Global Minimum Tax Implications for South Korea’s Battery Industry
The implementation of a global minimum tax policy has sparked concerns within South Korea’s battery industry, as companies brace for potential additional tax burdens. With the policy setting a 15 percent floor on corporate taxes for multinationals with revenues over 1 trillion won, the domestic battery sector, which has reaped significant tax deductions in the U.S., is now facing the prospect of paying up to 200 billion won more by 2026.
As investments in U.S. production grow, so does the expected tax liability. The Korea Battery Industry Association, along with other industry groups, recently held a seminar to discuss strategies for dealing with the U.S. Inflation Reduction Act (IRA) and the global minimum tax. Accounting expert Jung Hyun highlighted that last year, companies like LG Energy Solution and SK on received a combined 1.3 trillion won in tax deductions under the IRA, which could translate into an additional 180 billion won in taxes due to the new global policy.
The South Korean government has adopted this system from this year, aligning with G20 and OECD efforts to prevent tax avoidance by multinationals. However, overseas investment tax deductions have lowered effective tax rates, prompting a need to pay more taxes domestically.
Jung suggested that the U.S. should recognize investment tax deductions as taxes already paid to mitigate the impact of the global minimum tax. He explained that cash payments for tax deductions, or ‘Direct pay,’ are considered paid under U.S. law and could qualify for ‘deduction from current corporate tax expenses.’
Despite these challenges, there is optimism that U.S. influence within the OECD could lead to favorable amendments. The domestic battery industry also faces hurdles with the U.S. IRA’s “Foreign Entities of Concern (FEOC)” provisions, potentially reducing subsidies for K-batteries used in electric vehicles. The industry is advocating for a grace period or exemption for certain materials and an exemption from the global minimum tax.
At the seminar, experts called for reduced dependency on specific countries for battery supply chains and emphasized the urgency of establishing domestic sources for key minerals like graphite. The Korea Battery Industry Association plans to propose measures to the government and National Assembly to support the industry’s position.
