□ Deemed interest rate is applied to capital transactions between a resident and a foreign special related party.
○ In order to eliminate the possibility of disputes between the tax authority and taxpayers related to arm’s
length interest rate to be applied to capital transactions with a foreign special related party and to enhance the
convenience of taxpayers, the Enforcement Decree of the Adjustment of International Taxes Act has been
amended to allow taxpayers to choose the deemed tax rate specified in the Enforcement Rules of the same Act
considering the traditional method of calculating the arm’s length interest rate, interest rate by country,
market opportunity rate, etc.
- Where a resident lends funds to a foreign special related party: The interest rate of overdrawn account as
prescribed by Article 43 (2) of the Enforcement Rules of the Corporate Tax Act shall apply.
- Where a resident borrows funds from a foreign special related party: 12-month Libor per currency as of the
last day of the preceding business year + 1.5%
In the case of currencies without a Libor rate, the USD Libor rate shall apply.
- Applicable to capital transactions on or after Feb. 7, 2017.