Proposed Tax Law Changes for 2016

On August 6, 2015, the Ministry of Strategy and Finance has announced tax law changes to be implemented from 2016. The proposed tax law changes will be finalized after the National Assembly passes the bill. We summarized the major proposed tax law changes for 2016 to keep you updated as follows:


■ BEPS / Transfer Pricing Documentation Requirements Strengthened
In July 2013, the Organization for Economic Cooperation and Development (“OECD”) and G20 countries adopted Base Erosion and Profit Shifting (“BEPS”) prevention project which aims to provide governments with clearer international solutions to fight against corporate tax planning strategies of multinational companies that exploit gaps and loopholes of the current system to artificially shift profits to locations where they can be subject to more favorable tax treatment. 


In line with the OECD’s BEPS prevention project and Guidance on Transfer Pricing Documentation, the proposed tax law change imposes a new documentation requirement for certain multinational companies to submit information on international transactions.

In order to comply with the recommendations of OECD/G20 BEPS prevention project, the proposed revision to the International Tax Coordination Law (“ITCL”) requires a Multinational Enterprise (“MNE”) with a certain size of transactions and assets (to be regulated in the Presidential Decree of ITCL) to submit additional transfer pricing (“TP”) documentation (i.e., a comprehensive report on cross-border transaction information) which would address management information and current status of cross-border transactions of the MNE. To be specific, the following information should be included in the comprehensive report on cross-border transaction information: 




Main contents

Report I (Master file)




●Comprehensive legal ownership structure and location of

subsidiaries or offices of the MNE

●Details of top 5 goods or services covering 5% of MNE group's


●Explanation on major business restructuring, share acquisition,

sale of business, etc.

Report II

(Local file)




●Detailed explanation on business and business strategies of

local subsidiaries

●Explanation on major related parties and circumstances leading

to related party transactions

●List of related parties involved and indication of relationship by

the type of related party transactions


Once the proposed bill is sanctioned by the National Assembly, MNE’s tax reporting burden would increase considerably going forward. 
■ Limitation on Deductible Company Vehicle-related Expenses
Under the current Corporate Income Tax Law (“CITL”), expenses incurred in relation to vehicles used for business purposes of a company (including depreciation, rental fee, fuel expense, insurance, maintenance expense, car tax, toll fee, etc.) are allowed to be fully deducted for the corporate income tax purposes, while concerned input value added tax (“VAT”) incurred cannot be claimed as a credit on its VAT returns under the VAT Law. With the proposed revision, however, the below additional requirements should be satisfied for the company vehicle-related expenses to be treated as tax deductible expenses.


If certain conditions are met (e.g., subscription of insurance policy for business purposes which allows only directors/employees of the company to drive the vehicles, reporting of the company vehicles used for business purposes to the district tax office, etc.),

(1) a certain ratio (e.g., 50%) of the expenses are allowed to be tax deductible, but if an actual usage ratio of the vehicles for business purposes are proved through a daily driving log, etc., the actual usage ratio will be applicable; OR

(2) when the company’s logo is attached to the vehicles (other than that in a detachable form), 100% of the expenses will be allowed to be tax deductible.


If the conditions mentioned above are not met, the entire company vehicle-related expenses shall be denied for tax deduction. Discussions are also being made among politicians to set the price limit of the car which can be used for business purpose (i.e., if a car value exceeds certain limit, any expenses related to such car will not be tax deductible).