided in paragraphs (1) through (4), matters necessary to adjust covered taxes, adjusted covered taxes, etc. after a global anti-base erosion information return for a previous year is filed under Article 83 (1) and other matters shall be prescribed by Presidential Decree. |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 69 (Calculation of Effective Tax Rates) |
| (1) | The effective tax rate of a multinational enterprise group for each business year shall be calculated by country. |
| (2) | The effective tax rate of a multinational enterprise group by country shall be calculated by dividing the amount under subparagraph 1 by the amount under subparagraph 2: |
| 1. | The sum of the adjusted covered taxes specified in Article 67 (1) of each constituent entity located in the relevant country; |
| 2. | The amount calculated in accordance with the following formula (hereafter in this Chapter referred to as “net global anti-base erosion income”): |
Net global anti-base erosion income = A ? B
A: The sum of the global anti-base erosion income of each constituent entity located in the relevant country for the relevant business year
B: The sum of the global anti-base erosion loss of each constituent entity located in the relevant country for the relevant business year with the negative sign removed
| (3) | Where the net global anti-base erosion income calculated under paragraph (2) is zero or a negative amount, it shall be deemed not to exist and thus the effective tax rate for the relevant country shall not be calculated. |
| (4) | For purposes of applying paragraphs (1) through (3), a constituent entity prescribed by Presidential Decree, such as a flow-through entity that is deemed to have no country of residence under Article 64 (2) (hereafter in this Chapter referred to as “stateless constituent entity”), shall be deemed a constituent entity located in a separate country, assuming that each stateless constituent entity is in the separate country. |
| (5) | When the effective tax rate is calculated under paragraphs (1) through (4), the global anti-base erosion income or loss prescribed in Article 66 (1) of a constituent entity that is a minority-owned constituent entity located in the relevant country or of an investment entity specified in Article 79 (1) and its adjusted covered taxes under Article 67 (1) shall be excluded from the calculation of the sum of the net global anti-base erosion income or the adjusted covered taxes for the relevant country. |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 70 (Calculation of Top-Up Taxes for Countries of Residence of Constituent Entities) |
| (1) | The top-up tax for each business year for the country in which a constituent entity of the relevant multinational enterprise group is located shall be calculated in accordance with the following formula: |
The top-up tax for the country in which a constituent entity of the relevant multinational enterprise group is located = (A x B) + C ? D
A: The top-up tax percentage for the country in which a constituent entity of the relevant multinational enterprise group is located
B: The excess profit for the country in which a constituent entity of the relevant multinational enterprise group is located
C: The additional current top-up tax for the country in which a constituent entity of the relevant multinational enterprise group is located
D: The qualified domestic minimum top-up tax for the country in which a constituent entity of the relevant multinational enterprise group is located
| (2) | “Top-up tax percentage for the country in which a constituent entity of the relevant multinational enterprise group is located” in the formula specified in paragraph (1) means the percentage calculated by deducting the effective tax rate prescribed in Article 69 from the minimum rate, and if the result of such calculation is a negative figure, the top-up tax percentage shall be deemed zero. |
| (3) | “Excess profit for the country in which a constituent entity of the relevant multinational enterprise group is located” in the formula specified in paragraph (1) means the amount calculated by deducting from the net global anti-base erosion income, the sum of the excluded amounts related to payroll costs and the book value of tangible assets prescribed by Presidential Decree (hereafter in this Chapter referred to as “substance-based income exclusion amount”) for a constituent entity located in the relevant country (excluding an investment entity prescribed in Article 79 (1)), and if the result of such calculation is a negative figure, the excess profit shall be deemed zero. |
| (4) | “Additional current top-up tax for the country in which a constituent entity of the relevant multinational enterprise group is located” in the formula specified in paragraph (1) means the amount that is added to the top-up tax for the relevant business year after the effective tax rate under Article 69 for a previous business year is re-calculated, as prescribed by Presidential Decree. |
| (5) | “Qualified domestic minimum top-up tax for the country in which a constituent entity of the relevant multinational enterprise group is located” in the formula specified in paragraph (1) means any tax that the country of residence imposes to reduce the top-up tax to zero and that has been paid or is to be paid under the qualified domestic minimum top-up tax system of the relevant country prescribed by Presidential Decree, and if the top-up tax for the country calculated by deducting its qualified domestic minimum top-up tax is a negative figure, no top-up tax for the relevant business year shall be deemed to exist. |
| (6) | Except as provided in paragraphs (1) through (5), matters necessary to calculate the top-up tax for each business year for the country in which a constituent entity of the relevant multinational enterprise group is located shall be prescribed by Presidential Decree. |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 71 (Calculation of Top-Up Taxes of Constituent Entities) |
The top-up tax of a constituent entity for each business year shall be calculated in accordance with the following formula. In such cases, matters necessary to apply such formula shall be prescribed by Presidential Decree:
The top-up tax of a constituent entity = A x B/C
A: The top-up tax for each business year for the country in which a constituent entity of the relevant multinational enterprise group is located under Article 70
B: The global anti-base erosion income of the relevant constituent entity for each business year
C: The sum of the global anti-base erosion income of each constituent entity located in the relevant country for each business year
[This Article Newly Inserted on Dec. 31, 2022]
SECTION 3 Imposition of Top-Up Tax
| Article 72 (Application of Income Inclusion Rule) |
| (1) | With regard to the top-up tax of a low-taxed constituent entity calculated under Article 71, the income inclusion rule shall preferentially apply, under which the allocable share of the top-up tax (referring the top-up tax, if any, allocated to the parent entity or other constituent entities under paragraph (2) or Article 73 (3) through (5); hereafter in this Chapter, the same shall apply) calculated under paragraphs (2) through (8) is imposed on the parent entity. |
| (2) | A parent entity’s allocable share of the top-up tax of a low-taxed constituent entity for each business year shall be calculated in accordance with the following formula: |
Parent entity’s allocable share of the top-up tax = A x B
A: The top-up tax of a low-taxed constituent entity calculated under Article 71
B: The percentage of the global anti-base erosion income of a low-taxed constituent entity that is attributable to the relevant parent entity and prescribed by Presidential Decree
| (3) | Where the ultimate parent entity that is a local constituent entity directly or indirectly owns an ownership interest in a low-taxed constituent entity at any time during the relevant business year, such ultimate parent entity shall pay its allocable share of the top-up tax. |
