Korean battery companies do not qualify for safe harbors

2024.05.14 09:18:02 | 2024.05.14 11:38:54

[Graphics by Song Ji-yoon]이미지 확대

[Graphics by Song Ji-yoon]

As what is known as global minimum taxation came into effect in 2024, South Korean battery manufacturers are not eligible for a temporary exemption and face substantial, additional tax burdens.

The Pillar Two rules, proposed by the Organisation for Economic Co-operation and Development (OECD), establishes a new minimum tax of 15 percent on the global income of multinational companies with 1 trillion won ($732.6 million) or more in sales generated worldwide. These companies must pay a 15 percent of tax rate on their incomes within each jurisdiction in which they operate, with additional taxes paid to tax authorities in their home countries. The OECD introduced safe harbors for the first three years of Pillar 2‘s application up until fiscal years starting in June 2026 to reduce the compliance burden for companies.

Pillar Two rules contain safe harbors that allow companies to remove designated low-risk jurisdictions from Pillar 2 compliance provided one of three tests is met. The safe harbor rules ? a simplified effective tax rate, a routine profits test, and a de minimis test ? relieve the multinational corporations operating in low-risk countries from having to report full Pillar Two calculations until December 2026.

Industry officials and accounting firms indicate that around 10 to 20 percent of Korean conglomerates, including Samsung Group, SK Group, and LG Group, may not qualify for the harbors. Entertainment companies, however, are expected to qualify.

From the approximately 250 to 300 companies previously projected to be affected, about 270 will likely be granted the three-year extension.

Korean battery companies that entered the United States with high expectations for the Inflation Reduction Act will not qualify for the harbors because of the higher profits generated under U.S. tax rules.

By Lee Hee-jo, Chu Dong-hun and Han Yubin

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