Key Tax Law Amendments In The Draft 2020 Tax Revision Bill

Published date09 December 2020
Subject MatterTax, Coronavirus (COVID-19), Income Tax, Corporate Tax, Capital Gains Tax, Tax Authorities, Property Taxes, Withholding Tax, Financing
Law FirmLee & Ko
AuthorMr Jay Shim, Tom Kwon, Ted Tae-Gyung Kim and Sung Hyun Ryu

On July 22, 2020, the Ministry of Economy and Finance publicly released the 2020 draft Tax Revision Bill (the 'Draft Bill').

Amidst the increasing risk of a global recession caused by the COVID 19 pandemic, the Draft Bill aims to: (i) promote investment and spending; (ii) enhance tax benefits to low-income earners and mid-sized and small-sized enterprises; and (iii) provide tax incentives for job creation in order to minimize the negative economic impact of COVID 19. The Draft Bill is also seeking to harmonize the Korean tax system to changes occurring in the global economy, to ease compliance burdens, and to avoid double taxation.

A summary of some key tax law proposals in the Draft Bill is provided below.

I. Dealing with the negative impacts of COVID 19 and invigorating the economy to prevent a post-COVID 19 recession

1. Extension of the carryforward period for tax deductions provided under the Special Tax Restriction Law ('STRL') (Article 144 of the STRL)

This proposal would extend the carryforward period to 10 years for all tax deductions provided under the STRL. The proposal is meant to reduce the investment risks of businesses. The proposed extended period will also apply to existing carryforward periods not expired as of the end of 2020.

2. Extension of the carryforward period for tax losses (Articles 13 and 17(13) of the Corporate Income Tax Law ('CITL') and Article 45 of the Individual Income Tax Law ('IITL'))

This proposal would extend the period for tax loss carryforward from the current 10 years to 15 years, in order to reduce the tax burden faced by businesses that have suffered economic loss as a result of the COVID 19 pandemic. This proposal will be effective for tax losses reported on or after January 1, 2021 (i.e., including the tax loss reported in the 2020 tax return).

Extension of the carryforward period for unused foreign tax credits and deductions of uncredited foreign tax after the carryforward period (Article 57 of the CITL, Article 57 of the IITL)

This proposal would extend the period for foreign tax credit carryforward from the current 5 years to 10 years. The proposal is intended to limit the impact of double taxation on cross-border transactions. The amount of uncredited foreign taxes remaining after the extended carryforward period will be deducted as an expense from the taxable income in the tax year immediately following the end of the carryforward period.

The extension will also apply to existing carryforward periods not...

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