A Review of South Korea’s Latest GloBE Amendments

Overview

On November 9, 2023, South Korea issued the Preliminary Legislative Notice of Partial Amendment to the Enforcement Decree of the International Tax Mediation Act (the ‘Amended Enforcement Decree’). Whilst South Korea has previously issued legislation to implement the Pillar Two GloBE rules from January 1, 2024 (Law 19191 of December 31, 2022), much of the detail was left outstanding.

The Amended Enforcement Decree provides the detail for the operation of the Pillar Two GloBE rules in South Korea. It is open for consultation until December 7, 2023.

It follows a previous draft law issued on July 28, 2023 (the Partial Amendment Proposal for the International Tax Adjustment Act), to amend their Pillar Two law to (1) take account of a number of OECD amendments issued in their Administrative Guidance, and (2) delay the implementation of the UTPR until January 1, 2025. (This was approved as Law 19928 of December 31, 2023, which amends the International Tax Adjustment Act). 

Most notably, this previous law provided for:

– The QDMTT Safe Harbour (Article 70(5) with the details left to a Presidential Decree);

– Excess negative tax expense carry-forwards (Article 69(4));

– Regulation of the transition period for the CbCR Safe Harbour (Article 80);

– Excluding Insurance Investment Entities from the definition of Intermediate Parent Entity and Partially-Owned Parent Entity (Article 61(1));

– Excluding sovereign wealth funds from the definition of Ultimate Parent Entity (Article 61(1)(6)); and

– Transitional Penalty Relief (Article 84, Paragraph 5 and Article 87, Paragraph 4).

The Amended Enforcement Decree takes this one step further by implementing most other aspects of the February and July 2023 OECD Administrative Guidance.

It also provides most of the detailed rules of application, as the South Korean GloBE law delegated most of the detailed rules to the enforcement decree.  

Whilst the Amended Enforcement Decree fleshes out the remaining aspects of the OECD Model Rules that are not covered in their original GloBE law there are still some aspects that are outstanding.

For instance, the operation of the QDMTT Safe Harbour is left to Presidential Decree. Similarly Article 129(7) of the Amended Enforcement Decree provides that the definition of passive income (for the CFC Pushdown Limitation) will be provided by future guidance.

Elections in the OECD Model Rules