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Important South Korean Tax Reporting Requirements Coming Due

5/28/2021
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l Guidance on CbC Reporting Requirements

The Korean tax authorities has adopted the requirement to comply with the country-by-country (CbC) reporting in line with the recommendations by the Organization for Economic Co-operation and Development (OECD) following the implementation of the new transfer pricing rules requiring multinational companies in Korea to submit local files and master files on their cross-border transactions, which is effective for the fiscal year starting on or after January 1, 2016.

With the adoption of this CbC reporting requirement under the Korean tax law, the Korean ultimate parent company of a multinational group whose consolidated revenue exceeds KRW1 trillion during the preceding fiscal year is required to file the CbC reports within twelve months from the fiscal year end. The CbC reports must include information on a multinational group’s revenue in each country, profit or loss before income tax, etc.

The Korean ultimate parent company and the taxpayers whose ultimate controlling shareholder is established in a foreign country is required to submit the application for the information concerning the CbC reporting obligator to the Korean tax authority within six months from the fiscal year end (e.g., by June 30, 2021 for the taxpayers having the fiscal year ended December 31, 2020).

Other key points of the government’s guidance include:

a. CbC Reporting Obligator

In case the ultimate parent company is a domestic company or a resident of Korea, the CbC reporting obligator is the domestic parent company preparing the consolidated financial statements of a multinational group whose consolidated revenue exceeds KRW1 trillion during the preceding fiscal year.

In case the ultimate parent company is a foreign(non-Korean) company or a non-resident of Korea, the CbC reporting obligator is a Korean affiliated company of a multinational group whose consolidated revenue exceeds 750 million Euros (or equivalent) in the preceding fiscal year if any of the following conditions are met:

(1) There is no obligation to submit a CbC report under the laws and regulations of the country where the ultimate parent company is established; or

(2) There is no arrangement for the exchange of CbC report information between Korea and the country where the ultimate parent company is established.

b. Covered Scope of Entities

A CbC reporting obligator is required to prepare and submit a CbC report for affiliate companies which belong to a multinational group.

l Guidance on Overseas Financial Account Reporting

Under the International Tax Coordination Law of Korea, if Korean resident individuals or domestic companies have financial accounts opened with overseas financial institutions and the total value of such accounts exceeds KRW 0.5 billion on any last day of each month of the relevant year, the Korean residents and domestic companies are required to file a report on their overseas financial accounts to the tax office from June 1 to 30 of the following year.

In case where Korean resident individuals or domestic companies who are required to report their overseas financial accounts fail to report their financial accounts by the reporting deadline or underreport the relevant amount, an administrative fine shall be imposed as follows:

Non-reported or

underreported amount

(A)

Fine

Up to KRW 2 billion

(A)X 10%

Over KRW 2 billion up to KRW 5 billion

KRW 200,000,000 + [(A) – KRW 2 billion] x 15%

Over KRW 5 billion

KRW 650,000,000 + [(A) – KRW 5 billion] x 20% with the maximum cap of KRW 2 billion

In addition, if the non-reported or underreported amount exceeds KRW 5 billion, the Korean resident individuals or companies that violated reporting requirements can be subject to imprisonment of up to 2 years.

 

l Reporting of Deemed Gift Taxes on Transactions with Specially Related Corporations

In case where a company’s proportion of sales to another company which is a related party of dominant shareholder of the company accounts for more than 30% (50% for SMEs and 40% for defined medium-scale companies), the deemed gift taxes shall be imposed to the dominant shareholder and its relatives.

In applying the deemed gift taxation rule, the closing date of the relevant business year of a beneficiary corporation shall be deemed the date of donation. And the deemed gift tax return of the dominant shareholder should be filed within 3 months from the due date of annual corporate income tax return of the beneficiary company (e.g., by June 30, 2021 for the shareholders of the companies having the fiscal year ended December 31, 2020).

If the gift tax return is filed within the due date, the tax credit at 3% can be applied.