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It has been difficult for the Korean government to review the profit structures of foreign corporations as there were no rules and regulations governing their duty to report. Thus, multinational corporations such as Google and Apple have been reducing their tax burden by shifting profits earned in countries with higher tax rates to countries with lower tax rates. To end such multinational tax practices, the Ministry of Strategy and Finance announced the tax law amendment on December 23, 2015.
According to the amendment; corporations with annual sales of over KRW 100 billion and transactions with foreign related parties exceeding KRW 50 billion will be required to file an international related party transaction integrated report (i.e., corporate governance structure, transaction details, current financial and tax status) with the National Tax Service (NTS). The NTS will be able to impose additional applicable taxes based on this report.
However, many experts remain skeptical that the new amendment will function as intended because they feel that this amendment alone cannot discover the annual sales of limited liability companies. That is, as most foreign companies in Korea are limited liability companies, they have no obligation to make public their financial statements nor do they have a duty to conduct an external audit. Hence, unless they voluntarily disclose their domestic sales, it will be quite difficult to determine which companies have annual sales over KRW 100 billion.
Therefore, experts proposed that other relevant laws such as the Corporate Tax Act and Income Tax Act should be amended to require limited liability companies over a certain size to have their accounts audited by external auditors. This way, the competent tax authorities would be able to tax foreign companies in Korea such as Google and Apple.
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The tax law has been amended to impose taxes on certain corporations, including multinationals, with annual sales of over KRW 100 billion and transactions with foreign related parties exceeding KRW 50 billion by requiring them to submit an international related party transaction integrated report.