Abstract

Many provisions of Corporate Income Tax Law related to the capitalization of borrowing costsare still different from GAAP, placing tax adjustment burden on companies. In this study, weanalyzed the difference between Corporate Income Tax Law and GAAP related to capitalization ofborrowing costs and examined the cause and then presented the direction for revision of CorporateIncome Tax Law. This study analyzed ⑴ capitalization method, ⑵ assets for capitalization, ⑶ whether overdueinterest was capitalized and ⑷ limit of general debt interest and carried out journalizing and taxadjustment by presenting cases by analysis target and then analyzed financial and tax effects. Asa result, journalizing and tax adjustment are performed differently and assets and costs in financialstatement vary depending on accounting standards applied by the company out of K－IFRS, KGAAPand AS－SME(Accounting Standards for Small and Medium－sized Entities) and therefore,it turned out that there may be a problem in inter－firm comparability. And it was found that eachcompany shows different tax adjustment depending on accounting standards applied by thecompany and therefore, the same taxable income is not calculated and complicated tax adjustmentappears. With respect to borrowing costs capitalization, the cause of the difference betweenCorporate Income Tax Law and GAAP was examined and as a result, in some cases, thedifference was caused because Corporate Income Tax Law did not accept changes in GAAP at theright time and in other cases, the difference was caused because when accepting the contents ofGAAP, Corporate Income Tax Law accepted them differently from the intent of GAAP. In this study, we presented the direction for revision of Corporate Income Tax Law as followsbased on the results of the case analysis and cause of difference. First, capitalization method,scope of capitalization target assets and whether overdue interest was capitalized are desirable tofollow GAAP to contribute to easing the burden of the tax adjustment of companies. Second, it is desirable to delete the provision and accept the contents prescribed in GAAP asthey are to ensure that the calculation provision of general debt related borrowing costs can beconsistent with the legislative intent of the government and relieve the accounting practicedifficulties of companies.

Keywords

• borrowing costs
• interest during construction
• capitalization
• K－IFRS

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