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Welcome to this instructional video. This video provides an overview of the Global Minimum Tax. This video covers the following contents. Chapter 1 introduces the Global Minimum Tax. Chapter 2 details its operation. The third and last chapter will explain the charging provisions and the transitional country-by-country reporting safe harbor. Now we begin with Chapter 1: Introduction. What is the Global Minimum Tax? It is based on the global anti-base erosion rules, known as the “GloBE rules” and ensures that large Multinational Enterprise Groups pay a top-up tax when their effective tax rate, calculated on a jurisdictional basis, is below 15%. With the emergence of the digital economy, tax avoidance by multinational enterprises and competition among countries to lower corporate tax rates have intensified. To address these challenges, the Global Minimum Tax was introduced through an agreement among approximately 140 members of OECD and G20 Inclusive Framework on BEPS. This page explains the implementation status of the Global Minimum Tax in Korea. It was first introduced in 2022 through an amendment to the Adjustment of International Taxes Act. The Income Inclusion Rule has been applied since January 2024, followed by the Undertaxed Profits Rule, which took effect in January 2025. Finally, the Qualified Domestic Minimum Top-up Tax has been applied in January 2026. Now, moving on to Chapter 2, this section explains how the Global Minimum Tax works. This page explains definitions of terms. First, ‘GloBE income or loss’ means the financial accounting net income or loss of a constituent entity, adjusted in accordance with the GloBE rules. ‘Adjusted covered tax’ refers to the current tax expense adjusted in accordance with the GloBE rules. The ‘Effective Tax Rate’ is calculated by dividing the sum of adjusted covered tax of constituent entities by the GloBE income of all constituent entities minus their GloBE losses. The ‘top-up tax’ is the tax amount computed on a jurisdiction-by-jurisdiction basis when the jurisdictional Effective Tax Rate is below 15%. The scope of the Global Minimum Tax includes constituent entities that are members of an MNE Group with an annual revenue of 750 million euros or more in the consolidated financial statements of the ultimate parent entity in at least two of the four fiscal years immediately preceding the tested fiscal year. There are three key points regarding the scope of the Global Minimum Tax. In the following pages, we will examine these points in detail. The first point is “Constituent Entities that are members of an MNE Group.” In the context, a Constituent Entity means any entity that is a member of an MNE Group or any Permanent Establishment of a Main Entity that is itself a Constituent Entity. An MNE Group is any group that includes at least one Entity or Permanent Establishment that is not located in the jurisdiction of the Ultimate Parent Entity. However, there are five categories of organizations that are excluded: government entities, international organizations, non-profit organizations, pension funds, and investment funds or real estate investment vehicles that act as the ultimate parent entity of an MNE Group. Importantly, while these excluded entities are not subject to the Global Minimum Tax, they are included when determining whether the consolidated revenue threshold of 750 million euros is met. The second criterion is an ‘annual revenue of 750 million Euros or more in the Consolidated Financial Statements of the Ultimate Parent Entity’. Because the threshold is denominated in Euros, if the Consolidated Financial Statements are not prepared in Euros, the revenue must be converted. The exchange rate used for this conversion shall be the average of the daily exchange rates publicly announced by the European Central Bank in December of the fiscal year immediately preceding the relevant fiscal year. This is stipulated in Article 101, Paragraph 5 of the Enforcement Decree of the Adjustment of International Taxes Act. The revenue threshold of 750 million euros is similar to that used in the Country-by-Country Reporting (CbCR) rules. However, strictly speaking, the two thresholds are not identical. This is because, according to Article 35, Paragraph 1 of the Enforcement Decree of the Adjustment of International Taxes Act, the obligation to file a Country-by-Country Report applies to the ultimate parent entity located in the Republic of Korea whose turnover in CFS for the immediately preceding taxable year exceeds one trillion Korean Won. Depending on the exchange rate, an MNE group may meet only one of the thresholds for either Global Minimum Tax or the CbCR. The final point is “two out of the four fiscal years.” Importantly, the tested fiscal year is excluded, and the consolidated revenue test is based only on the four preceding years. For example, if the tested year is 2024, the reference period would be from 2020 to 2023. In addition, if a