This file picture shows the Organisation for Economic Cooperation and Development logo on a wall at the OECD headquarters in Paris, France. (Getty Images)
This file picture shows the Organisation for Economic Cooperation and Development logo on a wall at the OECD headquarters in Paris, France. (Getty Images)

South Korean manufacturers investing in the US will be able to retain federal tax incentives without facing additional levies under the global minimum tax, following an overhaul of the international tax framework.

The OECD on Monday announced a so-called side-by-side package to the 15 percent global minimum corporate tax, allowing broader application of the framework and closer alignment with national tax systems and investment incentives.

A key element of the package is a safe harbour for investment-linked tax incentives, allowing companies to continue benefiting from substance-based incentives without triggering top-up taxes in other jurisdictions. The treatment applies to certain expenditure- and production-based credits tied to tangible investment and employment, which can be treated as covered taxes subject to caps linked to payroll costs and the value of tangible assets.

The move reflects a recognition that such incentives are widely used to support real economic activity. This includes the Inflation Reduction Act credits for advanced manufacturing received by many Korean automakers and battery makers, removing a key source of tax uncertainty as they expand investment in the US.

The package also introduces the side-by-side system, allowing similar domestic minimum tax regimes to operate in parallel with the global rules. Under the framework, multinational groups headquartered in countries that apply a qualified domestic minimum regime will not face additional top-up taxes elsewhere.

To qualify, a regime must have a statutory corporate tax rate above 20 percent and ensure an effective rate of at least 15 percent on domestic income, while applying a 15 percent tax to foreign-source income earned by group affiliates overseas.

First agreed in 2021, some 145 countries under the OECD and the Group of 20 Inclusive Framework have implemented the global minimum tax, designed to ensure large multinationals with consolidated revenue of more than €750 million ($880 million) pay a baseline tax of 15 percent wherever they operate.

Although formally rolled out in 2024, the regime has remained fragmented, as several countries, including the US, have resisted participation on the grounds of tax sovereignty and the protection of domestic firms.

The South Korean government welcomed the package, saying it was the first to propose to the Inclusive Framework that refundable tax credits, including those under the Inflation Reduction Act, be recognized as qualifying incentives under the safe harbour.

“The latest agreement is expected to help reduce the global minimum tax burden on overseas-expanding companies in new industries such as secondary batteries and electric vehicles, thereby strengthening their global competitiveness,” the Ministry of Economy and Finance said in a statement Monday.

Korea is set to implement a domestic minimum top-up tax from this year. Multinational companies operating in the country that are subject to low effective tax rates will be taxed at a minimum rate of 15 percent on income earned from 2026, with the first filing and payment due from March 2028.


jwc@heraldcorp.com