Korea: Proposal to extend statute of limitations when companies delay or refuse to submit documents during audits, government review of tax incentives programs; other tax developments
Other tax developments include Supreme Court decision characterizing software licensing income as royalties and respecting Irish affiliate as beneficial owner of income.
The National Tax Service (NTS) has proposed extending the statute of limitations for tax assessments when multinational companies intentionally delay or refuse to submit required documents for tax audits. The measure targets companies that claim information is held by overseas headquarters or later produce favorable evidence during appeals, hindering timely tax assessments.
In addition, the government is undertaking a major review of its tax incentive programs. Key changes being considered include:
- Reduced EV incentives: Tax incentives for electric and hybrid vehicles may be reduced or replaced with direct subsidies.
- Foreign employee flat tax rate: The 19% flat tax rate for foreign employees may be increased to improve tax equity with domestic employees.
- New domestic production promotion tax regime: A new tax regime aimed at strengthening domestic manufacturing and supply chains is under consideration.
Recent rulings and court decisions
- Non-taxable employee benefits: The NTS clarified the tax treatment of discount benefits for employees. Both in-kind product grants (using internal points) and cash reimbursements for product purchases can be treated as non-taxable up to a certain limit (the greater of 20% of the fair market value or KRW 2.4 million per year), provided the benefits are for personal consumption and are offered under a uniform company-wide standard.
- Tax on discounted medical fees: The NTS confirmed that discounts on medical fees provided by a university hospital to its employees are, in principle, taxable employment income. However, the same non-taxable cap applicable to other employee discounts can be applied. The benefit for family members remains fully taxable.
- Software licensing income characterized as royalties: The Supreme Court affirmed that a Korean software distributor's payments to its Irish regional licensing affiliate constituted royalty income. The court ruled that the Irish entity, not the U.S.-based ultimate IP owner, was the beneficial owner of the income, as it had substantial business operations, bore commercial risk, and was not merely a pass-through conduit.
- No retroactive application of amended flat tax rate: The Supreme Court ruled that the 2023 removal of the time limit on the special flat tax rate for foreign employees applies only prospectively from the 2023 tax year. The court rejected a taxpayer's attempt to retroactively apply the unlimited duration to income earned in prior years.
Read a July 2026 report prepared by the KPMG member firm in Korea