CONTENTS
- 1. The Client Who Requested Assistance With a Corporate Income Tax Request for Correction
- - Detailed Background of the Case
- 2. Corporate Income Tax Request for Correction, the Assistance of the Corporate Attorney
- - Review of the Legal Principles Governing the Scope of Related Parties
- - Preparation of the Request for Correction and the Strategy for Responding to the Review
- - Responding to the Litigation for Revocation of the Rejection of Tax Correction
- 3. Outcome of the Corporate Income Tax Request for Correction Case
- 4. Definition of a Related Party under the Corporate Tax Act
- - Revocation of a Rejection of a Request for Correction
- - FAQ
- 5. If You Need Assistance with a Corporate Tax Request for Correction
1. The Client Who Requested Assistance With a Corporate Income Tax Request for Correction
To manage the related-party determination risk and the unnecessary tax burden that could arise from an intercompany funding transaction between affiliated companies in connection with corporate income tax, the client requested assistance with a request for correction from a corporate attorney.
Detailed Background of the Case
The client in this case was Company C, a mid-sized domestic enterprise, which had recently provided short-term operating funds to its affiliated Company D through its own operating account.
As repayment was delayed due to the failure of investments in some of Company D's business divisions, the client faced a situation in which it had to record a loss in its accounts.
If the tax authority were to deem this transaction a transaction with a related party, there was a possibility that the deduction as a loss would not be recognized, and as a result there was a concern that an unnecessary tax burden would arise.
Accordingly, in order to manage this risk in advance and to raise an objection to the tax authority's disposition, the client requested assistance with a request for correction from a corporate attorney.
2. Corporate Income Tax Request for Correction, the Assistance of the Corporate Attorney
The issues in this case were as follows.
▶ Issues in the Case
ㆍ The possibility that the tax authority would recognize dominant influence based solely on the affiliated-company relationship and the shareholding ratio
The corporate attorney focused on reviewing the legal principles governing the scope of related parties, preparing the request for correction, establishing a strategy for responding to the review, and preparing for proceedings before the court, concentrating on rebutting the tax authority's assertions on the basis of the substance of the transaction and the applicable law and on preventing an unnecessary tax burden on the company.
Review of the Legal Principles Governing the Scope of Related Parties
The corporate attorney systematically analyzed, on the basis of the Corporate Income Tax Act, its Enforcement Decree, and relevant precedents, the legal grounds for finding that the transaction between the client and Company D did not constitute a transaction with a related party.
On the ground that dominant influence is difficult to recognize based solely on the shareholding ratio or the affiliated-company linkage structure, a rebuttal argument was prepared in anticipation of the tax authority's expected assertions.
Through this, the company's position was clarified at the request-for-correction stage, and a basis was established to prevent an unnecessary tax burden.
Preparation of the Request for Correction and the Strategy for Responding to the Review
Based on the client's transaction records and accounting materials, a request for correction was prepared that set out both substantive evidence and the applicable legal principles.
A response strategy, including a plan for prior written consultation and submission of supporting materials, was designed so that a favorable position could be secured during the tax authority's review.
Rather than relying on mere assertions, materials that could actually be reviewed and legal grounds were presented to strengthen the persuasiveness at the review stage.
Responding to the Litigation for Revocation of the Rejection of Tax Correction
When the tax authority rejected the client's request at the request-for-correction stage, the corporate attorney pursued an administrative litigation seeking revocation of the rejection of tax correction.
ㆍ Rebutting the tax authority's assertion that dominant influence was recognized based solely on the affiliated-company linkage structure
ㆍ Systematically preparing the litigation briefs and evidentiary materials and submitting them to the court
3. Outcome of the Corporate Income Tax Request for Correction Case
The court found that the transaction between the client and Company D did not constitute a related-party relationship under tax law.
Accordingly, the tax authority's rejection of tax correction was revoked, and the client was able to avoid an unnecessary corporate income tax burden.
4. Definition of a Related Party under the Corporate Tax Act
Under Article 2, Item 12 of the Corporate Tax Act, a related party means a person who has an economic or managerial connection with a corporation, and the person concerned is also included.
Whether a person is a related party is an important criterion in corporate tax assessment, deductible expense inclusion, requests for correction, and similar matters.
Where an officer of a corporation exercises substantial influence over its management, that officer and the officer's relatives are included as related parties.
2. Non-minority Shareholders and Relatives
A shareholder or investor who is not a minority shareholder, together with that person's relatives, also qualifies as a related party.
3. Economic Dependence
An officer or employee of the corporation, an employee of a non-minority shareholder, their relatives, and any person who depends for their livelihood on the assets of the corporation or a shareholder are included.
4. Indirect Control and Chains of Ownership
Where a corporation exercises controlling influence over the management of another corporation through a related party, or holds an ownership structure of 30% or more, that other corporation is also included as a related party.
5. Affiliates within a Corporate Group
Other affiliates of a corporation belonging to a corporate group, as well as their officers, also fall within the scope of related parties.
Revocation of a Rejection of a Request for Correction
A rejection of a request for correction refers to a case where a taxpayer files a request for correction with the tax authority on grounds such as over-reporting or omission of a refund, yet the tax authority refuses it or fails to process it for an extended period.
▶ Request for Correction and the Role of the Tax Authority
Under the official-assessment method, the tax authority may rectify an existing imposition.
A correction may be made any number of times within the scope of the same disposition.
▶ The Taxpayer's Right to Respond
▶ Means of Legal Remedy
Through this, the taxpayer can avoid an excessive tax burden or secure a refund.
FAQ
Q. Where it is unclear whether a transaction with an affiliate involves a related party, how should a company respond?
A. Where it is unclear whether a transaction falls within the scope of related parties, the company should document the actual governance structure, economic connection, and substance of the transaction through legal review and the gathering of materials.
On that basis, consulting with the tax authority in advance or, if necessary, preparing a request for correction can reduce an unnecessary tax burden and the possibility of future disputes.
Q. What should I do if I filed a request for correction but the tax authority does not process it?
A. Where a taxpayer has lawfully filed a request for correction but the tax authority fails to process it for a considerable period or refuses it, the taxpayer may seek revocation of the rejection of the request for correction through an administrative appeal or administrative litigation.
Through this, the taxpayer can avoid an unnecessary tax burden or secure a refund.
5. If You Need Assistance with a Corporate Tax Request for Correction
A corporate tax request for correction is an important procedure that goes beyond a simple tax refund to manage a company's tax risk and prevent an unnecessary tax burden.
However, the process of a request for correction can give rise to complex legal principles and practical issues, such as the determination of related parties, accounting treatment, and the gathering of evidence, so the assistance of a corporate attorney is essential.
Drawing on the Corporate Tax Act, relevant precedents, and the tax authority's review criteria, our firm provides comprehensive support across the entire process, from legal review to the preparation of the request for correction and the development of a review-response strategy.
In addition, where necessary, we assist with advance preparation that takes into account administrative appeals and administrative litigation, so that a company can avoid an unnecessary tax burden and reduce managerial uncertainty.
If you need legal assistance in a situation similar to this case, please feel free to request assistance at any time through 🔗Legal Consultation Booking.
This content is based on actual case studies of Daeryun Law LLC with some adaptations, and the copyright belongs to our firm.
Unauthorized reproduction, duplication, or distribution and other copyright infringements may result in legal action under applicable laws.
