Recent Korean Supreme Court tax rulings: TNMM and the disability employment levy

Supreme Court ruling on the application of the TNMM

The Korean Supreme Court reaffirmed the standards for assessing comparability when applying the Transactional Net Margin Method (TNMM) to international transactions(Supreme Court Decision 2024Du54065).

The Court held that where differences in functions, risks, or assets between the tested party and the selected comparables materially affect profit level indicators, such comparables cannot be relied upon unless reasonable adjustments are made.

At the same time, the Court indicated that TNMM itself should not be narrowly interpreted. Where the tax authorities present a reasonable process for selecting comparables and a sound adjustment rationale, the application of TNMM may be broadly accepted. This ruling underscores that, in transfer pricing disputes, the robustness of the comparability analysis is more critical than the selection of the pricing method itself.

Supreme Court decision on the deductibility of the disability employment levy

On March 12, 2026, the Korean Supreme Court rendered a landmark decision holding that the disability employment levy is deductible for corporate tax purposes (Supreme Court Decision 2024Du30809).

The Court reasoned that although the levy is imposed on employers who fail to meet the statutory disability employment quota, it does not constitute a sanction comparable to penalties or fines. Instead, it serves as an inducement and adjustment mechanism designed to promote the employment of persons with disabilities.

Accordingly, the levy was characterized as an ordinary business expense rather than a non-deductible charge imposed as a sanction for legal non-compliance under the Corporate Tax Law. This decision resolves a long-standing controversy in practice and opens the possibility for taxpayers to seek refunds through amended filings for prior years in which such levies were treated as non-deductible.

However, it should be noted that the relevant Korean tax laws have been amended, resulting in changes to the statutory framework governing the tax treatment of the disability employment levy.

Accordingly, the deductibility of such levy may vary depending on the applicable fiscal year, the timing of the amended provisions, and the specific facts and circumstances. Taxpayers are therefore advised to seek professional advice from tax advisors when determining the appropriate tax treatment.