| (4) | Where an intermediate parent entity that is a local constituent entity directly or indirectly owns an ownership interest in a low-taxed constituent entity at any time during the relevant business year (including an ownership interest in the low-taxed constituent entity owned by a permanent establishment of the intermediate parent entity), such intermediate parent entity shall pay its allocable share of the top-up tax: Provided, That this shall not apply in the following cases: |
| 1. | Where the ultimate parent entity of the multinational enterprise group to which the low-taxed constituent entity belongs is subject to the application of a rule that, as the income inclusion rule, meets the requirements prescribed by Presidential Decree (hereafter in this Chapter referred to as “qualified income inclusion rule”) for the relevant business year; |
| 2. | Where another intermediate parent entity that directly or indirectly owns a controlling interest in the intermediate parent entity is subject to the application of a qualified income inclusion rule for the relevant business year. |
| (5) | Where a partially-owned parent entity that is a local constituent entity directly or indirectly owns an ownership interest in a low-taxed constituent entity at any time during the relevant business year, such partially-owned parent entity shall pay its allocable share of the top-up tax. |
| (6) | Where a partially-owned parent entity subject to a qualified income inclusion rule directly or indirectly owns all ownership interests in another partially-owned parent entity, paragraph (5) shall not apply to such another partially-owned parent entity. |
| (7) | Paragraphs (3) through (6) shall not apply to a local low-taxed constituent entity. |
| (8) | Where a parent entity owns an ownership interest in a low-taxed constituent entity indirectly through an intermediate parent entity or a partially-owned parent entity, its allocable share of the top-up tax shall be calculated by deducting from the allocable share of the top-up tax calculated under paragraph (2) the amount that is prescribed by Presidential Decree by taking into account the allocable share of the top-up tax paid by such intermediate parent entity or partially-owned parent entity. |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 73 (Application of Under Taxed Payment Rule) |
| (1) | With regard to the top-up tax of a low-taxed constituent entity that is not subject to a qualified income inclusion rule, the under taxed payment rule shall apply, under which any allocable share of the top-up tax calculated under paragraphs (2) through (5) is imposed on constituent entities of the relevant multinational enterprise group. |
| (2) | The under taxed payment rule top-up tax amount of a multinational enterprise group for each business year shall be the sum of the top-up tax of all low-taxed constituent entities. |
| (3) | The top-up tax of a low taxed constituent entity under paragraph (2) shall be the amount classified as follows: |
| 1. | Where all of the ultimate parent entity's ownership interests in the low-taxed constituent entity are held directly or indirectly by at least one parent entity required to apply a qualified income inclusion rule with respect to such low-taxed constituent entity for the relevant business year: Zero; |
| 2. | In cases not falling under subparagraph 1: The amount calculated by deducting the parent entity’s allocable share of the top-up tax of the relevant low-taxed constituent entity that is imposed under a qualified income inclusion rule. |
| (4) | The under taxed payment rule top-up tax amount of a multinational enterprise group for each business year allocated to the Republic of Korea shall be calculated by multiplying the under taxed payment rule top-up tax amount determined under paragraphs (2) and (3) by the under taxed payment rule percentage of the Republic of Korea calculated in accordance with the following formula. In such cases, matters necessary to apply the formula shall be prescribed by Presidential Decree: |
The under taxed payment rule percentage of the Republic of Korea
= (A/B x 50/100) + (C/D x 50/100)
A: The total number of employees of each local constituent entity of the relevant multinational enterprise group
B: The total number of employees of constituent entities of the relevant multinational enterprise group located in a country that has a qualified under taxed payment rule in force
C: The sum of the net book values of tangible assets of local constituent entities of the relevant multinational enterprise group
D: The sum of the net book values of tangible assets of constituent entities of the relevant multinational enterprise group located in a country that has a qualified under taxed payment rule in force
| (5) | The under taxed payment rule top-up tax amount allocated to each local constituent entity of a multinational enterprise group for each business year shall be calculated by multiplying the under taxed payment rule top-up tax amount allocated to the Republic of Korea specified in paragraph (4) by the under taxed payment rule top-up tax percentage of the relevant local constituent entity calculated in accordance with the following formula: |
The under taxed payment rule top-up tax percentage of a local constituent entity
= (A/B x 50/100) + (C/D x 50/100)
A: The number of employees of the relevant local constituent entity
B: The total number of employees of each local constituent entity of the relevant multinational enterprise group
C: The net book values of tangible assets of the relevant local constituent entity
D: The sum of the net book values of tangible assets of each local constituent entity of the relevant multinational enterprise group
| (6) | A local constituent entity of a multinational enterprise group (excluding an investment entity specified in Article 79 (1)) shall pay the under taxed payment rule top-up tax amount calculated under paragraph (5). |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 74 (Special Cases concerning De Minimis Exclusion) |
| (1) | Notwithstanding Articles 69 through 71, a filing constituent entity may reduce the top-up tax for each constituent entity located in a country meeting all of the following requirements to zero for each business year, as prescribed by Presidential Decree: |
| 1. | The average revenue of the country prescribed by Presidential Decree for the relevant and two immediately preceding business years shall be less than 10 million euros; |
| 2. | The average global anti-base erosion income or loss of the country prescribed by Presidential Decree for the relevant and two immediately preceding business years shall be less than one million euros. |
| (2) | Paragraph (1) shall not apply to a stateless constituent entity or an investment entity specified in Article 79 (1). |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 75 (Special Cases concerning Minority-Owned Constituent Entities) |
| (1) | With regard to a group prescribed by Presidential Decree that consists of minority-owned constituent entities (hereafter in this Chapter referred to as “minority-owned subgroup”), the effective tax rate and top-up tax shall be calculated in accordance with Articles 66 through 71, 74, and 76 through 81 as such minority-owned subgroup is deemed a separate multinational enterprise group. |
| (2) | The effective tax rate and top-up tax of a minority-owned constituent entity that is not a member of a minority-owned subgroup shall be calculated for each minority-owned constituent entity in accordance with Articles 66 through 71, 74, 76 through 78, 80, and 81. |
| (3) | Where a minority-owned constituent entity that is not a member of a minority-owned subgroup is an investment entity prescribed in Article 79, Article 79 shall apply. |
