Payment of retirementbenefits to an employee of a corporation who becomes an executive officer ofthe corporation

Date: March 27, 2020

I. Introduction

This post offers brief explanation about thecase where an employee of a corporation becomes an executive officer of thecompany wants to be paid retirement benefits calculated by counting the yearsof service from the time when he or she joined the company. It looks into howto decide the period for deductible expense inclusion and how to calculate the paymentof retirement benefits.

II. A CaseStudy

Anemployee joined a company on Jan 1^st, 2015 and became an executiveofficer on Jan 1^st, 2018. He did not get paid retirement benefitswhen he got promoted to the executive position. He will leave the company onDec 31, 2019.

III. TheDate of Retirement

(1) The date when anemployee becomes an executive officer is deemed to be the date of retirement.

(2) Inclusion indeductible expenses

Retirement benefits paidby a corporation to its executive officers or employees shall be included indeductible expenses within the extent of the amount actually paid when anexecutive officer or employee actually retires

☞ Actual retirement

① Actual retirement includes cases,in which a corporation actually pays retirement benefits

② Where an employee of a corporationbecomes an executive officer of the corporation

(3) Case Application

The actual retirementdate of the employee in the case study is the date when the employee became anexecutive officer. Therefore, his retirement payment should be be included indeductible expenses. The number of years of continuous service should countedfrom the date he joined the company and to the date when he became an executiveofficer.

IV. Retirement Benefit Payment at a time when the executiveactually retires

(1) Where an employee of acorporation becomes an executive officer of the corporation

(2) Where an employee or executiveofficer of a corporation retires due to the reorganization, merger, division,or transfer of the business of the corporation

V. Related Regulations

★Article 44 (Non-Inclusion of Retirement Benefits inDeductible Expenses)

(1)  Retirement benefits (referring to benefitsdefined in subparagraph 5 of Article 2 of the Guarantee of Workers' RetirementBenefits Act; hereinafter the same shall apply) paid by a corporation to itsexecutive officers or employees shall be included in deductible expenses withinthe extent of the amount actually paid when an executive officer or employeeactually retires (hereafter referred to as "actual retirement" inthis Article). <Amended by Presidential Decree No. 19328, Feb. 9, 2006>

(2)  Where an employee of a corporation becomes anexecutive officer of the corporation;

(3)  Where retirement benefits are paid uponmaking interim settlement as prescribed in Article 8 (2) of the Act on theGuarantee of Workers' Retirement Benefits (limited to where retirement benefitsare newly calculated by counting the years of service from the time of interimsettlement)

(5)  Where retirement benefits are paid uponmaking interim settlement to executive officers for reasons prescribed byOrdinance of the Ministry of Economy and Finance, such as long-term medicalcare as prescribed in the articles of incorporation or the regulations onpayment of retirement benefits delegated by the articles of incorporationbenefits (limited to where retirement benefits are newly calculated by countingthe years of service from the time of interim settlement).

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