Korean Tax Newsletter (January, 2021)

▲ Tax law amendments

On 30 November 2020, Korea’s National Assembly approved a government bill amending 16 tax laws, including the Individual Income Tax Law (IITL), the Corporate Income Tax Law (CITL), and others.

Provided below is a summary of selected key changes.

Basic National Tax Law

• 1. Stamp tax late payment penalty amount dependent on repayment date (article 47-4(9))
  
  • Prior to the law change, the penalty was 300% of the tax owed.
  • Under the amended law, the penalty is 100% if it is paid within three months of the original due date, 200% if paid after three months but within six months, and 300% if paid after six months.
  • The new law applies to taxable documents drafted on or after 1 January 2021. 
    
• 2. Notification to taxpayers in cases of processing delays (article 45-2(3) and (4))
  
  • The National Tax Authorities (NTS) must notify taxpayers about their application and tax appeal status if there are delays longer than two months in processing the taxpayers’ revised tax returns.
  • This rule applies to revised tax returns submitted on or after 1 January 2021. 
    

CITL

• 1. Issuance of electronic donation receipts and waiver of statement retention requirement (CITL articles 75-4 and 112-4, IITL articles 81-7 and 160-3)
  
  • The definition of donation receipts is extended to include receipts issued in accordance with the methods established by the presidential decree amending the CITL. 
  • Donors no longer will be required to retain and submit a donation statement if the donation receipt was issued electronically. 
  • Likewise, the requirement to submit a donation receipts issuance statement will be waived if the receipt was issued electronically.
  • The new rules will apply to electronic donation receipts issued on or after 1 July 2021. 
    
• 2. Reduction of penalty tax rate for incomplete submission of salary income short-form statement (article 75-7)
  
  • Prior to the law change, the penalty tax was the amount of salary paid multiplied by 0.5%.
  • The amended law reduces the penalty tax to the amount paid multiplied by 0.25%.
  • The amended law applies to returns filed, revised, or amended on or after 1 January 2021.
    

Special Tax Treatment and Control Law

• 1. Expansion of credits for salary expenses paid to employees working at small and mid-sized enterprises and returning to work after parental leave (article 29-3)
  • The tax credit is increased to 30% of salary expenses for employees of small companies (15% for employees of mid-sized companies) for one year after returning to work. 
  • The rule applies to business years starting on or after 1 January 2021.
    
• 2. Postponement of tax credit limitation for companies moving to rural area (articles 63 and 63-2)
  
  • The revised law deletes a proposed limitation for claiming tax credits when a company moves to a rural area [Limitation = 50% of accumulated investment amounts + (average number of employees × KRW 15 million)].
    
• 3. Postponement of sunset clause for electronic filing tax credits (article 104-8)
  
  • The proposed revision to the sunset clause for electronic filing tax credits (which was proposed to expire 31 December 2022) was deleted. 
    
• 4. Application of special law on accelerated depreciation for facilities assets investments extended to 2021 (article 28-3)
  
  • Prior to being amended, the special law was due to apply only through 30 June 2020.
  • The amended law applies to the period from 1 January 2021 to 31 December 2021.
  • The rule applies to facilities assets acquired on or after 1 January 2021. 
    
• 5. Newly enacted tax credits for taxpayers using electronic notifications from the tax authorities (article 104-8(5) and (6))
  
  • The tax credits apply to interim payments of individual income tax, VAT paid pursuant to a preliminary assessment notice, and national taxes for which the government determines the tax base and tax amounts (excluding occasional taxes).
  • The tax credit amounts are established by the presidential decree amending the law.
  • The rule applies with respect to electronic notifications sent on or after 1 January 2021.
    

VAT Law

• 1. Six-month deferral of trust VAT reform  (articles 3, 3-2, 8, 10(8), 52-2, and 58-2)
  • The reform of the VAT system for trusts will apply to trusts established on or after 1 January 2022 (instead of 1 July 2021, as originally proposed).
    

Law for Coordination of International Tax Affairs

• 1. Deferred enforcement period of account reporting obligations for foreign virtual assets (article 52)
  • The reporting obligations will be enforced as from 1 January 2022 (instead of 1 October 2021, as originally proposed).
    

▲ News from the tax authorities 

Tax estimator for 2020 income tax returns at HomeTax

• HomeTax (the e-filing system run by the National Tax Service) has been providing tax calculation and estimation services for year-end income tax return preparers
  
  • The “tax estimator” service offers tax-saving advice and individual credit card use details prior to year-end and helps salary income earners plan for tax-saving opportunities.  
  • Preparers can estimate FY20’s tax amounts by correcting pre-filled FY19 deductions information and can also check tax burden amounts and effective tax rates for the last three years.

▲Recent tax rulings and cases

1. Seomyon-2019- BeopRyungHaeSeokBeopIn-3915, 2020.11.16.

A domestic Korean company formed a consortium in order to bid on a hydropower development project proposed by the Indonesian government, but the company did not have a permanent establishment in Indonesia. Then, the Korean company received consulting services from an Indonesian company related to the development project. The Korean company paid fees for the services received and 10% VAT thereon pursuant to the Indonesian tax regulations but could neither claim a refund for, nor deduct the VAT paid. In this case, the Korean company was allowed to deduct its VAT expenses when filing its annual corporate income tax return. 

2. Seomyon-2020- BeopRyungHaeSeokBeopIn-2519, 2020.11.18.

A holding company qualifying under article 2(1)(2) of the Monopoly Prevention and Fair Trade Law establishes a subsidiary and acquires bonds issued by the subsidiary. If the subsidiary does not use the funds from the bonds for its working capital but uses them to increase the revenue or profits of the holding company in connection with the holding company’s main operation and business activities, the acquisition of the bonds is deemed to be for the holding company’s business purposes, which may have negative tax consequences. 

3. Tax Tribunal2019Joong3018, 2020.10.20.

A construction company split off its business division mainly consisting of assets/liabilities related to shares because it could not recognize impairment losses on the shares for financial accounting purposes and because the company’s financial results had to meet a specific threshold to qualify for a government construction project. Based on the facts, the Tax Tribunal found that the company had a reasonable business reason not to recognize impairment losses on its shares when splitting off its business division and it also found that the company had no intention to avoid tax. 

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Contacts

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

Inbound Tax Leader, Scott Oleson, +82 (2) 6676-2012 / scoleson@deloitte.com
Inbound Tax Leader, Hong Seok Han : +82 (2) 6676-2585 / hseok@deloitte.com
M&A Tax Partner , Young Pil Kim : +82 (2) 6676-2432 / youngpkim@deloitte.com
BPS Tax Partner, Park Sung Han, +82 (2) 6676-2521 / sunghpark@deloitte.com
TP Partner, Lee Yong Chan, +82 (2) 6676-2828 / yongclee@deloitte.com
GES Partner, Seo Min Soo, +82 (2) 6676-2590 / mseo@deloitte.com