The G20/OECD Inclusive Framework, comprising approximately 140 countries worldwide, reached agreement on key matters of Digital Tax Pillar 1 in October of last year. Digital Tax Pillar 1, designed to tax excess profits of multinational enterprises and redistribute them to countries where sales occur, is also called the "Google Tax," and among domestic companies, Samsung Electronics and SK Hynix are being mentioned as likely target companies.

Meanwhile, according to the Ministry of Strategy and Finance on the 12th, the G20/OECD Inclusive Framework (IF) released a progress report on Pillar 1 as a whole on the 11th. The progress report released this time contains a draft of the Pillar 1 model regulation incorporating the outcomes of discussions so far.

The IF is known to have reached political agreement among participating countries on the Pillar 1 institutional framework in October of last year, and subsequently discussed detailed matters through technical working group meetings.

Pillar 1 will gather stakeholder feedback through a written public hearing by August 19th, and the final model regulation is expected to be prepared in October. Once the final model regulation is prepared, a multilateral treaty will be concluded in the first half of next year to ensure consistent implementation by IF member countries.

The implementation timeline has been delayed by one year from the previous agreement. Considering the need to discuss unresolved issues and gather stakeholder feedback, the schedule has been postponed from the originally agreed 2023 to target implementation in 2024. The OECD plans to disclose the components of Pillar 1 by the end of 2023 and release draft model regulations and commentaries to finalize the feedback process.

Academic organizations and multinational enterprises are expected to submit various opinions on the released draft model regulations and commentaries, which is projected to have a significant impact on OECD's additional review.

When Pillar 1 is implemented, a portion of excess profits of large multinational enterprises with high revenue and high profit margins will be subject to taxation rights redistributed to market jurisdictions (countries where sales occur) where products and services are ultimately consumed. Having been allocated taxable income,

According to the draft standards, multinational enterprises will become subject to Pillar 1 if △global total revenue for the business year exceeds 20 billion euros (approximately 2.6 billion won in Korean currency) and △pre-tax profit margin exceeds 10%. However, not only for the relevant business year but also in at least 2 years out of the preceding 4 years and the average of the most recent 5 years must the pre-tax profit margin exceed 10%.

Countries with taxing rights are allocated Pillar 1 taxing rights when attributable revenue is 1 million euros or more; however, for countries with GDP of less than 40 billion euros, Pillar 1 taxing rights can be allocated if attributable revenue is 250,000 euros or more.

Looking at revenue attribution standards by type of goods, services, etc., finished products and parts use the shipping address of the final consumer or the location of the retail outlet where sold to the final consumer as indicators. For example, if a semiconductor produced in Korea is assembled and manufactured into a product in China and then sold to an end consumer in the United States, the revenue of the Korean semiconductor company is attributed to the United States.

For services, the place of service use is the standard for revenue attribution, and regulations are made separately by type, including △service within a specific location, △advertising services, △online intermediation services, and △transportation services.

Taxable income is calculated by deducting normal profit (10% of revenue) from pre-tax profit after target group adjustment, with 25% of excess profit being allocated proportionally according to the country-by-country attribution revenue ratio determined by revenue attribution standards.

Procedures are also established to adjust double taxation when other countries impose taxes as the Pillar 1 taxing rights of the target group are redistributed to market jurisdictions. The draft explicitly states that the burden of eliminating double taxation is borne primarily by countries with higher target group profits.

Meanwhile, the Pillar 1 progress report is scheduled to be reported to the G20 Finance Ministers Meeting to be held on the 15th.