International Agreement on Digital Tax Delayed to Mid-Next Year... Legal Amendments to Take at Least 2 Years

Differences Between Countries on Application Exceptions, Combined Effective Tax Rate Scope, and Minimum Tax Rate

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[Asia Economy Reporter Jang Sehee] The final international agreement on the digital tax has been postponed from the end of this year to mid-next year due to the impact of the novel coronavirus infection (COVID-19) and the U.S. presidential election.

According to the Ministry of Economy and Finance on the 12th, the OECD and the G20 Inclusive Framework (IF) held the 10th plenary meeting on the 8th and 9th and approved the blueprint for the long-term digital tax measures Pillar 1 and 2. The blueprint is a kind of interim report on the progress of digital tax discussions.

The Pillar 1 and 2 blueprint specifies the components of Pillar 1 and 2, includes the status of opinion gathering for each component, differences in unresolved political and technical issues, and the future direction of discussions.

In response to the international digital tax discussions, the government reinforced the digital tax response organization in December last year and formed a public-private task force (TF) on digital tax with companies, experts, and related institutions to identify domestic issues and supplement the rationale. The Ministry of Economy and Finance explained that the final agreement timing was extended considering constraints such as the spread of COVID-19 and the U.S. presidential election.

The Ministry of Economy and Finance stated, "Once the final plan is agreed upon, it will take at least 2 to 3 years for normative work such as concluding and ratifying multilateral treaties and revising domestic laws," adding, "Even if the final plan is agreed upon by mid-next year, a considerable period will be needed before actual taxation."

The scope of application includes digital services and consumer-targeted businesses, with specific industries and phased introduction plans to be discussed later. Considering the degree of remote business activities and low profit margins, stricter application criteria will be established for consumer-targeted businesses than for digital service businesses. Additionally, exceptions to application, the scope of effective tax rate aggregation, rule application priority, and minimum tax rates have significant differences among countries and require political agreement.

Meanwhile, the government plans to continue responding with a focus on securing tax revenue and minimizing the burden on Korean companies during the digital tax discussion process.

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