| (4) | The adjusted covered taxes and global anti-base erosion income or loss of a minority-owned subgroup and a minority-owned constituent entity subject to the application of paragraph (2) shall be excluded when calculating the net global anti-base erosion income and the effective tax rate specified in Article 69 of a different constituent entity of the same multinational enterprise group. |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 76 (Special Cases concerning Reorganization) |
| (1) | Where an entity becomes or ceases to be a constituent entity of a multinational enterprise group as a result of a transfer of direct or indirect ownership interests in such entity (hereafter in this paragraph referred to as “target entity”), this Chapter shall apply, as prescribed by Presidential Decree, taking into account whether the entity is included in the consolidated financial statements of the ultimate parent entity of the multinational enterprise group, the consolidated amount, and other matters: Provided, That in cases prescribed by Presidential Decree, such as where the country of residence of the target entity imposes taxes on a transfer of the relevant ownership interests in the same or similar manner as a transfer of assets and liabilities, paragraph (2) or (3) shall apply. |
| (2) | The global anti-base erosion income or loss of a constituent entity that disposes of assets and liabilities (hereafter in this Article referred to as “disposing constituent entity”) and of a constituent entity that acquires assets and liabilities (hereafter in this Article referred to as “acquiring constituent entity) shall be calculated in accordance with the following classification: |
| 1. | A disposing constituent entity: Any gain or loss arising in connection with the disposition of the relevant assets and liabilities (hereafter in this Article referred to as “gain or loss on the disposition”) shall be included in the calculation of its global anti-base erosion income or loss; |
| 2. | An acquiring constituent entity: Its global anti-base erosion income or loss after the acquisition shall be calculated using the values of the acquired assets and liabilities determined under the accounting standard used in preparing consolidated financial statements. |
| (3) | Notwithstanding paragraph (2), where assets and liabilities are disposed of or acquired as part of a reorganization meeting the requirements prescribed by Presidential Decree, such as that the consideration for transferring assets and liabilities shall be shares or equity interests, the global anti-base erosion income or loss shall be calculated in accordance with the following classification. In such cases, if a disposing constituent entity recognizes part of any loss or gain arising in connection with a reorganization, as prescribed by Presidential Decree, such loss or gain shall be included in the calculation of its global anti-base erosion income or loss, as prescribed by Presidential Decree: |
| 1. | A disposing constituent entity: Any gain or loss on the disposition shall be excluded from the calculation of its global-anti-base erosion income or loss; |
| 2. | An acquiring constituent entity: Its global anti-base erosion income or loss after the acquisition shall be calculated using the entity's book values of the acquired assets and liabilities at the time when a disposing constituent entity disposes of them. |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 77 (Special Cases concerning Joint Ventures) |
| (1) | With regard to an entity prescribed by Presidential Decree, in which the ultimate parent entity of a multinational enterprise group directly or indirectly owns at least 50/100 of ownership interests and for which such ultimate parent entity uses the equity method to account for investments in an entity that holds at least 50/100 of the ownership interests when preparing its consolidated financial statement (hereafter in this Chapter referred to as “joint venture”), and a subsidiary of the joint venture prescribed by Presidential Decree (hereafter in this Chapter referred to as “joint venture subsidiary”), this Chapter shall apply in accordance with the following: |
| 1. | Articles 66 through 71, 74 through 76, and 78 through 81 shall apply as the joint venture and a joint venture subsidiary are deemed constituent entities of a separate multinational enterprise group and the joint venture is deemed the ultimate parent entity of such multinational enterprise group; |
| 2. | Articles 72 and 73 shall apply to a parent entity that directly or indirectly owns ownership interests in the joint venture or a joint venture subsidiary, as prescribed by Presidential Decree. |
| (2) | This Chapter shall apply to at least two groups that meet all of the following requirements and to entities of each relevant group, as prescribed by Presidential Decree, as such groups and entities are deemed a single multinational enterprise group and constituent entities thereof, respectively: |
| 1. | Any of the following arrangements shall be entered into by ultimate parent entities of separate groups: |
| (a) | An arrangement prescribed by Presidential Decree, under which one of the ultimate parent entities prepares one consolidated financial statement in which all the entities of the separate groups are combined with each other (hereafter in this Article referred to as “stapled structure”); |
| (b) | An arrangement prescribed by Presidential Decree, under which the business of the separate groups is combined by contract (hereafter in this Article referred to as “dual-listed arrangement”); |
| 2. | Any entity or permanent establishment of the combined group under a stapled structure or dual-listed arrangement shall be located in a different country with respect to the location of at least one other entity of such combined group. |
| (3) | Where the ultimate parent entity of a multinational enterprise group is a flow-through entity, the global anti-base erosion income or loss of such flow-through entity for each business year shall be calculated by deducting the following relevant amounts: |
| 1. | Global anti-base erosion income for each business year: The amount of global anti-base erosion income attributable to ownership interests prescribed by Presidential Decree, such as the amount of global anti-base erosion income that is attributable to each ownership interest in the flow-through entity and subject to tax at a rate equal to or higher than the minimum rate; |
| 2. | Global anti-base erosion loss for each business year: Where the holder of each ownership interest in the flow-through entity can deduct the amount of global anti-base erosion loss attributable to such ownership interest in calculating his or her taxable income, the relevant amount. |
| (4) | Where the ultimate parent entity of a multinational enterprise group is subject to a regime prescribed by Presidential Decree where dividends are deductible from the taxable income of a dividend payer, its global anti-base erosion income for each business year shall be calculated by deducting dividends prescribed by Presidential Decree that are distributed within 12 months from the end of the relevant business year, and where the amount remaining after such deduction is a negative figure, the global anti-base erosion income shall be deemed zero. |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 78 (Special Cases concerning Eligible Distribution Tax Systems) |
| (1) | With respect to a constituent entity subject to an eligible distribution tax system (referring to a tax system prescribed by Presidential Decree that imposes a corporate tax when a corporation distributes its profits), a filing constituent entity may elect to add the amount prescribed by Presidential Decree, such as the amount necessary to increase the effective tax rate to the minimum rate (hereafter in this Chapter referred to as the “amount of deemed distribution tax”), when calculating the sum of the adjusted covered taxes for the country in which the constituent entity is located. |
