Choi Jae-bong

Recently, tax avoidance by Big Tech firms has emerged as a major issue. Key revenue-generating assets of multinational enterprises (MNEs) have shifted from physical to intangible. This trend has facilitated the evasion of corporate income taxes by enabling companies to park intangibles in low-tax jurisdictions. Consequently, jurisdictions began the "race to the bottom," competing to attract investment, including intangible assets, by lowering corporate tax rates, thereby straining tax revenues.

To address these issues, the G20 and the Organisation for Economic Co-operation and Development (OECD) engaged in over a decade of discussions, culminating in a landmark agreement in October 2021. Nearly 140 countries endorsed the Pillar 1 and Pillar 2 initiatives to tackle the tax challenges of the digital economy. A key component of Pillar 2 is the global minimum tax, which requires MNEs to pay an effective tax rate of at least 15 percent, regardless of where they operate.

In December 2022, the Korean government amended the Adjustment of International Taxes Act to reflect the newly agreed-upon global tax norms, the Global Anti-Base Erosion (GloBE) rule. According to this law, large MNEs with consolidated revenues above 750 million euros (approximately 1 trillion won) are required to submit returns and pay the global minimum tax on profits earned starting with the 2024 fiscal year in 2026.

Additionally, the newly legislated reporting requirement, GloBE information returns, mandates that MNEs disclose information about their ultimate parent company and subsidiaries, including financial details and ownership structures. As a result, Korean MNEs are taking steps to comply with the new global minimum tax rules, such as adjusting their internal systems.

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However, Korean MNEs are finding some challenges in meeting the reporting requirements for the global minimum tax. Acquiring financial information from their hundreds of subsidiaries operating in different jurisdictions, each with its own language and accounting standards will be difficult. To ease their compliance burden, a number of transitional provisions have been introduced.

First, the filing deadline for the initial year has been postponed by three months, with returns due by June 2026, instead of March 2026. Second, during a three-year transitional period, a simplified method for calculating income subject to the global minimum tax will be available. Lastly, penalties for noncompliance with the filing obligations of the global minimum tax may be waived during the transitional fiscal year if there are valid reasons. These measures are designed to provide MNEs more time to comply with complicated new requirements.

In addition to these supportive legal measures, the National Tax Service (NTS) is stepping up administrative efforts to assist Korean MNEs. This year, the NTS established the New International Tax Compliance Division to lead the implementation of the global minimum tax and other aspects of the new international tax regime.

This division is tasked with raising awareness of the global minimum tax, which is an action item included in the Government Innovation Promotion Plan, a whole-of-government innovation policy across agencies. In accordance with this task, the NTS is holding seminars and briefings for Korean firms that are expected to be affected by the new rules starting this year.

Furthermore, as part of its proactive administration efforts, the NTS organizes information sessions to offer detailed guidance on specific filing requirements. As a part of the Tax Administration Capacity Enhancement Taskforce's initiative, the NTS published a Global Minimum Tax Guidebook for Korean MNEs.

While there are concerns that the global minimum tax could be in peril with the inauguration of the Trump administration, the OECD and major countries will stick to their plans to implement it. In alignment with other countries, the NTS will make every effort to refine implementation by engaging in active communication with Korean MNEs and tax experts, gathering valuable insights provided by businesses.

The writer is the vice commissioner of the National Tax Service.