In December 2020, the National Assembly approved the tax law amendments proposed by the Ministry of Economy and Finance (the “MOEF”), which were followed by the relevant Presidential Decrees officially announced on February 17, 2021 and are currently in force.  The local tax law amendments proposed by the Ministry of the Interior and Safety (the “MOIS”) were also approved by the National Assembly and are currently in force.

We have summarized the key tax law amendments below.  Please note that most of the below amendments became effective as of January 1, 2021.

1.   International Tax

• Establishment of administrative fine cap for failure to report foreign financial accounts and reduction of fines if reported under the Foreign Exchange Transaction Act (Article 102 of the Presidential Decree (“PD”) to the International Tax Coordination Law (the “ITCL”)) 
  
  In an effort to reduce taxpayers’ burden of administrative fines for failure to report foreign financial accounts, the law was amended to include (i) a cap for administrative fines (KRW 2 billion) and (ii) a reduction of fines if the remaining balance of the taxpayer’s overseas deposit was reported under the Foreign Exchange Transactions Act.
  
  The cap applies to administrative fines imposed on or after February 17, 2021, and the reduction applies to reports made on or after January 1, 2021.

• Expansion of scope of financial assets that must report foreign financial accounts (Article 52 of the ITCL)
  
  The scope of foreign financial assets that must be reported was expanded to cover crypto assets and other similar assets belonging to Korean residents and are traded overseas.  This amendment will be applicable to reporting obligations arising on or after January 1, 2022.

2.   Corporate Income Tax and Individual Income Tax

• Rationalization of fair market value (“FMV”) determination of listed stocks (Article 88 (4) and 89 of the PD to the Corporate Income Tax Law (the “CITL”))
  
  In an effort to rationalize the FMV determination of listed stocks of a Korean company for corporate income tax purposes, the amendment clarified that the FMV would be the “final market price for such day” for listed shares that are traded via block trading or over-the-counter trading.  If the transfer of listed shares includes a control premium, the FMV will be adjusted to account for an additional 20% premium.
  
  In cases where listed shares are transferred at prices that are not the FMV (as determined under the CITL), the “Denial of Unfair Transaction Rule” may apply regardless of whether the shares are transferred on the stock market.  In addition, although the Denial of Unfair Transaction Rule previously only applied if the difference between the purchase price and FMV was (i) KRW 300 million or more, or (ii) 5% of the FMV or more, these conditions no longer need to be met under the amendment.
  
  The amendment applies to transactions made on or after February 17, 2021.

• Clarification of circumstances where late submissions of comprehensive income tax return are considered as having been filed before the statutory due date (Article 134 of the PD to the Individual Income Tax Law (the “IITL”))
  
  Article 134 of the IITL-PD lists four conditions that need to be satisfied in order for a late submission of a comprehensive income tax return to be deemed as having been filed before the statutory due date.  Previously, the taxpayer was to complete both the tax return filing and payment within a certain date.  However, the amendment now only requires the taxpayer to complete the “filing” within the certain date; “payment” is no longer necessary to satisfy these conditions.
  
  The amendment applies to comprehensive income tax returns filed on or after January 1, 2021.

3.   Inheritance and Gift Tax

• Improvement in share valuation premium for shares owned by majority shareholder (Article 53 (7) of the PD to the Inheritance and Gift Tax Law)
  
  The purpose of the amendment was to rationalize the share valuation premium regime to avoid excessive or duplicate valuation premium.  Specifically, if a corporation owned by the majority shareholder holds shares of other corporations, such shares of other corporations are excluded from the share valuation premium regime.
  
  The amendment applies to inheritance tax filing or gift tax filing made on or after February 17, 2021.