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Digital tax, excess profit distribution ratio of 25%, minimum corporate tax rate of 15%

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Agreement to exclude 5% of tangible assets and salary expenses from the tax base
Procedures for abolition of digital service tax in each country following the implementation of taxation rights distribution

The proportion of profit in excess of digital tax to be applied to global companies such as Google and Netflix has been confirmed at 25%. If there are permanent establishments such as Samsung Electronics and SK Hynix, part of tangible assets and salaries are deducted from the tax base. The minimum global corporate tax rate is set at 15%.

The Organization for Economic Cooperation and Development (OECD)/G20 Comprehensive Implementation Framework (IF) held the 13th General Assembly video on the 8th and unveiled the final agreements and implementation plans for digital tax pillars 1 and 2.

The digital tax consists of pillar 1, which gives taxation rights to the country of sales, and pillar 2, which regulates the minimum corporate tax rate.

At this meeting, major issues that were not decided in the agreement published in July were decided. In Pillar 1, the excess profit distribution ratio, which was the biggest issue between countries, was fixed at 25%, and the minimum tax rate in Pillar 2 was also agreed to be 15%.

5% of salaries and tangible assets are deducted from the tax base for actual business activities by hiring manpower in a market where the manufacturing industry is located. However, after 10 years, 8% of the book value of tangible assets and 10% of salary are deducted in the first year. The deduction rate is reduced by 0.2 percentage points (P) per year for the first five years, and for the last five years, the deduction rate is reduced by 0.4%P per year for tangible assets and 0.8%P per year for salaries. At the end of the elapsed period, the deduction ratios of both factors converge to 5%.

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Companies in the early stages of overseas expansion are excluded from the application of the cost deduction denial rule for 5 years. The cost deduction rule is a rule that allows the parent company to exercise its taxation right in the country where the subsidiary is located if the parent company is taxed at a low rate.

When a nominal tax rate lower than 9% is applied while paying interest and royalties to affiliates located in low-tax countries, additional taxation rights are recognized in the country of origin.

The dispute resolution procedure allows selective application to developing countries with low response capacity, and the eligibility for selective application is periodically reexamined.

At the time of the implementation of Pillar 1, the digital service tax introduced in some countries, such as France and the United Kingdom, and other taxes similar to the digital tax will be abolished and will not be introduced in the future. Even before the implementation of Pillar 1, the digital service tax will not be introduced between the date of this agreement and the effective date of the multilateral agreement or December 31, 2023. The OECD plans to coordinate the abolition of the currently operating system by reflecting the opinions of member countries.

Pillar 1 will come into effect in 2023 through domestic ratification and legislative procedures after preparing multilateral agreements and model regulations early next year and signing them in the middle of next year. Pillar 2 will prepare regulations in November and amend the domestic law next year, which will be implemented in 2023.

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The Ministry of Strategy and Finance said, “After four years of multilateral negotiations, we have completed the framework of historic global tax reform. he explained.

Reporter Dahyun Choi [email protected]

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