Tax expenditure plan and foreign tax credit ruling
6 July 2026
Tags
Tax
Korea's 2026 tax expenditure plan and expected tax reform direction
In March 2026, the Korean government approved the 2026 Tax Expenditure Plan, which will serve as a basis for this year’s tax reform proposals. The key objective is to comprehensively review existing tax incentives, phase out ineffective measures, and strengthen tax support in areas that contribute to economic growth.
The government has indicated that tax incentives supporting domestic manufacturing, advanced industries, R&D activities, and regional development may be expanded, while long-standing incentives with limited policy effectiveness could be restructured or abolished. In addition, tighter control over overall tax expenditures and stricter sunset rules are expected.
Companies should closely monitor the upcoming tax reform bill, particularly with respect to changes in tax credits and incentives for investment, R&D, and regional development. Multinational groups and large investors may wish to assess how potential reforms could affect future tax planning and investment decisions.
The government has indicated that tax incentives supporting domestic manufacturing, advanced industries, R&D activities, and regional development may be expanded, while long-standing incentives with limited policy effectiveness could be restructured or abolished. In addition, tighter control over overall tax expenditures and stricter sunset rules are expected.
Companies should closely monitor the upcoming tax reform bill, particularly with respect to changes in tax credits and incentives for investment, R&D, and regional development. Multinational groups and large investors may wish to assess how potential reforms could affect future tax planning and investment decisions.
Supreme Court clarifies foreign tax credit limitation calculation (2026Du30340)
In its decision 2026Du30340, issued on 25 June 2026, the Korean Supreme Court clarified how foreign-source losses should be reflected when calculating foreign tax credit limitations for Korean corporations operating in multiple jurisdictions.
The Court held that losses incurred in one foreign country cannot be ignored when calculating foreign tax credit limitations. Instead, such losses should be allocated proportionately across foreign-source income earned in other jurisdictions and reflected in the limitation calculation.
The decision reinforces the principle that the foreign tax credit mechanism is intended to eliminate double taxation without reducing Korea’s taxing rights over domestic-source income. Multinational enterprises should therefore review their foreign tax credit methodologies where profits and losses arise across multiple countries.
The Court held that losses incurred in one foreign country cannot be ignored when calculating foreign tax credit limitations. Instead, such losses should be allocated proportionately across foreign-source income earned in other jurisdictions and reflected in the limitation calculation.
The decision reinforces the principle that the foreign tax credit mechanism is intended to eliminate double taxation without reducing Korea’s taxing rights over domestic-source income. Multinational enterprises should therefore review their foreign tax credit methodologies where profits and losses arise across multiple countries.
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