[‘Countdown’ Global Minimum Tax] ③ Companies Disagreeing on US Subsidies Engage in Information Warfare at Law Firms and Seminars

Complex Derivation and Varied Interpretation of Effective Tax Rate... Ultimately Preparing by Reviewing All Factors

Companies Seeking Advice from Tax and Legal Firms
Uncertainty Whether Proactive Response Is Possible Due to Information Collection Gaps

'Companies Worried About Facing a 'Tax Bomb'

The global minimum tax (Pillar 2) is perceived as a tax bomb by companies because it remains unclear whether certain items are subject to the calculation formula. Experts also differ in opinion on whether the astronomical subsidies currently provided by the U.S. to our multinational corporations will be included in the global minimum tax calculation. Because of this, companies are actively working to comprehensively assess related information. An 'information war' is intensifying to ensure accurate tax payments.

How Is the 'Global Minimum Tax' Calculated?

The method companies currently use is the formula outlined in Article 70 of the amended 'International Tax Adjustment Act,' which the Ministry of Economy and Finance finalized in 2022 and which passed the National Assembly at the end of December that year.

Each company must first derive the effective tax rate. According to explanations from tax firms, the effective tax rate is calculated by dividing the total taxes incurred in the countries where the multinational group’s subsidiaries are located by the net global minimum tax income. Investment companies such as funds among the subsidiaries are excluded from the calculation of adjusted taxes, global minimum tax income, and losses.

If the effective tax rate exceeds or meets 15%, no additional tax is required; however, if it falls short, the remaining tax needed to reach 15% must be paid to the country where the parent company is located. Once it is confirmed that the company must pay, additional tax amounts must be calculated. The law instructs that the additional tax be calculated as '(A×B)＋C－D' according to standards set by organizations such as the OECD. Here, A is the additional tax rate of the country where the subsidiary is located, B is the amount of excess profit in the subsidiary’s country, C is the current period additional tax surcharge in the subsidiary’s country, and D is the qualified jurisdiction additional tax in the subsidiary’s country.

However, the formula itself is complex, and the specific income amounts corresponding to each item are not precisely defined. Interpretations and information still vary, causing confusion among companies.

What Impact Will U.S. Government Subsidies Have?

Companies are particularly interested in how subsidies related to semiconductors and electric vehicles, which the U.S. government plans to provide or has already provided, will affect the calculation of the effective tax rate. Domestic companies such as Samsung and Hyundai Motor have announced investment plans worth tens of trillions of won in the U.S. The U.S. government provides subsidies based on these investment plans, which can be seen as companies earning profits from income in that country, potentially classifying them as 'global minimum tax income' and lowering the overall effective tax rate below 15%. Certified public accountant Jeong Hyun of law firm Yulchon emphasized, "While it is not certain at this point, it is correct to review all factors, including subsidies, that may be included in the effective tax rate calculation."

Seeking Self-Help Measures Through External Activities

Due to insufficient information and unclear amounts, companies are actively engaging in external activities to gather information. Most companies have entrusted their strategic planning departments, which can be considered their 'control towers,' with reviewing the global minimum tax, and these departments are reportedly consulting tax firms and law firms. They are also attending related briefings and seminars.

KDB Industrial Bank, feeling limitations in internal review, recently announced a public recruitment for an accounting firm to assess the impact and tax scale resulting from the introduction of the global minimum tax. Considering these circumstances, law firms have formed dedicated teams with large personnel to respond. Kim & Chang law office operates a 'New International Tax Research Institute' with 30 members, and law firm Bae, Kim & Lee formed an 'International Tax Response Team' with 20 members. HwaWoo, Kwangjang, and Yulchon also have teams composed of more than 10 experts.

Tax accountant Baek Yoo-seok of Fine Astax Consulting analyzed the current atmosphere, saying, "After the introduction of the global minimum tax, there are no clear work guidelines, so companies urgently need to prepare self-help measures." He pointed out, "Due to asymmetry caused by gaps in information collection, it is questionable whether companies will be able to take proactive measures properly." He added, "Tax incentives that countries have provided to attract companies are expected to decrease in the future, so companies must remain alert to international political situations and legislative trends."

Editor's Note☞Key Terms in the Global Minimum Tax Calculation Formula

▲Additional Tax Rate: The rate calculated by subtracting the effective tax rate from the minimum tax rate. If the result is negative, the additional tax rate is considered 0.
▲Excess Profit Amount: The amount obtained by subtracting income generated through the subsidiary’s substantive business activities from the net global minimum tax income. If the result is negative, the excess profit amount is considered 0.
▲Current Period Additional Tax Surcharge: The amount to be added to the additional tax for the relevant fiscal year. This includes surcharges arising from recalculating the effective tax rate for previous fiscal years.
▲Qualified Jurisdiction Additional Tax: The tax imposed by the jurisdiction to reduce the additional tax to zero, paid or payable according to the qualified jurisdiction additional tax system prescribed by Presidential Decree.