Consolidated Tax Return System

15. Consolidated Tax Return System

c. Request for application and approval

(1) The domestic corporation that intends to have the consolidated tax return system applied shall submit a request for the application of consolidated tax return system to the head of the competent tax office through the head of tax office having jurisdiction over the place of tax payment by one day before the beginning date of the first consolidated business year.

(2) The head of the competent tax office shall notify in writing whether to approve it by three months after the beginning day of the first consolidated business year, and where he has failed to notify it by such date, it shall be deemed to have been approved.

d. Calculation of consolidated tax base

(1) The tax base of income for each consolidated business year (consolidated tax base) shall be an amount gained by subtracting the amount in the following subparagraphs one after another within the extent of income for each consolidated business year.

(a) Amount that is deficit (including losses of disposition of assets that accrued before consolidated tax return system was applied to a consolidated corporation) in a consolidated business year that began within ten years before the beginning date of each consolidated business year, which was not deducted when tax base for each consolidated business year (including business year) was calculated afterwards. Deduction is allowed to the extent of 80% of individually reverted amount of consolidated income (this cap shall not apply to SMEs and corporations prescribed by the Presidential Decree) Provided, that the following losses from disposition of assets shall be deducted up to the following applicable amounts:

i) The deficits of disposition of assets accrued before the consolidated tax return system was applied to the consolidated corporation: Income amount reverted to the relevant consolidated corporation among the incomes for each consolidated business year (individually reverted amount of consolidated income).

ii) The deficits of disposition of assets of the merged corporation in the cases where a consolidated parent corporation merges with another domestic corporation: Income accruing from the business succeeded to from the merged corporation among the individually

reverted amounts of consolidated income of the consolidated parent corporation

iii) Where a consolidated parent corporation succeeds to the assets of a divided corporation following division and merger, the amount that reverts to the business succeeded by the merged and divided corporation among the deficits of disposition of assets succeeded to from the merged and divided corporation: Income accruing from the business succeeded to from the merged and divided corporation among the individually reverted amounts of consolidated income of the consolidated parent corporation

iv) Where a consolidated parent corporation qualifiedly merges (including a qualified division and merger conducted to a consolidated parent corporation as a counterpart corporation to the division and merger) with another domestic corporation (limited to a corporation other than a consolidated corporation as at the registration date of a merger),

losses from disposition of the assets succeeded to from a merged corporation incurred in the consolidated business year that ends within five years from the registration date of the merger: the amount of income accruing from the business succeeded to from the merged corporation (including the divided corporation) among the individually reverted amount of consolidated income of the consolidated parent corporation;

losses from disposition of the assets held by the consolidated parent and subsidiary corporation before the merger incurred in the consolidated business year that ends within five years from the registration date of the merger: the amount of income accruing from the business of the parent corporation conducted before the merger and the individually reverted amount of consolidated income of the relevant subsidiary corporation

v) Where the consolidated tax return system is applied to a domestic corporation after it has become a wholly controlled subsidiary (excluding where it has become a wholly controlled subsidiary from the registration date of establishment) of another domestic corporation,

losses from disposition of the assets (limited to assets acquired by a consolidated parent or subsidiary corporation before the

consolidated tax return system is applied) incurred within five years from the start date of the business year following the business year in which it has become a wholly controlled subsidiary: the individually reverted amount of consolidated income of the relevant parent corporation or the relevant wholly controlled subsidiary

(b) Total amount of non-taxable income of each consolidated corporation (c) Total amount of income deduction amount of each consolidated

corporation

e. Income for Each Consolidated Business Year

(1) The income for each consolidated business year shall be an amount obtained by adding the income or deficit calculated in the order of the following subparagraphs by respective consolidated corporation:

(a) Calculation of income for each business year by consolidated corporation: Calculation of income or deficit for each business year of each consolidated corporation

(b) Exclusion of consolidation adjustment item by consolidated corporation:

Amount equivalent to the received dividend amount of each consolidated corporation that has not been included in gross income shall be included in gross income, and an amount equivalent to the donation and entertainment expense that have not been included in deductible expenses shall be included in deductible expenses.

