Korea’s 2026 Tax Reform Proposal: Implementing the OECD Pillar Two Side-by-Side Package

On 3 August 2026, Korea’s Ministry of Finance and Economy released its 2026 Tax Reform Proposal. Among its international tax measures are proposed amendments intended to implement significant elements of the OECD/G20 Inclusive Framework’s January 2026 Pillar Two Side-by-Side Package.

The proposals would introduce:

-the Side-by-Side Safe Harbour;

-the UPE Safe Harbour;

-the Substance-Based Tax Incentives Safe Harbour;

-the Simplified Effective Tax Rate Safe Harbour;

-revised treatment of additional current-year top-up tax under existing safe harbours; and

-a technical extension of the Transitional UTPR Safe Harbour for groups using 52- or 53-week fiscal years.

The official Korean materials are the Ministry’s 2026 Tax Reform Proposal announcement and the accompanying detailed proposal, with the Pillar Two measures at pages 214–218.

Existing Korean Pillar Two framework

Korea was an early adopter of the GloBE rules. Its Income Inclusion Rule applies for fiscal years beginning on or after 1 January 2024, and its Undertaxed Profits Rule applies for fiscal years beginning on or after 1 January 2025.

Korea subsequently enacted a domestic minimum top-up tax, effective for fiscal years beginning on or after 1 January 2026. That regime is intended to give Korea primary taxing rights over low-taxed Korean income before another jurisdiction applies an IIR or UTPR. The domestic minimum tax was introduced through Law No. 21215 of 23 December 2025.

The OECD Side-by-Side Package

The Inclusive Framework published the Side-by-Side Package on 5 January 2026. It contains four principal elements:

1. a Simplified ETR Safe Harbour and a one-year extension of the Transitional CbCR Safe Harbour;
2. a Substance-Based Tax Incentives Safe Harbour;
3. a “Side-by-Side System” comprising the SbS Safe Harbour and UPE Safe Harbour; and
4. an evidence-based stocktake process intended to monitor the continuing operation of the arrangements.

Overview of the Korean proposals

1. Side-by-Side Safe Harbour

The proposal would insert a Side-by-Side exemption into Article 80 of Korea’s International Tax Coordination Act.

Qualification

The safe harbour would apply where the ultimate parent entity is located in a jurisdiction recognised as having a qualifying Side-by-Side regime. Under the OECD framework, the parent jurisdiction must have:

-a qualifying domestic tax system;

-a qualifying worldwide or foreign-income tax system; and

-appropriate recognition of qualified domestic minimum top-up taxes, including through its foreign tax credit arrangements.

Qualification is not intended to be determined unilaterally by the taxpayer. The jurisdiction must complete the Inclusive Framework review process and be identified in the OECD’s Central Record of legislation with qualified status.

As at 4 August 2026, the United States is the only jurisdiction identified in the published Central Record as having a Qualified Side-by-Side Regime. The immediate practical relevance of the Korean proposal is consequently greatest for US-parented groups.

Effect

If the conditions are met and the group makes the required election, top-up tax under the IIR and UTPR would be deemed to be zero for the group’s controlled domestic and foreign operations.

The OECD formulation extends to constituent entities that can otherwise present difficult allocation questions, including stateless constituent entities, minority-owned constituent entities and interests in joint ventures and their subsidiaries.

The relief is therefore potentially extensive. But it is technically a safe harbour rather than a removal of the group from the scope of Pillar Two.

Korean domestic minimum tax remains

The Side-by-Side Safe Harbour does not switch off a QDMTT. The OECD expressly preserves the primacy of domestic minimum taxes, and the Korean proposal does not suggest that Korea would surrender its right to impose domestic top-up tax on low-taxed Korean income.

For a US-parented group, the  position is therefore:

-no Korean IIR or UTPR liability in respect of operations covered by the Side-by-Side Safe Harbour;

-continued exposure to the Korean domestic minimum top-up tax; and

-continued Korean reporting, election and notification requirements.

2. UPE Safe Harbour