＜Abstract＞

A Study on the Improvement of Indirect Foreign Tax Credit

Kwon, Hyuk Yoon* & Chung, Ji Sun

The purpose of this study is to examine the problems of the current Corporate Tax Act regarding the way of calculating the amount of indirect foreign tax credit under the Corporate Tax Act and solutions for them. According to the Corporate Tax Act, when the amount of indirect foreign tax credit is calculated, if ‘the dividend income that the domestic holding company receives from the overseas subsidiary in a particular business year’ exceeds ‘the amount calculated by deducting the corporation tax of the business year locally paid by the overseas subsidiary from its income of the business year’, it is unclear whether the excess portion can be also subject to the indirect foreign tax credit of that business year or next business year. This is problematic because it may violate the principle of no taxation without law or form a hindrance factor to the predictability of the taxpayer.

Therefore, this thesis is going to suggest following solutions about the problems of the indirect foreign tax credit system.

Regarding the amount of indirect foreign tax credit, about the case that the local holding company receives from the overseas subsidiary the dividend that exceeds the amount calculated by deducting the corporation tax of the business year from the income of the business year, it is needed to establish regulations to calculate the amount of indirect foreign tax credit by ‘adding the dividend income of the next business year’. In other words, for any excess dividend taking place, we should come up with regulations for deduction carried forward about the excess portion so that we can obtain the neutrality of tax, reflect the original purpose of the system to exclude international double taxation, and also secure the taxpayer’s predictability.

▶ Key Words： foreign tax credit, indirect foreign tax credit, the corporate tax act,the neutrality of tax, the principle of no taxation without law

** Published on December 2018
** Full article available in Korean only
** Download here →16-5 A Study on the Improvement of Indirect Foreign Tax Credit.pdf