(c) Adjustment of profit and loss from transaction between consolidated corporations

i) Amount equivalent to dividend amount received by a consolidated corporation from another consolidated corporation shall not be included in gross income, an amount equivalent to entertainment expense paid to another consolidated corporation and an amount equivalent to the allowance for bad debt established on a claim to another consolidated corporation shall not be included in deductible expenses.

ii) Profit and loss derived from the transfer of fixed assets to other consolidated corporation shall not be included in gross income or

shall not be included in deductible expenses, and where the transfer profit or loss deferred asset is depreciated, is transferred, bad debt has incurred to the transfer profit or loss deferred asset, or has vanished, the transfer profit or loss deferred asset shall be included in the earnings or loss of the transferor corporation for the business year to which the date for payment of transferred claim arrives.

(d) Allocation of consolidation adjustment item by consolidated corporation: After calculating the amount of consolidation adjustment item (received dividend, donation, entertainment expense) that is not included in gross income or deductible expenses by deeming the consolidated group as one domestic corporation, the allocation of amount reverted to each consolidated corporation shall not be included in gross income or deductible expenses by consolidated corporation.

(2) Deficits under 15. a. (1) (a) iv) and v) shall not be added to the income of another consolidated corporation when adding the incomes or deficits of each consolidated corporation.

f. Consolidated Calculated Tax Amount

(1) The corporation tax on income for each consolidated business year (consolidated calculated tax amount) shall be an amount obtained by applying the corporation tax rate to the consolidated tax base.

(2) Where a consolidated corporation has transferred land, etc. (including cases where the taxation of the profits from the alienation of the relevant lands is deferred as profit and loss from transaction between consolidated corporations), an amount obtained by adding the corporation tax on the income from the transfer of land, etc. shall be the consolidated calculated tax amount.

(3) The amount reverted to each consolidated corporation among consolidated calculated tax amount (calculated tax amount by consolidated corporation) is calculated by multiplying tax rate of ②to the amount of ①, and where a consolidated corporation has transferred land, an amount obtained by adding the corporation tax on the income from the transfer of land shall be the consolidated calculated tax amount.

(a) Individually reverted amount of consolidated tax base: The amount deducted the following amounts from the individually reverted amount of consolidated income.

i) Amount of deficit deducted from individually reverted amount of consolidated income when tax base for each consolidated business year is calculated (where being deducted from individually reverted amount of consolidated income of 2 or more consolidated corporations, the amount is divided proportionate to individually reverted amount of each consolidated income)

ii) Non-taxable income and income deduction amount of the relevant consolidated corporation

(b) Consolidated tax rate: The rate of the consolidated calculated tax amount for consolidated tax base (excluding the corporation tax on income derived from the alienation of lands etc.)

g. Return and Payment

(1) A consolidated parent corporation shall file a return of tax base and tax amount of corporation tax on the income for the relevant consolidated business year to the chief of the district tax office having jurisdiction over the place of tax payment within four months from the end of the month to which the end of each consolidated business year belongs, and pay an amount obtained by adding the total amount of additional tax calculated by each consolidated corporation to the amount subtracting the following tax rates from the consolidated calculated tax to the district tax office having jurisdiction over the place of tax payment.

(a) Reduced or exempted tax amount for the relevant consolidated business year

(b) Consolidated interim prepayment tax amount for the relevant consolidated business year

(c) Total of withheld tax amounts of each consolidated corporation for the relevant consolidated business year

(2) A consolidated subsidiary corporation shall pay to the consolidated parent corporation an amount obtained by adding an amount calculated by each consolidated corporation to the amount obtained by subtracting the amounts in the following subparagraphs to the calculated tax amount by consolidated corporation, by the deadline of return and payment of the above consolidated tax base and etc.

(a) Reduced or exempted tax amount of the relevant corporation for the relevant consolidated business year

(b) Interim prepayment tax amount by consolidated corporation for the relevant consolidated business year

(c) Withheld tax amount of the relevant corporation for the relevant consolidated business year

16. Taxation of Foreign Corporation