How Korean Companies Should Respond to U.S. OBBBA Revisions... Samjong KPMG Releases Report

With the implementation of the U.S. "One Big Beautiful Bill" (OBBBA), significant impacts are expected for domestic companies planning to establish factories or invest in facilities in the United States. In this context, there is a recommendation that these companies should establish tax strategies linked to the restructuring of global supply chains.

On July 22, Samjong KPMG announced the release of a report titled "Considerations for Domestic Companies Following Trump’s OBBBA Tax Law Amendments," which covers these issues.

The core of the OBBBA bill is to extend the tax cuts introduced by the Trump administration in 2017, scale back the Biden administration’s eco-friendly policies, and expand corporate investment within the United States.

The report stated, "With the early termination of certain clean energy-related tax benefits, such as the electric vehicle tax credit (up to $7,500) introduced during the Biden administration, Korean companies should adjust their facility investment and export strategies in the short term, and in the long term, consider utilizing alternative subsidies or state government support programs."

The investment tax credit rate for semiconductor production facilities has been raised from the previous 25% to 35%. The early termination of the Advanced Manufacturing Production Credit (AMPC) for items such as batteries, as well as the restriction on the transfer of tax credits, were excluded from the final bill.

Additionally, the basis for calculating the interest expense deduction limit has been changed from EBIT (Earnings Before Interest and Taxes) to EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), and the 100% bonus depreciation system for qualified assets has been reinstated. The requirement to capitalize research and development (R&D) expenses within the United States has been relaxed, which is expected to stimulate investment in the U.S. and further strengthen the competitiveness of companies entering the U.S. market.

Major international tax regimes introduced during the first Trump administration, such as GILTI (Global Intangible Low-Taxed Income), FDII (Foreign-Derived Intangible Income Deduction), and BEAT (Base Erosion and Anti-Abuse Tax), have been partially amended, resulting in adjustments to effective tax rates. The report advised, "Korean multinational corporations (MNCs) operating in the United States should seek ways to secure global operational flexibility and reduce tax burdens on foreign income."

Furthermore, OBBBA has introduced a new "Prohibited Foreign Entity" restriction. Companies that procure a certain percentage or more of raw materials from a Prohibited Foreign Entity (PFE) or such institutions will be limited in their eligibility for U.S. tax credits. Korean companies operating in the United States may face restrictions in sourcing from countries such as China, but they may also expect to gain competitiveness in the U.S. market due to "de-Chinaization."

Samjong KPMG projected that these amendments will generally be favorable for Korean companies focused on manufacturing in the United States. In particular, domestic companies planning to establish factories or invest in capital expenditures (CAPEX) in the U.S. are likely to benefit from reduced tax burdens due to the full expensing of R&D costs and expanded bonus depreciation.

On the other hand, companies without production or R&D bases in the United States may face relatively higher tax burdens and weakened cost competitiveness. Therefore, in the mid- to long-term, they should comprehensively review strategies to secure production facilities in the U.S., establish joint ventures, and attract research bases to expand their physical infrastructure.

Oh Sangbeom, Vice President of Samjong KPMG, emphasized, "While a favorable tax environment has been established for Korean manufacturing-focused companies operating in the United States, both short-term investment strategies and long-term risk management plans must be prepared simultaneously to ensure sustainable growth."

He added, "With changes in international tax effective rates, Korean MNCs should seek opportunities to reestablish their U.S. subsidiaries as global business operation hubs and actively develop tax strategies linked to intangible asset (IP) management, income concentration strategies, and global supply chain restructuring."

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