Abstract

Taxable income under the Corporate Income Tax Law and the Individual Income Tax Law is calculated on the basis of the taxpayer’s taxable year according to the “Definiteness Principle of Right and Obligation”. The Basic National Tax Law includes provisions that allow a taxpayer to claim a reassessment when circumstances (as defined) change after the end of a taxable year. The provisions in the Basic National Tax Law apply to all kinds of taxes, unless an individual tax law provides a separate reassessment provision. Case law and journal articles have taken the position that the prior year’s taxable income is readjusted accordingly if circumstances, upon which the recognition of income relied, change after the end of the taxable year owing to a new event that had not yet occurred when the income was recognized and that the timing rule and a claim of reassessment are linked together. Moreover, the Korean Supreme Court has ruled that a claim of reassessment cannot be accepted when an individual tax law provides that gains or losses from a change of circumstances are to be adjusted as taxable income for the year in which the change of circumstances occurs. This article analyzed this position and concluded that the prior year’s taxable income should not be adjusted, even though an unpredictable event occurs after the end of the taxable year, that the timing rule and a claim of reassessment are not necessarily linked together, and that each is independent of the other. This article reasoned that the Supreme Court’s rulings confining a claim of reassessment were not persuasive and suggested the following alternative interpretation. Considering the “Definiteness Principle of Right and Obligation”, the timing rule, and the provisions of a claim of reassessment together, a taxpayer may choose either to claim a reassessment or to adjust the gains or losses to taxable income for the year to which changed circumstances pertain, even though an individual tax law has a provision that gains or losses resulting from the change of circumstances are adjusted in the year during which the change occurs.

Keywords

• recognition
• reassessment
• taxable year
• accrue
• realized

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