| (2) | With respect to a constituent entity for which the amount of deemed distribution tax is added under paragraph (1), in cases prescribed by Presidential Decree, such as where an amount equivalent to that of deemed distribution tax added is not actually imposed, the effective tax rate and top-up tax for the relevant business year in which the amount of deemed distribution tax is added shall be re-calculated, as prescribed by Presidential Decree. |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 79 (Special Cases concerning Investment Entities) |
| (1) | With respect to the country of residence of a constituent entity prescribed by Presidential Decree, such as a constituent entity that is not the ultimate parent entity but is an investment fund or real estate investment vehicle (hereafter in this Article referred to as “investment entity”), the effective tax rate for investment entities for each business year shall be calculated separately from the effective tax rate specified in Article 69 in accordance with the following formula. In such cases, matters necessary to apply the formula shall be prescribed by Presidential Decree: |
The effective tax rate for investment entities located in the relevant country = A/(B-C)
A: The sum of the adjusted covered taxes of each investment entity
B: The sum of the allocable share of each investment entity’s global anti-base erosion income
C: The sum of the allocable share of each investment entity’s global anti-base erosion loss with the negative sign removed
| (2) | Where the value obtained by deducting C from B is zero or a negative figure for the relevant business year in applying the formula prescribed in paragraph (1), the effective tax rate for investment entities located in the relevant country shall not be calculated. |
| (3) | The top-up tax of investment entities located in the relevant country for each business year shall be calculated in accordance with the following formula. In such cases, matters necessary to apply the formula shall be prescribed by Presidential Decree: |
The top-up tax of investment entities located in the relevant country = (A x B) + C ? D
A: The top-up tax percentage for investment entities located in the relevant country
B: The excess profit of investment entities located in the relevant country
C: The additional current top-up tax of investment entities located in the relevant country
D: The qualified domestic minimum top-up tax of investment entities located in the relevant country
| (4) | The top-up tax of the relevant investment entity for each business year shall be calculated in accordance with the following formula: |
The top-up tax of the relevant investment entity = A x B/C
A: The top-up tax of investment entities located in the relevant country prescribed in paragraph (3)
B: The allocable share of the relevant investment entity’s global anti-base erosion income
C: The sum of the allocable share of the global anti-base erosion income of each investment entity located in the relevant country
| (5) | Notwithstanding paragraphs (1) through (4), where the constituent entity-owner of an investment entity is subject to tax based on the fair value of its ownership interest in the investment entity, this Chapter may apply to the investment entity, as prescribed by Presidential Decree, as it is deemed a tax transparent entity at the election of a filing constituent entity. |
| (6) | Notwithstanding paragraphs (1) through (4), where an investment entity distributes profits, etc. to the constituent entity-owner, which is reasonably expected to be subject to tax on the distributed amount at a rate equal to or higher than the minimum rate, the following methods may apply at the election of a filing constituent entity, as prescribed by Presidential Decree: |
| 1. | 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, shall be included in the calculation of the constituent entity-owner’s global anti-base erosion income; |
| 2. | Where there exists any 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 preceding the relevant business year, the investment entity shall be deemed a low-taxed constituent entity, and Articles 72 and 73 shall apply as the amount calculated by multiplying the minimum rate by the undistributed amount attributable to the constituent entity-owner is deemed the top-up tax of the investment entity. |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 80 (Exemption from Application) |
Notwithstanding Article 70 (1), a country that meets the requirements for exemption from application prescribed by Presidential Decree, the top-up tax for such country for the relevant business year may be deemed zero at the election of a filing constituent entity: Provided, That this shall not apply to cases prescribed by Presidential Decree, such as where any explanation of whether such requirements are satisfied is not given. [This Article Newly Inserted on Dec. 31, 2022]
| Article 81 (Special Cases concerning Transition Year) |
| (1) | For the first year in which this Chapter or any statute or regulation of other countries corresponding thereto (hereafter in this Chapter referred to as the “Global Anti-Base Erosion Rules”) applies to the relevant country when the effective tax rate of a multinational enterprise group for each country is calculated under Article 69 (hereafter in this Chapter referred to as “transition year”), the deferred tax assets and deferred tax liabilities recorded or disclosed in the financial accounts of all of the constituent entities located in the relevant country for the transition year shall be included in the calculation of the total deferred tax adjustment amount, notwithstanding Article 67 (2). |
| (2) | Matters necessary to calculate the effective tax rate for a transition year, such as the calculation of the total deferred tax adjustment amount under paragraph (1), shall be prescribed by Presidential Decree. |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 82 (Special Cases concerning Multinational Enterprise Groups in Initial Phase of Their International Activities) |
| (1) | Article 73 shall not apply to a multinational enterprise group prescribed by Presidential Decree that is in the initial phase of its international activity for each business year: Provided, That if the Republic of Korea is the country where the multinational enterprise group has the highest total net book value of its tangible assets by country prescribed by Presidential Decree for the business year when it is subject to the Global Anti-Base Erosion Rules Article 73 shall apply in accordance with the following: |
| 1. | Where a low-taxed constituent entity is located in the Republic of Korea, its top-up tax shall be deemed zero for purposes of applying Article 73 (2) and (3); |
| 2. | The under taxed payment rule percentage of the Republic of Korea shall be deemed 1 for purposes of applying Article 73 (4). |
| (2) | Paragraph (1) shall not apply for a business year that starts later than five years after the first day of the first business year when a multinational enterprise group is subject to the Global Anti-Base Erosion Rules. |
[This Article Newly Inserted on Dec. 31, 2022]
SECTION 5 Filing of Returns and Payment
| Article 83 (Filing of Global Anti-Base Erosion Information Returns) |
| (1) | A local constituent entity shall file a global anti-base erosion information return for each business year with the head of the tax office having jurisdiction over the place for tax payment within 15 months (18 months for any transition year) after the end of the relevant business year, as prescribed by Presidential Decree. |
| (2) | A global anti-base erosion information return to be filed by a local constituent entity under paragraph (1) may be filed by an entity prescribed by Presidential Decree that is another local constituent entity of the same multinational enterprise group (hereafter in this Chapter referred to as “designated local entity”) on its behalf. |
