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Korea Draft Decree on CbC Reporting and other Matters

The Korean Ministry of Strategy and Finance has published a notice on a draft decree that sets certain requirements regarding the country's Country-by-Country (CbC) report, Master file, and Local file requirements, and makes certain other amendments. The main points include:

  • Ultimate parent entities resident in Korea are required to submit a CbC report if group revenue exceeds KRW 1 trillion in the previous year, and subsidiaries and branches (constituent entities) in Korea of foreign groups are also required to submit a CbC report if the parent is not required to file in its jurisdiction or the report is not exchanged with Korea;
  • Group constituent entities must provide notification of the CbC reporting entity to the tax authority within six months following the close of the fiscal year;
  • The KRW 30 million penalty for failing to submit the Combined Report on International Transactions (Master/Local file) is split so that a KRW 10 million penalty would apply for failing to submit any one of the required documents: the Master file, the Local file, and the newly required CbC report;
  • The penalty in relation to the statement of cross-border transactions is changed from a general penalty of KRW 10 million for failing to submit or the submission of inaccurate information to a penalty of KRW 5 million for failing to submit information or the submission of inaccurate information per related party (e.g., if reportable transactions are made with six related parties and information is omitted or inaccurate in relation to three parties, a KRW 15 million penalty would apply); and
  • The rules for the determination of the deemed arm's length interest rate for intercompany loan transactions are amended to provide taxpayers the option to use a standard interest rate determined by the Ministry, instead of the current rule which requires determining the rate based on the amount of the obligation; the maturity of the obligation; whether the obligation is secured; and the credit rating of the debtor (current rule remains an option).

The notice period for the draft decree runs through 19 January 2017.

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