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January 11, 2023

Korea enacts new global minimum tax rules to align with OECD BEPS 2.0 Pillar Two

  • On 31 December 2022, Korea enacted new global minimum tax rules to align with the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two.

  • This Alert outlines the new rules as set forth in Korea’s 2023 Tax Reform.

Executive summary

Model Rules for the Global Minimum Tax (GloBE or OECD BEPS 2.0 Pillar Two) were released by the OCED on 20 December 2021, as approved by the Inclusive Framework on BEPS.

The GloBE Rules apply to Constituent Entities that are members of a Multinational Enterprise (MNE) Group that has annual revenue of €750 million or more in the Consolidated Financial Statements of the Ultimate Parent Entity (UPE) in at least two of the four Fiscal Years immediately preceding the tested Fiscal Year.

On 31 December 2022, Korea enacted new global minimum tax rules to align with the OECD BEPS 2.0 Pillar Two after it was passed by Korea’s National Assembly on 23 December 2022. The regulation will be included in the Adjustment of International Taxes Act (AITA) and will be effective for fiscal years beginning on or after 1 January 2024. The Enforcement Decrees, which provide more specific guidance on the laws, are expected to be enacted within 2023.

Detailed discussion

Details regarding the GloBE rules in the 2023 Tax Reform are outlined below.



Article 61 [Definition]

  • MNE Group: Group with companies or permanent establishments in multiple countries.

  • Constituent Entities: Entities belonging to an MNE group.

  • UPE: A company that ultimately owns a controlling interest in any other entity.

  • Ownership interest: Equity shares accompanying the right to the company's profits/capital/reserve.

Article 62 [Scope of Applications]

Article 63 [Taxpayer]

Article 64 [Location of Enterprises], and

Article 65 [Location of Tax payment of Enterprises]

  • Consolidated revenue test: Constituent Entities of an MNE Group are in scope of the GloBE rules if their annual revenue is €750 million or more in the consolidated financial statement of the UPE in at least two of the four fiscal years immediately preceding the tested fiscal years.

  • Excluded entities: (i) government entities, international organizations, non-profit organizations, and pension funds, (ii) investment funds and real estate investment vehicles but only when they are the UPE of an MNE Group, and (iii) entities directly or indirectly owned by (i) or (ii).

  • Taxpayer: Domestic Constituent Entities located in Korea pay a top-up tax in accordance with the Income Inclusion Rule (IIR) and Supplementary rules for income inclusion (known as Under Taxed Payment Rule (UTPR)).

  • Identify the location of each constituent entity: Entity located where it is tax resident. A flow-through entity is treated as a stateless entity or located in the jurisdiction where it was created. The location of the permanent establishment is determined in consideration of tax treaties, etc.

  • Location of tax payment: Place of tax payment under the Corporate Income Tax Law.

Article 66 [Calculation of Globe income or loss]

  • The amount of GloBE income or loss of a Constituent Entity is determined by taking the financial accounting net income or loss for the Constituent Entity for the fiscal year adjusted by certain items (e.g., net tax expense, dividends) prescribed in the Enforcement Decree.

  • International shipping income and related qualifying international shipping incidental income are excluded from the GloBE income and loss calculation.

  • Financial accounting net income or loss of Constituent Entities that are permanent establishments are not included in the calculation of GloBE income or loss of the Main Entity.

  • Financial accounting net income or loss of flow-through entities is allocated to the permanent establishment in which the business is carried out or to shareholder constituent entities.

Article 67 [Computation of Adjusted Covered Taxes]

  • The starting point for the computation of covered taxes is the current tax expense accrued for financial accounting net income or loss. Adjustments are made to covered taxes by reflecting the total deferred tax adjustment as well as other adjustments prescribed by the Enforcement Decree.

Article 68 [Post-filing adjustments and Tax Rate Changes]

  • Special rules apply when there is an adjustment to a tax liability for a prior year.

  • To the extent an increase in tax liability results from the adjustment, it is added to the covered tax when calculating the effective tax rate (ETR) for the current fiscal year.

  • To the extent a decrease in tax liability results from the adjustment, ETR is recalculated by deducting it from the covered tax for the previous fiscal year.

Article 69 [Computation of ETR]

  • ETR is calculated by dividing the total adjusted covered taxes of Constituent Entities located in the relevant country by the net GloBE income.

  • Among Constituent Entities, the adjusted covered taxes and GloBE income or loss of investment companies such as funds are excluded from the calculation of ETR.

