Korean Tax Newsletter

News from the tax Authorities

◉ Tax Tribunal Reform Plan

On 20 May 2026, the Tax Tribunal announced its Tax Tribunal Reform Plan, which was prepared to further strengthen the protection of taxpayer rights and enhance public confidence in Korea tax administration. Below are key points from this reform plan.

Integrity and Fairness

As part of the reform plan, the Tax Tribunal intends to establish and implement its own code of ethics.

The code of ethics will include measures such as prohibiting work-related contact outside official business locations, including hearing rooms and meeting rooms for parties to proceedings, and imposing a reporting obligation for external contacts that could compromise independence or fairness.The Tax Tribunal will establish an Integrity and Ethics Team to operate an ongoing ethics management system focused on preventive measures. In addition, a dedicated audit team will be established within the Office for Government Policy Coordination to supplement controls.

Open Personnel Management

The Tax Tribunal plans to secure its own pool of personnel through the assignment of new staff and to establish an open personnel management system that allows individuals with diverse perspectives and experience to participate in its work.

Comprehensive Reform of the Non-Standing Tax Judge System

The Tax Tribunal will comprehensively reform the non-standing tax judge system in line with its original objectives of expanding private-sector participation and enhancing fairness. To this end, it will introduce a full pooling system for non-standing tax judges, under which all non-standing tax judges will be assigned randomly. This is intended to strengthen fairness and objectivity in the adjudication process, minimize the possibility of external influence, and enhance confidence in the system.

In addition, the Tax Tribunal plans to gradually expand the number of non-standing tax judges and establish and operate a recommendation committee for the appointment of non-standing tax judges.

Recent tax rulings and cases

1. Acquisition Tax on Vehicles self-manufactured (Real Estate Tax Division-1173, 6 April 2026)

◉ Tax Ruling response

The Local Tax Act is premised on the principle that acquisition tax should generally be imposed on a person who originally acquires or succeeds to the acquisition of real estate, etc. Where an auto manufacturer registers a vehicle, etc. that it directly manufactured in its own name, such vehicle is subject to acquisition tax under Article 7(1) of the Local Tax Act.

However, where the manufacturer holds the vehicle without registering it, it is appropriate, in light of the wording and structure of the relevant provisions, to interpret that acquisition tax is imposed only when the vehicle is subsequently acquired by a consumer or actual user.

Accordingly, where a manufacturer uses a vehicle that they directly manufactured for research and testing purposes without registering it under the Motor Vehicle Management Act or other relevant laws and regulations, such vehicle should not be viewed as subject to acquisition tax.

2. Tax deduction of tax basis of parent company in its subsidiary for merger (Tax Tribunal Decision 2024Seo3654, 28 May 2026)

◉ Tax Tribunal Ruling

Where a merger without capital increase takes place between wholly owned subsidiaries held by the same parent company, the tax book value, or acquisition cost, of the shares of the merged corporation that are extinguished as a result of the merger disappears without being replaced by new merger shares. Accordingly, the parent company’s net assets are reduced by that amount, and such reduction constitutes deductible expenses under Article 19 of the Corporate Income Tax Act.

Such deductible expenses are attributable to the business year that includes the merger registration date, in accordance with the principle of confirmation of rights and obligations. Note, however, Article 72(5)1-3 of the Enforcement Decree of the Corporate Income Tax Act, was amended on 29 February 2024 to add the acquisition cost of the shares of the merged corporation to the book value of the shares of the surviving corporation in a merger without capital increase. This new enforcement decree does not apply to mergers without capital increase that occurred before the effective date of the amendment.

3. Whether the service charge made to a Luxembourg service recipient can apply for the zero-rated VAT (Tax Tribunal Decision 2025Seo3901, 18 May 2026)

◉ Tax Tribunal Ruling 

If a branch of a domestic corporation located in Luxembourg provides consulting services of a nature similar to the services at issue to its head office corporation located in Korea, it appears that no Luxembourg VAT would be imposed in connection with such services.

Although the tax authority took the position that the zero-rated VAT reciprocity rule could not apply because Luxembourg is not listed as a reciprocal exemption country under the General Rules of the Value Added Tax Act, such General Rules are merely administrative rules that provide standards for interpretation and enforcement of tax laws within the tax authority and do not have binding legal effect on courts or the public.

In addition, the fact that the General Rules have been applied for a long period does not, by itself, confer statutory effect. In light of the foregoing, even if Luxembourg is not listed as a reciprocal exemption country under General Rule 25-0…1 of the Value Added Tax Act, such provision may be viewed as illustrative. Accordingly, it is reasonable to apply the zero-rated VAT treatment to the services at issue (services such as customer communication support, meeting coordination, marketing, promotion, and sales support).

4. Eligibility of the zero-rated VAT on contribution of IP to a foreign entity (Advance Ruling-2025-Legal VAT-0820, 8 June 2026)

◉ Tax Ruling Response

Where, as in the facts presented, a domestic corporation establishes an overseas local corporation jointly with a company located outside Korea, and the domestic corporation provides the right to use technologies such as know-how and patents and receives shares, or equity interests, from the joint venture company, the relevant technology-use services constitute the overseas supply of services under Article 22 of the Value Added Tax Act and are therefore eligible for zero-rated VAT.

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