Securing Taxing Rights Over Global Companies Like Google and BMW Korea: [Tax Reform, Let's Change This]

The US Reaches Special Agreement with G7 on Global Minimum Tax
QDMTT Still Recognized Despite Exemptions

The government is considering introducing the Qualified Domestic Minimum Top-up Tax (QDMTT) to protect its taxing rights over global companies operating in Korea, such as Google and BMW. QDMTT, which is the most prioritized provision of the global minimum tax system (Pillar 2), allows a country to impose a minimum corporate tax rate of 15% on subsidiaries of global companies located within its territory before any other country can do so.

According to the Ministry of Economy and Finance on July 25, the government is still deliberating whether to include QDMTT-related provisions in this year’s tax law amendment. If the system is introduced, companies will likely be required to file reports based on the 2026 fiscal year, starting from the end of June 2028. The global minimum tax targets global companies with consolidated revenue of at least 750 million euros (approximately 1.12 trillion won), requiring them to pay at least 15% tax in any country where they operate. The key provisions that determine how and which country will impose taxes when a global company pays less than 15% in a specific country include the Income Inclusion Rule (IIR), the Undertaxed Profits Rule (UTPR), and QDMTT.

QDMTT takes precedence over the IIR or UTPR under the global minimum tax framework. It recognizes the primary taxing rights of the country where a global company’s foreign subsidiary operates. If, due to various tax exemptions or deductions, the effective tax rate falls below the minimum rate of 15%, the country where the subsidiary is located has the first right to tax the difference.

For example, if BMW Korea’s effective tax rate is around 11%, and QDMTT is not in place, then a third country, including Germany, could have the first right to tax the shortfall below 15%. Otherwise, Germany, where BMW’s headquarters is located, would collect the difference (IIR), or other countries where BMW operates would share and exercise the taxing rights over the underpaid taxes (UTPR).

On the other hand, if Korea introduces QDMTT, it can collect the shortfall first and prevent other countries from intervening in its taxing rights. This would prevent the taxing rights over the shortfall below 15% from being taken by the country where the parent company is located (IIR) or being shared with other countries (UTPR). (Related article: Despite Trump’s pressure, postponing the introduction of the global minimum tax seems unlikely. February 21, 2025)

The US reached an exception agreement on the global minimum tax with the G7... but recognizes QDMTT

However, doubts are growing over whether the global minimum tax can be properly collected, as the United States, home to major big tech companies like Google and Apple, has opposed the measure. Since the inauguration of the Donald Trump administration, the US has reversed its stance, arguing that “tax sovereignty is being infringed and the US will suffer tax revenue losses.” Ultimately, at the June G7 summit, an agreement was reached to exclude US companies from the scope of the global minimum tax.

However, the government believes that the Trump administration is not opposed to the structure of the global minimum tax itself. It notes that the US opposes the IIR and UTPR, not QDMTT. The UTPR is a supplementary measure that allows countries where subsidiaries are located to share and collect the tax if the country of the parent company does not implement the global minimum tax. In other words, for US companies like Google, the G7 countries have agreed not to recognize the right of other countries to share and tax the portion below the 15% rate that the US has under-collected (UPTR).

An official from the Ministry of Economy and Finance explained, “The US and G7 have agreed not to apply the IIR and UTPR, but as for QDMTT, it will be applied for now, although specific measures have not yet been determined. The US is currently trying to operate its own tax system (GILTI?Global Intangible Low-Taxed Income) alongside the global minimum tax.” In other words, the US does not seem to oppose the concept of each country having the primary taxing right over global companies operating within their borders.

Currently, a significant number of major countries that have adopted the global minimum tax system have also introduced QDMTT. As of this year, 47 countries, including Vietnam, Germany, Australia, and Singapore, have implemented QDMTT. Therefore, if Korea does not introduce QDMTT, it could risk losing its taxing rights. A government official stated, “We are currently reviewing the introduction, but no decision has been made on which laws will be amended or how.”