Article 70 and Article 71 [Computation of Top-Up Tax]

  • Jurisdictional Top-Up Tax = (Top-up Tax Percentage of the country of the Constituent Entity x excess Profit of the country of the Constituent Entity) + additional Current Top-up Tax of the country of the Constituent Entity - Qualified Top-Up Tax of the country of the Constituent Entity)

  • Top-Up Tax for Constituent Entity = Top-Up Tax for each fiscal year in the country where the Constituent Entities of the MNE group is located x (GloBE income of corresponding Constituent Entities for each fiscal year/sum of GloBE income of each Constituent Entity located in the relevant country)

Article 72 [Application of the IIR]

  • Top-down approach: The UPE of the MNE Group is primarily liable for the Top-Up Tax of all low-taxed Constituent Entities. If the UPE is not required to apply an IIR, the Top-Up Tax is imposed on the next intermediate parent entity in the ownership chain that is subject to the IIR.

  • A Partially-owned Parent Entity is a Constituent Entity that is held directly or indirectly by low-taxed Constituent Entities. In this case, the Top-Up Tax is imposed on the Partially-owned Parent Entities that are subject to the IIR.

  • The allocable share of Top-Up Tax is determined based on a Parent Entity’s inclusion ratio.

Article 73 [Application of the UTPR]

  • If the low-taxed income of the UPE or Parent Entity in the MNE group is not subject to Top-Up Tax under an IIR, then the Top-Up Tax will be charged under the application of the UTPR at the level of Constituent Entities across all qualifying UTPR jurisdictions.

  • The Top-Up Tax for UTPR of an MNE group for each fiscal year shall be equal to the sum of the top-up tax calculated for all low-taxed Constituent Entities of an MNE group.

  • UTPR Top-up Tax Amount of the MNE group for each fiscal year allocated to Korea shall be determined by multiplying the UTPR Top-up Tax Amount by the UTPR percentage of Korea determined by the following:

  • 50% x (total number of employees of each Constituent entity of the corresponding MNE Group / the total number of employees of corresponding Constituent Entities of the MNE group that has a qualified UTPR in force), plus 50% x (sum of the net book values of tangible assets of corresponding Constituent Entities of the MNE group/ the sum of the net book values of tangible assets of corresponding Constituent Entities of the MNE Group that has a qualified UTPR in force)

Article 74 [De minimis exclusion]

  • When the jurisdiction meets the de minimis threshold (which will be the case when the average GloBE revenue and GloBE income or loss in the jurisdiction are below €10 million and the average sales are below €1 million), the top-up tax of each Constituent Entities may be zero.

Article 75 and Article 77 [Special rules for Minority-owned constituent entities and Joint Ventures]

  • Minority-owned Constituent Entities require calculating ETR and top-up tax.

  • Joint Ventures (JVs) which are at least 50% owned by the MNE group are considered Constituent Entities. However, the ETR and Top-Up Tax of the JV Group (JV and its subsidiaries) is calculated separately from the rest of the MNE Group.

Article 76 (Special rules for restructuring)

  • The disposing entity includes the gain or loss on disposition in the computation of its GloBE income or loss, and the acquiring entity determines its GloBE income or loss based on the carrying value of assets and liabilities.

  • However, if the transfer is part of a qualified global reorganization, the transfer is effectively disregarded, with the disposing entity disregarding any gain or loss, and the acquiring entity adopting the carrying values from the disposing entity.

Article 81 [Special rule for the first year of application]

  • All deferred tax assets and liabilities are reflected in the financial statements when calculating the total deferred tax adjustment amount.

Article 83 [The GloBE Information Return]

  • A Domestic Constituent Entity must file a GloBE Information Return with the Korean tax authorities no later than 15 months (18 months in the case of the first year of application) after the last day of the reporting fiscal year. This obligation, however, will be exempt when Overseas Constituent Entities file the GloBE Information Return with another jurisdiction.

  • In the above cases, a Domestic Constituent Entity shall notify the Korean tax authorities of the identity of the entity that is filing the GloBE Information Return.

Article 84 [Report and payment of allocated additional Top-Up Taxes]

  • Reporting and payment of allocated additional Top-Up Taxes by the month when the deadline for filing a GloBE Information Return fall.

  • One-month installment is possible if the additional Top-Up Tax exceeds KRW10 million.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Han Young, Seoul

Ernst & Young LLP (United States), Korean Tax Desk, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, New York


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