Application of Tax Credits and Tax Exemptions for a Partnership
Asian Tax Journal Vol. 10 No. 3 (2009), pp. 235-255
Abstract
This paper evaluates and suggests ways to improve the application of tax credits and tax exemptions to a partnership under the special tax treatments for partnerships and partners which has been legislated in Korean tax laws in 2007 and become effective in 2009. Under the current system, tax credits and tax exemptions for a partnership business are computed as if the partnership were a domestic corporation according to the entity theory, whereas the taxable income is divided into those of four groups, which are residents, non－residents, domestic corporations and foreign corporations and is determined on a group basis according to the aggregate theory. Due to this disharmony, taxable income and taxes before tax credits and tax exemptions should be calculated twice and tax neutrality and tax equity are impaired. For a remedy, this paper suggests that taxable income should be computed as if a partnership were a domestic corporation, but tax credits and tax exemptions should be computed by each partners, not by the partnership.
Keywords
- Partnership
- Entity Theory
- Aggregate Theory
- Tax Credit
- Tax Exemption
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