Korean Tax Newsletter (June, 2020)

Korean Tax Newsletter is a monthly publication of Deloitte Anjin LLC. We hope you will find useful information in this newsletter.

▲ Tax law amendments

On 2 June 2020, Korea’s National Assembly passed a presidential decree that amends the Local Tax Law to clarify the scope of land that is subject to “Separate Taxation.”
The main changes made by the amendment are as follows:

1. Land not subject to “Separate Taxation” (Art. 102(8) of the Presidential Decree)
  • Land directly used for “Gu-Pan” business by Nonghyup (i.e., a Korean agricultural cooperative), if the land is used for a large-scale store
  • Land in an international business area owned by Incheon International Airport Corporation 
2. Land subject to “Separate Taxation” (Art. 102(8) of the Presidential Decree)
  • Traditional temple preservation sites and Confucian School sites that are not used for a profitable business or are free of charge 


▲ News from tax authorities

Foreign financial accounts of more than KRW 500 million should be reported by 30 June 2020
  • Tax residents or companies in Korea having foreign financial accounts are required to file a South Korean FBAR (Foreign Bank and Financial Accounts Report) for the 2019 calendar year by 30 June 2020, if the aggregate balance of the foreign financial accounts exceeds KRW 500 million on the last day of any month during 2019. 
    • A foreign financial account is an account opened for financial transactions at a foreign financial institution. Financial assets such as cash, stocks, bonds, collective investment securities, and derivatives held in foreign financial accounts are subject to reporting.
    • It is important to note that the reporting threshold for 2019 accounts has decreased from KRW 1 billion to KRW 500 million.
  • The National Tax Service intends to verify the compliance status of taxpayers by crosschecking data gathered from the exchange of financial information with other countries and organizations.
    • Penalties of up to 20% apply for non-compliance. Criminal punishment and public disclosure apply where the unreported amount exceeds KRW 5 billion. 
    • Whistle-blowers providing important data about non-compliant taxpayers may receive a reward of up to KRW 2 billion (KRW 8 billion if they provide data along with specific tax evasion suspects, hidden assets, etc.).

Tax revenue through April falls by KRW 8.7 trillion compared to last year

  • According to the Ministry of Economy and Finance, Korea’s accumulated national tax revenue from January through April 2020 is KRW 100 trillion, which is KRW 8.7 trillion less than that for the same period of 2019. 
  • The tax collection rate (i.e., the ratio of tax collected over total tax revenue) is 34.6%, which is 2.7% less than last April’s tax collection rate (37.3%).
  • The government expects a tax revenue deficit in the current year and, therefore, has included an expected shortfall in tax revenue (KRW 1.1 trillion) in the budget for the third quarter.

All financial product income to be classified as “financial investment income” from 2023 

  • According to the “Tax Reorganization Plan on Financial Income” announced by the Ministry of Economy and Finance, all income arising from financial investment products such as shares, funds, bonds, and derivatives will be collectively taxed as “financial investment income” from 2023. 
  • Capital gains from bonds that currently are not taxable will be taxable as from 2022, and capital gains from disposals of shares will be taxable as financial investment income regardless of minority or majority shareholders. Considering the possible effects on the stock market, up to KRW 20 million of capital gains from listed shares will be exempt from tax. 
  • Financial investment income/loss will be calculated separately from comprehensive/capital gains, and net financial investment losses will be allowed to be carried forward for three years.
  • Taking into consideration that there could be double taxation if securities transaction tax (STT) and capital gains tax are applied on share investment income, the STT rate will be lowered from the current rate of 0.25% to 0.15% as from 2023.
  • The “Tax Reorganization Plan on Financial Income” is expected to be reviewed along with the 2020 Tax Revision Bill during the regular session of the National Assembly at the end of July after a public hearing.

▲ Recent tax rulings and cases 

A. Sajeon-2020-BeopRyungHaeSeokBeopIn-0282, 2020.04.07
  • A company engaged in the pharmaceutical manufacturing business recorded research and development (R&D) expenses paid under a joint R&D contract with other companies as amortizable assets, since the company considered the R&D expenses to satisfy intangible asset recognition requirements under Korean accounting standards.
  • Based on Korea’s Financial Supervisory Service's “Supervision Guidelines on Accounting for R&D Expenses for Pharmaceuticals and Bio-Companies,” the R&D expenses later were determined not to satisfy asset recognition requirements. The company, therefore, recorded a prior period adjustment to reduce its retained earnings by the remaining book value.
  • According to the ruling, the reduction in retained earnings should be regarded as an impairment loss on assets under Article 23(1) of the Corporate Income Tax Law (CITL) and should be amortized for tax purposes under Article 31(8) of the Enforcement Decree of the CITL
B. Sajeon-2020- BeopRyungHaeSeokBeopIn-0329, 2020.05.25
  • In accordance with the Korean government's denuclearization policy, a company shut down its existing nuclear power plants and recorded the remaining book value of the plants as an impairment loss. The company reported part of the impairment loss as a non-deductible tax reserve when it filed its corporate income tax return.
  • According to the ruling, although the company received the government's approval for the permanent suspension of the plant in the following year, the remaining balance of the tax reserve for impairment loss should be expensed for tax purposes up to the tax depreciation limitation over the useful life.
C. Supreme Court2020Du36557, 2020.05.08
  • Whether the VAT invoice issued by Company A to the taxpayer is a false tax invoice; and
  • If so, whether the taxpayer can claim input VAT on such VAT invoice because it was not aware that the invoice was a false invoice. 

Summary of decision

  • Based on the following reasons, the Supreme Court found that Company A issued the taxpayer a false VAT invoice in a disguised transaction: 
    • The name of Company A’s representative was different from the representative’s actual name, and there was no record of Company A having registered employees or paying salaries;
    • The operator of Company A admitted the fact that VAT invoices were issued to the defendant without an actual supply of goods; and 
    • Company A wire transferred most of the funds it received from the taxpayer to another company that was operated by the operator of Company A, and Company A closed its business within a short time afterwards. 
  • The court also held that for the following reasons, the taxpayer cannot be viewed as not having been aware that the VAT invoice was a false invoice:  
    • The defendant did not perform minimum due diligence to confirm the place of business and facilities of Company A;
    • The business registration certificate merely confirms the registration of the business facilities and does not certify that a company has conditions or credentials to operate a business; and 
    • Given that Company A was a new company and had no employees, if the taxpayer had exercised the care that a reasonable person would have exercised in the same situation, the defendant should have known that Company A was not a company and, therefore, could not issue VAT invoices. 


For further questions or inquiries, please kindly contact representatives listed below.

Partner, Hong Seok Han : +82 (2) 6676-2585 /
Partner, Scott Oleson : +82 (2) 6676-2012 /
Partner, Young Pil Kim : +82 (2) 6676-2432 /

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