fiscal year is not exactly 12 months, the consolidated revenue shall be adjusted proportionally to correspond to a 12-month fiscal year. For instance, if an MNE Group has a 6-month fiscal year and its consolidated revenue for the period is 600 million euros, the consolidated revenue used to determine the tested revenue is calculated by dividing 600 million euros by 6 and multiplying it by 12, resulting in 1.2 billion euros. This is similar to the concept of a “converted fiscal year” used in corporate tax law. Next, we move on to the Effective Tax Rate calculation. The principle here is that calculations must be made on a jurisdiction-by-jurisdiction basis. The Effective Tax Rate of an MNE group for a jurisdiction is equal to the sum of the Adjusted Covered Taxes of each constituent entity located in the jurisdiction divided by the Net GloBE Income of the jurisdiction, which is the amount calculated by subtracting the sum of the GloBE losses from the sum of the GloBE income of all constituent entities located in the jurisdiction. The Adjusted Covered Taxes of a constituent entity is equal to the current tax expense adjusted under the GloBE rules. Additionally, the GloBE income or loss of each constituent entity is the financial accounting net income or loss adjusted under the GloBE rules. If the effective tax rate in a jurisdiction is below 15%, a top-up tax arises in that jurisdiction. The top-up tax is calculated by multiplying the excess profit by the difference between 15% and the effective tax rate. The excess profit is calculated by subtracting the substance-based income exclusion from the net GloBE income or loss. Substance-based income exclusion refers to the sum of exclusions related to payroll costs and the book value of tangible assets. The calculation of the top-up tax is completed by adding the additional current top-up tax and subtracting the qualified domestic minimum top-up tax. The additional current top-up tax is the amount of top-up tax added to the current year’s top-up tax arising from a re-calculation of the top-up tax for previous year. In addition, Qualified domestic minimum top-up tax means a minimum tax imposed by a jurisdiction on constituent entities located therein in a manner consistent with the GloBE rules. The third chapter covers the charging provisions for the top-up tax. The allocation of top-up tax determines which entity within the MNE group should bear the top-up tax calculated on a jurisdictional basis. There are two charging provisions: the income inclusion rule and the under-taxed profits rule. Under the Income Inclusion Rule (IIR), the allocable share of top-up taxes is imposed on the parent entity under the top-down approach if the jurisdiction has adopted it. The top-down approach refers to an ordering rule that gives priority to parent entities closest to the top of the ownership chain. The Income Inclusion Rule has been applied since January 2024 in Korea. Where the Income Inclusion rule does not apply to the top-up tax, the under-taxed profits rule applies. Under the under-taxed profits rule, the top-up tax that is not brought within the charge of a qualified IIR is imposed on constituent entities of an MNE Group located in a jurisdiction applying the UTPR. In Korea, the UTPR has been applied since January 2025. Finally, Chapter 4 explains the Transitional CbCR Safe Harbour. The Transitional CbCR Safe Harbour is a mechanism designed to reduce the compliance burden for MNE groups during the transition period, under which, based on CbCR data, where at least one of the specified tests is met, the top-up tax for the jurisdiction is deemed to be zero and detailed GloBE computations are not required. Here, the transition period refers to the initial four years following implementation, that is, from fiscal year 2024 to fiscal year 2027. The first test is the De minimis test which is met where the MNE group reports total revenue of less than 10 million euros and profit before income tax of less than 1 million euros in a jurisdiction on its CbC report for the fiscal year. Note that these are cumulative requirements. The second test is the simplified effective tax rate test which is met where the MNE group has a simplified ETR that is equal to or greater than the transition rate in a jurisdiction for the fiscal year. The simplified ETR is calculated by dividing the jurisdiction’s simplified covered taxes by its profit before income tax as reported on the MNE group’s qualified CbC report. The transition rates are 15% in 2024, 16% in 2025, and 17% in 2026 and 2027. The Simplified covered taxes is a jurisdiction’s income tax expense as reported on the MNE group’s qualified financial statements, after eliminating any taxes that are not covered taxes and uncertain tax positions. Finally, there is the routine profits test. This test is met when excess profit is less than or equal to the substance-based income exclusion amount. This concludes the overview of the Global Minimum Tax. Thank you for watching.