Martial Arts Vice President: "Peter Pan Syndrome Due to Corporate Tax... Lower Tax Rates and Reduce Tax Bracket Ranges"

"Avoiding Burden, Companies Give Up Growth and Split"
2018 Introduction of Top Tax Rate Bracket... 4-Tier System
"Since Then, Mergers Decrease and Company Splits Increase"

A claim has emerged that the phenomenon of corporate Peter Pan syndrome is expanding due to Korea's unique four-tier corporate tax system, which is rare in developed countries. Since the introduction of the highest corporate tax rate bracket in 2018, company mergers have decreased while corporate splits have increased. Peter Pan syndrome is a psychological phenomenon where an 'adult child' cannot adapt to adult society even after becoming an adult.

On the 22nd, the Korea Industrial Federation Forum announced that it held the 41st Industrial Development Forum online under the theme "International Comparison of New Industry Tax Support and Our Choices." Attendees included Chung Manki, Vice Chairman of the Korea International Trade Association; Koo Bonjin, Associate Research Fellow at the Korea Institute of Science and Technology Planning and Evaluation; Kim Bitmaro, Research Fellow at the Korea Institute of Public Finance; Choi Mincheol, Associate Research Fellow at the Korea Institute for Industrial Economics and Trade; Cho Yongrip, Managing Director of Woori Accounting Corporation; and Jeon Baegun, Director of the Korea Semiconductor Industry Association.

In his opening remarks, Vice Chairman Chung pointed out, "Among OECD member countries, 24 countries including the United States have a single-tier corporate tax system, and 11 countries including Australia have a two-tier system, but Korea adopted a four-tier progressive tax rate system in 2018. To avoid the increased tax burden caused by the progressive corporate tax rates, companies are not only giving up growth or mergers and acquisitions (M&A) but also increasingly splitting their companies."

According to a Ministry of Economy and Finance survey, company mergers decreased from 138 in 2017 to 125 in 2021, while company splits increased from 47 to 57 during the same period. The Moon Jae-in administration revised the tax law in 2018 to create the highest tax rate bracket and raised the rate by 3 percentage points from 22% to 25%. The taxable income brackets changed from three tiers to four tiers. Korea's corporate tax rate system consists of four tiers: 10%, 20%, 22%, and 25%. Vice Chairman Chung stated, "Korea's corporate tax system should be promptly simplified to one or two tiers, and the corporate tax rate should be lowered to the OECD average level."

Jung Manki, Vice Chairman of the Korea International Trade Association.
Photo by Yonhap News

Vice Chairman Chung also said that support should be increased because Korea lacks sufficient tax credits related to production costs compared to the United States and the European Union (EU). He said, "Through the Semiconductor Science Act, the U.S. Inflation Reduction Act (IRA), and the European Critical Raw Materials Act (CRMA), tax credits have been introduced not only for research and development and facility investments but also for production costs. Korea should actively consider providing tax credits of about 10% for production costs, similar to the U.S., not only for facilities and R&D investments in strategic industries such as semiconductors."

There was also a claim that R&D tax credit benefits should be provided regardless of company size to reduce reverse discrimination against large corporations. In 2021, among 37 OECD countries, Korea ranked 14th in R&D tax support rates for small and medium-sized enterprises (SMEs) but 31st for large corporations. Associate Research Fellow Koo said, "Korea has a high level of reverse discrimination against large corporations in R&D tax credits, while major countries are increasing R&D tax credits regardless of company size. Since Korea’s tax credit benefits are insufficient compared to major countries, additional tax support such as increasing the credit rate is necessary."

There was also a call for support for R&D equipment investment tax credits. Director Jeon said, "Currently, R&D equipment investments are not included in 'facilities for the commercialization of national strategic technologies,' so they do not receive tax credit benefits related to national strategic technologies. R&D equipment investments should also be added to the tax credit requirements."

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