[News Terms] Samsung and SK Also Face Urgent Issue, 'Global Minimum Tax'

The Ministry of Economy and Finance announced on the 9th the draft amendment to the Enforcement Decree of the Act on International Tax Adjustment, prepared to stipulate matters delegated by the related law, the Act on International Tax Adjustment, ahead of the implementation of the global minimum tax system.

The global minimum tax is a system that grants additional taxation rights to other countries, such as the residence country of the ultimate parent company, when a multinational corporation’s income is subject to a tax rate lower than the minimum tax rate of 15% in a specific country. It was agreed upon in the comprehensive implementation framework of the Organisation for Economic Co-operation and Development (OECD) and the Group of Twenty (G20) to prevent multinational corporations from avoiding taxes by exploiting tax competition between countries. Currently, 143 countries participate in the implementation framework. Korea plans to implement it starting next year.

The target applies to multinational corporations with consolidated financial statements showing sales of 750 million euros (approximately 1 trillion KRW) or more in at least two of the previous four fiscal years. Once the global minimum tax is introduced, multinational corporations meeting the criteria must pay a minimum corporate tax of 15% regardless of where they operate globally. Major domestic companies such as Samsung Electronics and SK in Korea are also subject to this.

The introduction of the global minimum tax has the advantage of preventing tax avoidance by multinational corporations and promoting fair tax competition between countries. Corporate tax revenues may also increase. According to an OECD report analyzing the economic effects of the global minimum tax, Korea’s corporate tax revenue is expected to increase by about 3% compared to existing corporate tax revenue following the introduction of the global minimum tax.

However, a potential drawback is the possible contraction of investment due to the increased tax burden on global companies. Accordingly, governments of various countries are reportedly considering investment attraction measures through indirect incentives such as exemptions from indirect taxes or the provision of state subsidies. According to a report titled “The Impact of the Introduction of the Global Minimum Tax on Korea and the Global Economy” released by the National Assembly Budget Office in May, after the introduction of the global minimum tax, existing foreign investment incentives are expected to be converted into investment incentives in the form of ▲ indirect tax exemption subsidies, ▲ incentives related to acquisition of tangible assets or employment of workers rather than special tax rates or tax reductions, and ▲ incentives refundable in cash within four years.

There are also concerns about weakened competitiveness due to increased corporate cost burdens. If institutional improvements considering harmonization with existing tax systems and fairness among taxpayers are not made following the introduction of the global minimum tax, the increased tax burden and tax uncertainty may weaken the competitiveness of domestic companies.

Meanwhile, the enforcement decree announced for legislative notice on the same day includes specific adjustment items to be reflected in accounting net profit and current corporate tax expenses, as well as taxation methods. When converting the threshold amount subject to taxation (750 million euros) into Korean won, the average exchange rate announced by the European Central Bank (ECB) in December of the previous fiscal year is to be used. Additionally, it specifies mandatory and optional adjustments to accounting net profit for calculating global minimum tax income and losses.