| (3) | Notwithstanding paragraphs (1) and (2), a local constituent entity need not file a global anti-base erosion information return under paragraphs (1) and (2) in cases prescribed by Presidential Decree, such as where a constituent entity of the same multinational enterprise group that is located in a foreign country files a return corresponding to a global anti-base erosion information return specified in paragraph (1) with the tax authority of the relevant country of residence. |
| (4) | Even where a local constituent entity does not file a global anti-base erosion information return under paragraph (3), such local constituent entity or a designated local entity shall file a return with the head of the tax office having jurisdiction over the place for tax payment on matters regarding a constituent entity located in a foreign country that files a return under paragraph (3) within 15 months (18 months for any transition year) after the end of the relevant business year, as prescribed by Presidential Decree. |
| (5) | Where global anti-base erosion information returns or other documents submitted under paragraphs (1) and (2) are incomplete or any error is found therein, the head of the tax office having jurisdiction over the place for tax payment or the commissioner of the competent regional tax office may request a correction thereof. |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 84 (Filing of Returns on Allocable Share of Top-Up Tax and Payment Thereof) |
| (1) | A local constituent entity obligated to pay the Republic of Korea the allocable share of the top-up tax of a local constituent entity that is the parent entity under Article 72 and the allocable share of the top-up tax allocated to a local constituent entity under Article 73 shall file a return on the allocable share of the top-up tax with the head of the tax office having jurisdiction over the place for tax payment within 15 months (18 months for any transition year) after the end of the relevant business year, as prescribed by Presidential Decree. In such cases, the exchange rate used to convert the allocable share of the top-up tax into won shall be prescribed by Presidential Decree. |
| (2) | A local constituent entity obligated to pay the Republic of Korea the allocable share of the top-up tax shall pay the relevant amount to the tax office having jurisdiction of the place for tax payment, the Bank of Korea (including its branch offices), or a postal office by the return deadline specified in paragraph (1), as prescribed by Presidential Decree. |
| (3) | Where the allocable share of the top-up tax to be paid by a local constituent entity exceeds 10 million won, it may pay part of the relevant amount in installments within one month (two months in the case of a small or medium enterprise prescribed in Article 6 (1) of the Act on Restriction on Special Cases concerning Taxation) after the payment deadline, as prescribed by Presidential Decree. |
| (4) | Where a return on any allocable share of the top-up tax is filed under paragraph (1), a return on the tax base for and amount of a national tax shall be deemed filed for purposes of applying the Framework Act on National Taxes. |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 85 (Determination, Rectification, Notification, and Collection) |
| (1) | Where a local constituent entity fails to file a return under Article 84, the head of the tax office having jurisdiction over the place for tax payment or the commissioner of the competent regional tax office shall determine its allocable share of the top-up tax for each business year. |
| (2) | Where any error or omission is found in the details of a return filed by a local constituent entity under Article 84, the head of the tax office having jurisdiction over the place for tax payment or the commissioner of the competent regional tax office shall rectify its allocable share of the top-up tax. |
| (3) | Where the head of the tax office having jurisdiction over the place for tax payment or the commissioner of the competent regional tax office determines or rectifies any allocable share of the top-up tax under paragraphs (1) and (2), he or she shall do so based on books or other evidentiary documents. |
| (4) | Where the head of the tax office having jurisdiction over the place for tax payment or the commissioner of the competent regional tax office determines or rectifies any allocable share of the top-up tax under paragraphs (1) and (2) and then discovers an error or omission in such determination or rectification, he or she shall re-rectify the relevant allocable share of the top-up tax immediately. |
| (5) | Where a local constituent entity is deemed likely to evade its allocable share of the top-up tax during the relevant business year on any ground prescribed by Presidential Decree (hereafter in this Article referred to as “ground for occasional imposition”), the head of the tax office having jurisdiction over the place for tax payment or the commissioner of the competent regional tax office may impose the allocable share of the top-up tax on such entity on an occasional basis (hereinafter referred to as “occasional imposition”). In such cases, a local constituent entity obligated to pay its allocable share of the top-up tax to the Republic of Korea shall file a return on the allocable share of the top-up tax for each business year under Article 84 even where it has paid the tax amount imposed occasionally. |
| (6) | For purposes of applying paragraph (5), the period from the date the relevant business year commences to the date a ground for occasional imposition arises shall be the period of occasional imposition: Provided, That where a ground for occasional imposition arises before the deadline for filing a return on the allocable share of the top-up tax under Article 84 for the immediately preceding business year (excluding where a return on the allocable share of the top-up tax for the immediately preceding business year is filed), the period from the date the immediately preceding business year commences to the date a ground for occasional imposition arises shall be the period of occasional imposition. |
| (7) | Matters necessary for occasional imposition shall be prescribed by Presidential Decree. |
| (8) | Where the head of the tax office having jurisdiction over the place for tax payment or the commissioner of the competent regional tax office determines or rectifies an entity’s allocable share of the top-up tax under paragraphs (1) and (2), he or she shall notify the entity of such determination or rectification, as prescribed by Presidential Decree. |
| (9) | Where a local constituent entity fails to pay all or part of its allocable share of the top-up tax, the head of the tax office having jurisdiction over the place for tax payment shall collect the unpaid allocable share of the top-up tax pursuant to the National Tax Collection Act. |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 86 (Questioning and Inspection) |
A public official who engages in business affairs regarding global anti-base erosion may question any of the following persons, inspect relevant books, documents, or objects, or issue an order to submit them, if necessary to perform his or her duties. In such cases, a public official shall not abuse his or her authority for purposes, etc. other than those necessary to perform his or her duties:
| 1. | A local constituent entity; |
| 2. | A person deemed to engage in a transaction with a local constituent entity prescribed in subparagraph 1. |
[This Article Newly Inserted on Dec. 31, 2022]
CHAPTER VI PENALTY PROVISIONS
| Article 87 (Administrative Fines for Noncompliance with Obligation to Submit Data on International Transactions) |
| (1) | Any of the following persons who fails to submit data by the deadline without any unavoidable cause prescribed by Presidential Decree or submits false data shall be subject to an administrative fine not exceeding 100 million won: <Amended on Dec. 31, 2022> |
