OECD Launches Written Public Hearing Detailing 'Pillar 1' Provisions
[Asia Economy Sejong=Reporter Kwon Haeyoung] Global companies such as Samsung Electronics will be required to pay taxes not only in their home countries but also in countries where they generate sales exceeding 1 million euros starting from 2023. This is due to the introduction of the so-called 'digital tax,' which mandates multinational corporations to pay taxes in overseas countries where their sales occur.
According to the Ministry of Economy and Finance on the 7th, the Organisation for Economic Co-operation and Development (OECD) has released a detailed draft related to the introduction of 'Pillar 1' and plans to collect written opinions until the 18th.
Previously, the leaders of the Group of Twenty (G20) agreed on the digital tax, including the 'allocation of taxing rights to countries where sales occur (Pillar 1)' and the 'introduction of a global minimum tax (Pillar 2),' at the summit held in Rome last October.
Pillar 1 focuses on dividing taxing rights among multiple countries so that global companies can pay taxes in countries where their sales occur. It targets large corporations with consolidated annual sales of 20 billion euros and a profit margin of 10% or more. Samsung Electronics is included in Korea, and SK Hynix’s inclusion will be determined based on future performance scale.
The draft released by the OECD this time includes criteria for sales attribution and tax nexus points. The sales attribution criteria determine how to calculate the sales amount a global company earns in a specific country. For example, in the case of finished products, sales are attributed to the jurisdiction of the 'delivery location' where the final consumer receives the product, and for parts, sales are attributed to the jurisdiction of the region where the assembled finished product is delivered to the final consumer.
The tax nexus point grants digital tax taxing rights to the country where the global company’s market is located, and taxing rights are established if the company’s sales exceed 1 million euros. However, for countries with an annual Gross Domestic Product (GDP) of less than 40 billion euros, taxing rights apply to companies with sales exceeding 250,000 euros.
An official from the Ministry of Economy and Finance stated, "The proposals disclosed in the written public hearing are not internationally agreed upon but are drafts for gathering stakeholders’ opinions," adding, "We will establish the final plan reflecting the submitted opinions."
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