Companies Struggling to Survive Amid COVID-19 Demand "Corporate Tax Cuts"

[Friday Story] Sales Plunge Due to COVID-19 Damage... Urgent Need to Reduce Tax Burden
Tax Bomb Risk for Overseas Corporations Entering Hong Kong and Singapore
Hankyung Research Institute Submits Tax Law Amendment Improvement Proposal to Ministry of Economy and Finance

[Asia Economy Reporter Kim Hyewon] Company A, a representative industry severely affected by COVID-19, is a domestic consumer goods company that recorded losses amounting to several hundred billion won last year alone. It secured minimal liquidity through bank loans and corporate bond issuance, but now faces a situation where it must use funds for tax payments rather than wage payments or investments. This is why companies hit hard by COVID-19, such as those in aviation, dining, and accommodation sectors, are demanding a temporary expansion of the corporate tax carryforward loss deduction limit to reduce their tax burden.

Company B, engaged in trade, entered Hong Kong, a hub for intermediary trade in the Asia-Pacific region, by acquiring shares of a local corporation in 2019. Under current law, a portion of the income of foreign companies in which domestic companies hold more than 50% of shares is considered dividends and subject to corporate tax. However, due to tax credits and other measures, Hong Kong’s effective corporate tax burden rate was 15.4%, so it was not subject to the specific foreign corporation retained earnings deemed dividend system. But with the recent tax law revision, Hong Kong is now included, resulting in a heavy tax burden. Previously, this system applied only to countries with a corporate tax burden rate of 15% or less, but the revision raised this threshold to 17.5%, expanding the scope.

The Korea Economic Research Institute announced on the 20th that it submitted a tax law amendment opinion letter containing a total of 14 proposals across six laws to the Ministry of Economy and Finance on the 12th, based on feedback from major domestic companies. The main proposals include expanding the corporate tax carryforward loss deduction limit for industries affected by COVID-19, increasing the tax credit rate for video content production costs, rationalizing tax incentives to promote investment and win-win cooperation, maintaining the application of tax credits for construction burden charges, and maintaining the 15% corporate tax burden rate criterion for the specific foreign corporation retained earnings deemed dividend system.

Specifically, for companies severely affected by COVID-19, it was proposed to expand the carryforward loss deduction limit to 100% of each fiscal year’s income, the same as for small and medium-sized enterprises, until 2024. For video content production cost tax credits, an increase was suggested to 7% for large corporations (from 3%) and 13% for SMEs (from 10%).

Choo Kwang-ho, Director of Economic Policy at KERI, pointed out, "Given the prolonged fourth wave of COVID-19 and increasing uncertainties, it is necessary to prepare more fundamental tax support measures such as lowering corporate tax rates and reforming inheritance tax systems, along with improving unreasonable tax systems."

This content was produced with the assistance of AI translation services.