Consolidated Tax Return System

Date: July 24, 2020

I. Introduction

A consolidated tax return system refers to the systemwhere a parent company and the subsidiary company are financially consolidated theyare deemed a unit of assessment and supposed to be imposed a corporate tax bysumming up their profits.

 

 

II. Terms

(1) Consolidated tax return

A domestic corporation that wholly controlsanother domestic corporation and the other domestic corporation may apply theconsolidated tax return system with approval of the commissioner of thecompetent regional tax office having jurisdiction over the place of tax paymentof the wholly-owning parent corporation, as prescribed by Presidential Decree.In such cases, where wholly-controlled subsidiaries are two or more, allrelevant corporations shall apply the consolidated tax return system.

 

(2) Consolidated corporation

A consolidated corporation refers to domesticcorporations that are subject to consolidated tax return. (parent company,subsidiary A,B..)

 

(3) Consolidated group

A consolidated group refers to all consolidatedcorporations (parent company & subsidiary A,B,…)

 

(4) Consolidated parent corporation andconsolidated subsidiaries

Consolidated parent corporation refers to aconsolidated corporation which wholly owns other consolidated corporations. Aconsolidated corporation refers to a consolidated corporation which is whollyowned by a consolidated parent corporation.

 

☞ Wholly control or wholly controlled?

1) "Wholly control or whollycontrolled" means cases where a domestic corporation wholly owns the totalnumber of issued stocks (referring to the total amount of investment in thecase of a corporation that is not a stock company; including non-voting stocks;hereafter in this paragraph, the same shall apply) of another domesticcorporation, and cases where the sum of stocks, etc. of another domesticcorporation held by the domestic corporation and its wholly controlled subsidiaryis equal to the total number of issued stocks of such another domesticcorporation.

 

2) A wholly-owning parent corporation whichdoes not own the total number of issued stocks but owns 5 percent of the totalnumber of issued stocks of the following;

1. Stocks held by the employee stock ownershipassociation;

2. Stocks (including the stocks sold to anythird party by workers) acquired by workers through the employee stockownership association;

3. Stocks (including stocks transferred to anythird party by a person who has exercised stock options) issued or transferredupon exercising stock options among the stock options, etc.

 

 

III. Application of Consolidated Tax Return

(1) A wholly-owning parent corporation andwholly-controlled subsidiary may apply the consolidated tax return system withapproval of the commissioner of the competent regional tax office havingjurisdiction over the place of tax payment of the wholly-owning parentcorporation.

 

(2) The business year of each consolidated corporationto which the consolidated tax return system applies under paragraph (1) shallcoincide with the consolidated business year. In such cases, the period of aconsolidated business year shall not exceed one year, and Article 7 shall applymutatis mutandis to changes of a consolidated business year.

 

 

III. Requestsfor Application of Consolidated Tax Return System

(1) Any domestic corporation that intends toapply the consolidated tax return system and its wholly controlled subsidiaryshall submit a request for application of the consolidated tax return system inthe form to the commissioner of the competent regional tax office through thehead of the tax office having jurisdiction over the place of tax payment withinten days before the start date of the first consolidated business year.

 

(2) Any corporation, etc. subject toconsolidation that submits a request for application of the consolidated taxreturn system shall also report the consolidated business year. In such cases,the corporation, etc. subject to consolidation, the consolidated business yearof which does not coincide with the business year shall be deemed reported thechange of its business year.

 

 

IV. Income for Each Consolidated Business Year

The income ofeach consolidated corporation for each consolidated business year shall be theaggregate of income or losses calculated in the following order:

 

(1) Calculationof income for each business year by consolidated corporation

 

(2) Exclusionof consolidation adjustment items by any of the following consolidatedcorporations

①Adjustment of non-inclusion of received dividends in gross income

②Adjustment of non-inclusion of donations and entertainment expenses indeductible expenses

 

(3) Adjustmentof profits and losses from transactions between any of the followingconsolidated corporations

①Adjustment of received dividends in gross income

②Adjustment of entertainment expenses

③Adjustment of appropriation for bad debts

④Adjustment of transfer marginal profits or losses of assets

 

(4) Allocationof consolidation adjustment items to each consolidated corporation

① Non-inclusion of receiveddividends in gross income

② Non-inclusion of entertainmentexpenses in deductible expenses

③ Non-inclusion of donationexpenses in deductible expenses

 

(5) Allocation of consolidation adjustmentitems to each consolidated corporation

 

(6) The amount of income for eachconsolidated business year -> The total of (5)

 

 

V. Filing Reports on Consolidated Tax Base andtheir Payment

(1) Due date

A consolidated parent corporation shall reportthe tax base and amount of corporate tax on the income for the relevantconsolidated business year to the head of the tax office having jurisdictionover the place of tax payment within four months from the last day of the monthin which the end date of each consolidated business year falls

 

(2) Extension of the dead line

where a consolidated parent corporation orconsolidated subsidiary corporation subject to audit by an auditor pursuant toArticle 4 of the Act on External Audit of Stock Companies applies for anextension of the filing deadline on the grounds that the settlement of accountsare not finalized because the audit of the relevant business year has not beencompleted, the filing deadline may be extended by up to one month.

 

 

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