| 1. | A person obligated to submit a consolidated report on international transaction information under Article 16 (1) or a statement of international transactions under paragraph (2) 1 of that Article; |
| 2. | A person in receipt of a request to submit data under Article 16 (4); |
| 3. | A local constituent entity obligated to file a global anti-base erosion information return under Article 83 (1) or a local constituent entity obligated to file a return under paragraph (4) of that Article. |
| (2) | The tax authority may require a person on whom an administrative fine is imposed pursuant to paragraph (1) to submit data or correct false data within a specified period for compliance of 30 days; and where the person fails to submit data or to comply with the request for correction within such period, the authority may additionally impose an administrative fine not exceeding 200 million won in proportion to the period of delay. |
| (3) | An administrative fine under paragraphs (1) and (2) shall be imposed and collected by the tax authority, as prescribed by Presidential Decree. |
[Moved from Article 60 <Dec. 31, 2022>]
| Article 88 (Administrative Fines for Noncompliance with Obligation to Submit Data on Hybrid Financial Instrument Transactions) |
| (1) | Where a domestic corporation obligated to submit data on hybrid financial instrument transactions under Article 25 (3) fails to submit data or submits false data, it shall be subject to an administrative fine not exceeding 30 million won for each hybrid financial instrument. |
| (2) | An administrative fine under paragraph (1) shall be imposed and collected by the tax authority, as prescribed by Presidential Decree. |
[This Article Newly Inserted on Dec. 31, 2022]
| Article 89 (Administrative Fines for Noncompliance with Obligation to Report Financial Information) |
| (1) | Any of the following persons who fails to provide the requested information without good reason or provides false information shall be subject to an administrative fine not exceeding 30 million won: |
| 1. | A person requested to provide information on the actual owner under Article 36 (2); |
| 2. | A financial company, etc. requested to provide financial information under Article 36 (3), (4), or (6). |
| (2) | An administrative fine under paragraph (1) shall be imposed and collected by the tax authority, as prescribed by Presidential Decree. |
[Moved from Article 61 <Dec. 31, 2022>]
| Article 90 (Administrative Fines for Noncompliance with Obligation to Report Foreign Financial Accounts) |
| (1) | Where a person required to report his or her account under Article 53 (1) fails to report his or her foreign financial account information by the reporting deadline or has under-reported the relevant amount, an administrative fine not exceeding 20 percent of the sum of the amount calculated as follows for each account subject to reporting shall be imposed: <Amended on Dec. 31, 2022> |
| 1. | Where the person fails to report the information: The amount not reported; |
| 2. | Where the person has under-reported the amount: The difference between the amount actually reported and the amount that should have been reported. |
| (2) | Where a person required to report his or her account fails to explain the source of the noncompliance amounts pursuant to Article 56 (2) or gives a false explanation, the person shall be subject to an administrative fine equivalent to 20 percent of the amount that has not been explained or has been falsely explained: Provided, That no administrative fine shall be imposed where there exists any unavoidable cause prescribed by Presidential Decree, such as a natural disaster. |
| (3) | Administrative fines under paragraphs (1) and (2) shall be imposed and collected by the tax authority, as prescribed by Presidential Decree. |
[Moved from Article 62 <Dec. 31, 2022>]
| Article 91 (Administrative Fines for Noncompliance with Obligation to Submit Data on Overseas Subsidiaries) |
| (1) | Where a resident or domestic corporation required to submit data, including the statement, etc. of an overseas direct investment, pursuant to Article 58 (1) (requiring the submission of data under Article 58 (1) 1 through 4, only where a resident or domestic corporation that has made overseas direct investments under Article 3 (1) 18 of the Foreign Exchange Transactions Act directly or indirectly owns at least 10 percent of the total number of issued stocks or the total amount of investment of a corporation that has attracted such overseas direct investments) falls under any of the following cases, the resident or domestic corporation shall be subject to an administrative fine not exceeding 50 million won: Provided, That no administrative fine shall be imposed where there exists any unavoidable cause prescribed by Presidential Decree, such as where it is deemed impracticable for such resident or domestic corporation to submit data by the deadline under Article 58 (1) or (4): <Amended on Dec. 21, 2021> |
| 1. | Where the resident or domestic corporation fails to submit the statement, etc. of an overseas direct investment by the deadline under Article 58 (1) or submits any false statement, etc. of an overseas direct investment; |
| 2. | Where the resident or domestic corporation in receipt of a request to submit or supplement any data pursuant to Article 58 (3) fails to submit the relevant data by the deadline under Article 58 (4) or submits any false data. |
| (2) | Where a resident or domestic corporation required to submit the statement of overseas real estate, etc. under Article 58 (2) falls under any of the following cases, the resident or domestic corporation shall be subject to an administrative fine not exceeding 10 percent of the acquisition value, disposal value, and income from investment operations of the overseas real estate, etc. prescribed by Presidential Decree (the maximum amount of 100 million won): Provided, That no administrative fine shall be imposed where there exists any unavoidable cause prescribed by Presidential Decree, such as where it is deemed impracticable for such resident or domestic corporation to submit data by the deadline under Article 58 (2) or (4): <Amended on Dec. 21, 2021> |
| 1. | Where the resident or domestic corporation fails to submit the statement of overseas real estate, etc. by the deadline under the provisions, with the exception of the subparagraphs, of Article 58 (2) or submits any false statement of overseas real estate, etc.; |
| 2. | Where the resident or domestic corporation in receipt of a request for submission or supplementation of data under Article 58 (3) fails to submit such data by the deadline under 58 (4) or submits any false data. |
| (3) | Where a resident or domestic corporation fails to explain the source of the amount subject to explanation about the source of funds for acquisition or gives a false explanation in violation of Article 59 (2) and (3), the resident or domestic corporation shall be subject to an administrative fine equivalent to 20 percent of the unexplained or falsely explained amount: Provided, That no administrative fine shall be imposed where there exists any natural disaster or any unavoidable cause prescribed by Presidential Decree. <Amended on Dec. 21, 2021> |
| (4) | Administrative fines under paragraphs (1) through (3) shall be imposed and collected by the tax authority, as prescribed by Presidential Decree. |
[Moved from Article 63 <Dec. 31, 2022>]
ADDENDA <Act No. 17651, Dec. 22, 2020>
Article 1 (Enforcement Date)
This Act shall enter into force on January 1, 2021: Provided, That the amended provisions of subparagraphs 1 and 2 of Article 52 (limited to virtual asset service providers, virtual assets, and virtual asset transactions) shall enter into force on January 1, 2022. Article 2 (General Applicability)
This Act shall begin to apply from the taxable year that commences after this Act enters into force.
