Agreement Reached on Negotiations for the Korea-Andorra Double Taxation Avoidance Treaty

Reflecting 'OECD Model Tax Convention Amendments' to Prevent Tax Avoidance as Much as Possible
Andorra Signs First Agreement with Asian Countries

The Ministry of Economy and Finance announced on the 24th that it has agreed on the entire text and provisionally signed the 2nd negotiation meeting of the Korea-Andorra Tax Treaty (Double Taxation Avoidance Agreement) held in La Vella, Andorra from the 21st to the 23rd.

Our side conducted negotiations mainly based on the OECD Model Tax Convention. First, it reflected measures to prevent the abuse of permanent establishments (PE) through related enterprises, expanded the scope of agents concluding contracts, and reduced the scope of independent agents, addressing Base Erosion and Profit Shifting (BEPS) prevention.

Regarding the limited tax rates in the source country on investment income, dividends between corporations (holding 10% or more shares) were agreed at 5%, interest for financial institutions at 5%, and royalties at 5%.

Additionally, benefits such as reduced tax rates stipulated in the tax treaty, that is, transactions primarily aimed at tax avoidance, may be excluded from such benefits.

This concluded Double Taxation Avoidance Agreement with Andorra is the first tax treaty established since the United Nations Conference on Trade and Development (UNCTAD) officially recognized Korea as a developed country in July 2021. Once effective, it will become the 95th tax treaty concluded with other countries.

The Ministry of Economy and Finance expects this treaty to serve as a favorable precedent for future establishment and revision of tax treaties with other countries, as it is a case that maximally reflects the 2017 OECD Model Tax Convention amendments for preventing tax avoidance.

The Korea-Andorra Tax Treaty is the 16th tax treaty concluded by Andorra. Notably, it is meaningful as the first Double Taxation Avoidance Agreement Andorra has signed with an Asian country. It is also expected to contribute to expanding economic exchanges such as corporate entry between the two countries.

The Korea-Andorra Tax Treaty is scheduled to come into effect after formal signing by both countries and ratification by their respective parliaments.