KOTRA EXPRESS

Tax News

September 2017

The following tax information is translated from Korean for foreign-invested companies, and is not legally binding.

      (Q) Whether severance benefit paid to the representative director is included in the expense
             in the following case

      (A) Where a company’s provisions on severance benefit payment define the severance multiplier for individual              employees instead of groups of employees, such provisions shall not be considered ‘provisions on severance              benefits to executives stipulated by the articles of incorporation’ as prescribed by Article 44 (4) of the              Enforcement Decree of the Corporate Tax Act. Where the severance multiplier is set higher for specific              executives who are special related parties without a justifiable cause, the provisions on repudiation of wrongful              calculation under Article 52 of the Corporate Tax Act shall apply.

    Source: National Tax Service (May 26, 2017)
      (Q) Withholding obligations where a contract is terminated after payment of income

      (A) Where a domestic company paid domestic source income subject to tax withholding as prescribed by Articles 93              and 98 (1) of the Corporate Tax Act to a foreign corporation but did not fulfill its withholding obligations at the              time of payment, the penalty tax prescribed by Article 47-5 (1) of the Framework Act on National Taxes and              Article 76 (7) of the Corporate Tax Act shall apply, even after the contract with the foreign company was              due to the foreign company’s failure to conform to the contract.

    Source: National Tax Service (Jun. 14, 2017)
      (Q) Whether compensation paid following the transfer of a vehicle lease contract is considered an expense
             related to business-use vehicle

      (A) Where a domestic company using a business-use vehicle through an operating lease contract transfers              the contract to a third party and pays a compensation to cover the unpaid lease balance for the remaining lease              period and to make up for the price difference between a new vehicle and a used one, such amount of              compensation shall not be considered expenses incurred for passenger vehicles for business use as prescribed              by Article 27-2 (2) of the Corporate Tax Act or losses incurred in disposing of passenger vehicles for business use              as prescribed by Article 27-2 (4) of the same Act.

    Source: National Tax Service (Jun. 19, 2017)
      (Q) The scope of earned surplus reserve subtracted from corporate income when calculating corporate tax on              unappropriated earnings

      (A) When calculating corporate tax on unappropriated earnings, the earned surplus reserve that shall be              compulsorily set aside for the relevant business year under Article 458 of the Commercial Act (as prescribed by              Article 93 (4) 2 (b) of the Enforcement Decree of the Corporate Tax Act) means the earned surplus reserve              accumulated every period for settlement of accounts of the company until the amount reaches half of the              company’s capital, and refers to the amount equal to 10 percent of the company’s dividends (excluding stock              dividends).

    Source: National Tax Service (Jun. 28, 2017)
      (Q) Whether expenses related to business-use vehicle can be included in loss where an outsourced worker
             drives a company’s business-use vehicle

      (A) Where a company purchased an auto insurance plan (i.e., auto insurance for business vehicles) that only              insures persons who are not employees of the company operating the vehicle for the business of the company              for the relevant business year (the leased period during the business year in the case of leased vehicles), Article              50-2 (4) 1 of the Enforcement Decree of the Corporate Tax Act shall apply for calculation of the company’s              income for the relevant business year. However, whether this can apply shall be determined case by case.

    Source: National Tax Service (Jun. 22, 2017)

      (Q) Whether dividend paid to a parent company of a split-off company is excluded from income in the
             following case

      (A) A company newly established through a split-off subtracted the liabilities transferred from the parent company              and the capital of the split-off company from the amount of assets transferred by the parent company. The              amount was then reduced in accordance with Article 461-2 of the Commercial Act and paid out as dividend to              the parent company. In this case, the amount of such dividend shall not be included in gross income when              calculating the income of the parent company for each business year, in accordance with Article 18 Item 8 of              the Corporate Tax Act.

    Source: National Tax Service (Jun. 26, 2017)

For more information, please contact the International Tax Resource Management Office of the National Tax Service (82-44-204-2873~4).

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