• Service: Tax, Global Mobility Services, International Tax
  • Type: Regulatory update
  • Date: 12/27/2013

Korea - Deemed gift tax on unfair support to subsidiaries 

December 27:  The Korean tax authority announced that approximately 10,000 taxpayers voluntarily reported deemed gift tax on "unfair funneling of work to subsidiaries" (a new tax system applied beginning in 2013) in the amount of approximately KRW 185.9 billion (approximately USD 170 million).

Under current regulations, the deemed gift tax on “unfair funneling of work to subsidiaries” is calculated based on the assumption that the amount calculated by multiplying: (after-tax operating profit of the related party) x (related party transaction rate (30%)) x (shareholding ratio (3%)) is deemed profit derived from unfair support given to subsidiaries.

However, the rate applied to related party transaction rate will be reduced to 15% (from the current 30%) and the 3% holding rate for small and mid-sized companies will be changed to 5%. Accordingly, it is expected that there will be an increase in tax due, but a decrease in the number of “target taxpayers.”

According to the tax authority, a penalty will be imposed on the target taxpayers who do not make proper reporting on the deemed gift tax, and the reports will constantly be subject to future inspections.

Read a December 2013 report prepared by the KPMG member firm in Korea: Tax Brief 2013 December

Also included in the report is a discussion concerning the application of the new cut in the acquisition tax rate on housing, which begins retroactively on 28 August 2013, rather than the previously agreed date of 1 January 2014.

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