Article 3 (Applicability to Scope of Special Relationship)
Article 4 (Applicability to Arm's Length Pricing Methods)
Article 5 (Applicability to Submission of Consolidated Reports on International Transaction Information)
| (1) | The amended provisions of the main clause, with the exception of the subparagraphs, of Article 16 (2) (limited to the provisions regarding the deadline for submission of data) shall also apply where the obligation to submit the data under the subparagraphs of Article 16 (2) for the taxable period or business year commencing before this Act enters into force has arisen and the deadline for submission has not expired under the main clause of Article 11 (1) of the previous Adjustment of International Taxes Act (referring to the Act before wholly amended by Act No. 17651; hereinafter referred to as “previous Act"). |
| (2) | The amended provisions of the main clause, with the exception of the subparagraphs, of Article 16 (2) (limited to the provisions regarding a taxpayer required to submit a Master File and Local Files) shall also apply where the obligation to submit a Master File and Local Files has arisen before this Act enters into force and the deadline for submission of the statement of international transactions has not expired under the main clause of Article 11 (1) of the previous Act. |
Article 6 (Applicability to Exclusion of Interest Overpaid Compared to Income from Deductible Expenses)
Article 7 (Applicability to Scope of Application of Accumulative Taxation of Retained Earnings of Specific Foreign Corporations)
Article 8 (Applicability to Exceptional Application of Specific Foreign Corporations’ Retained Earnings Deemed Dividends)
Article 9 (Applicability to Submission of Data on Specific Foreign Corporations)
The amended provisions of Article 20-2 of the Adjustment of International Taxes Act (Act No. 13553) shall begin to apply to the first submission of data for the taxable year immediately preceding the taxable year in which the filing deadline of a consolidated corporation falls on or after January 1, 2016. Article 10 (Applicability to Special Cases regarding Imposition of Gift Tax on Overseas Donation)
Article 11 (Applicability to Verification of Personal Information of Counter-Parties to Financial Transactions by Financial Companies)
Article 12 (Applicability to Conditions for Commencing Mutual Agreement Procedure)
The amended provisions of the proviso of Article 42 (2) 1 shall begin to apply to the request for commencing the mutual agreement procedure on or after the date this Act enters into force. Article 13 (Applicability to End Date of Mutual Agreement Procedure)
| (1) | The amended provisions of the proviso, with the exception of the subparagraphs, of Article 46 (3) shall also apply where the mutual agreement procedure is in progress as at the time this Act enters into force and a final judgment is rendered by a court on or after the date this Act enters into force. |
| (2) | The amended provisions of Article 23 (4) 2 of the Adjustment of International Taxes Act (Act No. 14384) shall also apply where the mutual agreement procedure is in progress as of January 1, 2017 and the applicant withdraws his or her application to commence the mutual agreement procedure on or after January 1, 2017. |
Article 14 (Applicability to Enforcement of Terms and Conditions Mutually Agreed Upon)
The amended provisions of Article 47 (3) shall begin to apply to cases where an agreement is reached in writing between the Republic of Korea and the other Contracting State on or after the date this Act enters into force. Article 15 (Applicability to Scope of Foreign Financial Accounts)
The amended provisions of subparagraphs 1 and 2 of Article 52 (limited to the provisions regarding virtual asset service providers, virtual assets, and virtual asset transactions) shall begin to apply to cases where the obligation to report foreign financial accounts arises on or after the enforcement date under the proviso of Article 1 of the Addenda. Article 16 (Applicability to Explanation about Source of Noncompliance Amounts in Relation to Obligation to Report Foreign Financial Accounts)
The amended provisions of Article 56 (limited to the provisions regarding the tax authority) shall begin to apply to a request for an explanation made on or after the date this Act enters into force. Article 17 (Applicability to Obligation to Submit Data on Overseas Subsidiaries)
The amended provisions of Article 58 (1) and (2) (limited to the provisions regarding the deadline for submission and the tax authority) shall also apply where the data under the subparagraphs of Article 58 (1) is submitted for the taxable period or business year that commences before this Act enters into force and the deadline for submission has not expired under the previous provisions [referring to Article 165-2 (1) of the Income Tax Act (referring to the Act before partially amended by Act No. 17757) and Article 121-2 (1) of the Corporate Tax Act (referring to the Act before partially amended by Act No. 17652)]. Article 18 (Applicability to Explanation about Source of Funds for Acquisition in Cases of Noncompliance with Obligation to Submit Data on Overseas Subsidiaries)
The amended provisions of Article 59 (1) and (3) (limited to the provisions regarding the tax authority) shall begin to apply to a request for an explanation made on or after the date this Act enters into force. Article 19 (Applicability to Sanctions for Noncompliance with Obligation to Submit Data)
Article 20 (Applicability to Administrative Fines for Noncompliance with Obligation to Report Foreign Financial Accounts)
Article 21 (General Transitional Measures)
Notwithstanding the amended provisions of this Act, 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 Act enters into force.
