[Sejong=Asia Economy Reporter Son Seon-hee] The global minimum tax, effective from 2023, has been confirmed to apply to companies with consolidated sales of 7.5 billion euros (approximately 10 trillion KRW) or more in at least two of the last four fiscal years. It applies regardless of industry. Additionally, if the effective tax rate of overseas subsidiaries falls below the minimum tax rate (15%), the parent company's jurisdiction must pay the shortfall tax amount.
According to the Ministry of Economy and Finance on the 20th, the OECD and G20 Inclusive Framework (IF), the global digital tax discussion body, released the "Digital Tax Pillar 2 Model Rules" containing these details. This follows the broad agreement reached last October on a "minimum tax rate of 15%" and serves as detailed rules.
Countries that have agreed to introduce the digital tax must legislate related systems in accordance with these rules. If legislation is enacted inconsistently with the agreement, another country, not the one in question, may exercise the taxation rights instead. In other words, this mechanism prevents individual countries from gaining tax benefits by failing to implement the minimum tax rate.
The model rules released on this day specify the scope of the digital tax more concretely and include income inclusion rules regarding specific taxation rights when subsidiaries, intermediate parent companies, and ultimate parent companies are located in multiple countries.
The scope of application is "multinational enterprise groups with consolidated financial statement sales of 750 million euros (approximately 1 trillion KRW) or more in at least two of the last four fiscal years." Here, a multinational enterprise group refers to a group including companies or permanent establishments located in jurisdictions other than that of the ultimate parent company. Based on the ultimate parent company, 245 groups were identified (according to the 2019 country-by-country reporting companies).
However, government agencies, international organizations, non-profit organizations, pension funds, investment funds, and real estate investment trusts that are ultimate parent companies are excluded.
Parent companies with subsidiaries located in countries applying low tax rates must pay the amount corresponding to the income inclusion ratio (excluding third-party ownership) of the additional tax to the jurisdiction of the ultimate parent company. If intermediate parent companies are included, the income inclusion rules are applied starting from the jurisdiction of the highest-level parent company.
Exceptionally, if an intermediate parent company, which is not part of the multinational enterprise group, owns more than 20% of the shares, the jurisdiction of the intermediate parent company imposes the additional tax. Ultimately, the core is to prevent the ultimate parent company from avoiding taxes by placing subsidiaries in countries with low tax rates.
In this regard, the government will actively promote necessary institutionalization procedures such as domestic legislation next year. In the first half of next year, a research project will be conducted with participation from experts in international taxation, corporate tax, and corporate accounting. Based on the results, the rules will be reflected in the tax law amendment bill to be announced around July to August next year.
The Ministry of Economy and Finance stated, "Since a considerable number of our companies are expected to be subject to Pillar 2, companies need to prepare accordingly," and added, "As an unprecedented new international tax system is being fully introduced, the government will actively communicate during the follow-up process such as institutionalization to help our companies quickly prepare and adapt to the new order."
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