'Multilateral Convention to Prevent Tax Avoidance by Multinational Corporations' to Enter into Force in September... Deposit of Instrument of Ratification

[Asia Economy Reporter Kwangho Lee] The government is joining forces with the international community to block tax avoidance through base erosion and profit shifting by multinational corporations.

On the 14th, the Ministry of Economy and Finance announced that it deposited the ratification instrument for the OECD's (Organisation for Economic Co-operation and Development) "Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS)" on the 13th.

BEPS refers to attempts by multinational corporations to avoid taxes through international transactions. The international community has promoted a multilateral convention to quickly reflect necessary amendments to tax treaties among countries as part of an international cooperation system to block offshore tax evasion by multinational corporations.

The official name of the ratification instrument is "Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting." The government signed it in June 2017 and completed ratification approval by the National Assembly in December last year. With the deposit of the ratification instrument, the multilateral convention is expected to come into effect domestically from September 1.

Following the deposit of the ratification instrument, tax treaties that South Korea has concluded with other countries that have joined the convention will automatically incorporate BEPS-related countermeasures without separate additional negotiations.

Once the BEPS multilateral convention comes into effect, tax treaties currently in force between South Korea and other countries that have completed the deposit of the ratification instrument will be subject to amendment if both countries have notified the OECD that their treaties are subject to the multilateral convention.

As a participant in the BEPS project, South Korea will have implementation obligations. It will introduce provisions to exclude benefits aimed primarily at transactions with low tax rates stipulated in tax treaties, contributing to the prevention of tax avoidance abusing tax treaties.

Additionally, to enhance taxpayer rights, the scope of taxpayers who can object to tax assessments inconsistent with tax treaties has been improved. Taxpayers can now choose between the tax authorities of either contracting state, rather than being limited to the tax authorities of their country of residence.

At the time of depositing the ratification instrument, South Korea notified 73 out of 93 existing tax treaties as subject to the multilateral convention. Among these, 32 treaty partners have completed the deposit and notification of the ratification instrument applying the convention to their treaties with South Korea. The remaining treaties, excluding the 73, are being revised through bilateral negotiations.

As the number of signatories and ratifying countries of the BEPS multilateral convention increases, the number of South Korea’s tax treaties subject to the convention is expected to grow.

Details regarding the application of the BEPS multilateral convention to individual tax treaties can be found on the Ministry of Economy and Finance website.

This content was produced with the assistance of AI translation services.