Korea Fixes VAT Reverse-Charge Rule for Permanent Establishments in Side-by-Side Package Bill

Summary 

• As part of incorporating the OECD Side-by-Side Package into domestic law, Korea’s 2026 amendment proposal also clarifies the VAT treatment of services supplied by foreign companies with a Korean permanent establishment. 

• Where the Korean PE issues a tax invoice, the supply is deemed attributable to the PE, which reports and pays the VAT; the Korean customer is relieved of the reverse-charge obligation to that extent. 

• The change accompanies four new Pillar Two safe harbours, a lower CFC threshold and QDMTT foreign-tax-credit eligibility, all announced on 3 August 2026. 

Extended article 

The MoEF’s “in depth” proposal on the OECD Side-by-Side Package bundles several international-tax measures with a practical VAT clarification. The Pillar Two elements introduce four new safe harbours – the side-by-side safe harbour, the ultimate parent entity safe harbour, the substance-based income exclusion safe harbour and the simplified effective tax rate safe harbour – and reduce the CFC effective-tax-rate threshold to below 15% to align with the global minimum rate. QDMTTs would also become expressly creditable as foreign taxes, mitigating double taxation. 

On the indirect-tax side, the proposal resolves a long-standing reverse-charge question. Currently, a Korean recipient of services from a foreign company with a Korean PE must self-account for VAT to the extent the supply is not attributable to that PE. The amendment provides that, where the Korean PE issues a tax invoice for the service, the transaction is deemed attributable to the PE. Consequently, the recipient is not required to apply the reverse charge, and the PE is responsible for reporting and paying the VAT – a cleaner allocation that reduces disputes over attribution. 

Sources: oecdpillars.com – Side-by-Side Package implementation; Samil PwC – Tax News Flash (2026.8.4).

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