Article 22 (Transitional Measures regarding Application for Advance Pricing Agreements and Approval Therefor)
Notwithstanding the amended provisions of Article 14 (3), Article 6 (3) of the previous Act shall apply to an application for an advance pricing agreement filed before this Act enters into force. Article 23 (Transitional Measures regarding Submission of Consolidated Reports on International Transaction Information)
| (1) | Notwithstanding the amended provisions of the main clause, with the exception of the subparagraphs, of Article 16 (2) (limited to the provisions regarding the deadline for submission of data), the main clause of Article 11 (1) of the previous Act shall apply to the data for the taxable year or business year that commences before this Act enters into force, for which the deadline for submission has already expired under the main clause of Article 11 (1) of the previous Act as at the time this Act enters into force. |
| (2) | Notwithstanding the amended provisions of the main clause, with the exception of the subparagraphs, of Article 16 (2) (limited to the provisions regarding taxpayers required to submit a Master File and Local Files), the proviso of Article 11 (1) of the previous Act shall apply where the obligation to submit a Master File and Local Files has arisen before this Act enters into force and the deadline for submission of the statement of international transactions has already expired under the main clause of Article 11 (1) of the previous Act as at the time this Act enters into force. |
Article 24 (Transitional Measure regarding Exclusion of Interest Paid on Hybrid Financial Instrument Transactions from Deductible Expenses)
Notwithstanding the amended provisions of Article 25 (2), Article 15-3 of the previous Act shall apply to the interest paid before this Act enters into force. Article 25 (Transitional Measure regarding Exceptional Application of Specific Foreign Corporations’ Retained Earnings Deemed Dividends)
Notwithstanding the amended provisions of Article 29 (2) 2, Article 17-3 (2) of the previous Act shall apply to the business year that commences before this Act enters into force. Article 26 (Transitional Measure regarding Exemption from Obligation to Report Foreign Financial Accounts)
| (1) | Notwithstanding the amended provisions of subparagraph 1 of Article 54, Article 34 (5) 1 of the previous Adjustment of International Taxes Act (referring to the Act before partially amended by Act No. 13553) shall apply where a report on a foreign financial account held before January 1, 2016 is filed after January 1, 2016. |
| (2) | Notwithstanding the amended provisions of subparagraph 1 of Article 54, Article 34 (5) 1 of the previous Adjustment of International Taxes Act (referring to the Act before partially amended by Act No. 16099) shall apply where a report on a foreign financial account held before January 1, 2019 is filed on or after January 1, 2019. |
Article 27 (Transitional Measures regarding Explanation about Source of Noncompliance Amounts in Relation to Obligation to Report Foreign Financial Accounts)
Article 28 (Transitional Measures regarding Obligation to Submit Data on Overseas Subsidiaries)
Notwithstanding the amended provisions of Article 58 (1) and (2) (limited to the provisions regarding the deadline for submission and the tax authority), the previous provisions shall apply to the data for the taxable period or business year that commences before this Act enters into force, for which the deadline for submission has already expired under the previous provisions [referring to Article 165-2 (1) of the Income Tax Act (referring to the Act before partially amended by Act No. 17757) and Article 121-2 (1) of the Corporate Tax Act (referring to the Act before partially amended by Act No. 17652); hereafter in this Article the same shall apply] as at the time this Act enters into force. Article 29 (Transitional Measures regarding Penalty Provisions)
Article 30 (Transitional Measures regarding Scope of Application of Previous Addenda)
The previous addenda provided by the amendments to the previous Adjustment of International Taxes Act shall remain effective even on or after the date this Act enters into force, except the addenda that became ineffective before this Act enters into force. Article 31 Omitted.
Article 32 (Relationship to Other Statutes or Regulations)
A citation of the previous Adjustment of International Taxes Act or any provision thereof by other statutes or regulations in force as at the time this Act enters into force shall be deemed a citation of the relevant provision of this Act, if any, in lieu of such previous provision.
ADDENDA <Act No. 18588, Dec. 21, 2021>
Article 1 (Enforcement Date)
This Act shall enter into force on January 1, 2022: Provided, That the amended provisions of Article 32 (2) shall enter into force on January 1, 2025. Article 2 (Applicability to Reporting by Arm's Length Price)
The amended provisions of subparagraph 4 of Article 6 shall also apply where reports on transactions conducted before this Act enters into force are filed after this Act enters into force. Article 3 (Applicability to Recalculation of Arm’s Length Share of Costs)
The amended provisions of the proviso of Article 9 (2) shall also apply where the amount of the costs, etc. shared under an agreement concluded before this Act enters into force is recalculated after this Act enters into force. Article 4 (Applicability to Specific Foreign Corporations’ Retained Earnings Deemed Dividends)
The amended provisions of Article 27 (1) and (3) shall begin to apply from the taxable year that commences after this Act enters into force. Article 5 (Applicability to Obligation to Submit Data on Overseas Real Estate)
The amended provisions of Article 58 (2) 1 shall begin to apply where overseas real estate, etc. is acquired before this Act enters into force (limited to where the acquisition value of overseas real estate, etc. exceeds 200 million won as at the time of the acquisition thereof) and is owned as at the time this Act enters into force and where the deadline for submitting data arrives after this Act enters into force with regard to the taxable period or the business year that commences before this Act enters into force. Article 6 (Applicability to Administrative Fines for Noncompliance with Obligation to Submit Data on Overseas Real Estate)
Provisions of Article 63 (2) and (3) regarding administrative fines for violating Articles 58 (2) and 59 (limited to data on the current status of holding overseas real estate, etc.) shall begin to apply where the obligation to submit data on the current status of holding overseas real estate, etc. is not fulfilled after January 1, 2023.
ADDENDA <Act No. 19191, Dec. 31, 2022>
Article 1 (Enforcement Date)
This Act shall enter into force on January 1, 2023: Provided, That the amended provisions of Chapter V (Articles 60 through 86) and Article 87 (1) 3 shall enter into force on January 1, 2024. Article 2 (Applicability to Exemption from Obligation to Submit Statements of International Transactions)
The amended provisions of the proviso, with the exception of the subparagraphs, of Article 16 (2) shall begin to apply to international transactions conducted in the taxable year that commences after this Act enters into force. Article 3 (Applicability to Exclusion of Application of Specific Foreign Corporations’ Retained Earnings Deemed Dividends)
The amended provisions of subparagraph 3 of Article 28 shall begin to apply to reports on the tax base or the tax amount filed after this Act enters into force. Article 4 (Applicability to Scope of Passive Income in Exceptional Application of Specific Foreign Corporations’ Retained Earnings Deemed Dividends)
The amended provisions of Article 29 (2) 2 shall begin to apply to reports on the tax base or the tax amount filed after this Act enters into force. Article 5 (Special Cases concerning Imposition of Tax on Foreign Transparent Entities)
The amended provisions of Article 34-2 shall begin to apply where applications for applying special cases concerning the imposition of tax on foreign transparent entities are filed or reports on the tax base on corporate tax or income tax are filed after this Act enters into force. Article 6 (Applicability to Imposition of Global Anti-Base Erosion Tax)
The amended provisions of Chapter V (Articles 60 through 86) shall begin to apply where any tax is imposed for the business year that commences after the enforcement date prescribed in the proviso of Article 1 of these Addenda. Article 7 (Applicability to Administrative Fines for Noncompliance with Obligation to Submit Data on Hybrid Financial Instrument Transactions)
The amended provisions of Article 88 shall begin to apply where interest, etc. are paid in the business year that commences after this Act enters into force after hybrid financial instrument transactions are conducted.
ADDENDA <Act No. 19563, Jul. 18, 2023>
Article 1 (Enforcement Date)
This Act shall enter into force one year after the date of its promulgation. (Proviso Omitted.)
Article 2 Omitted.