Improvement of the Tax Credit Support System for R&D Expenses：Focusing on Tax Support for Personnel Expenses
Asian Tax Journal Vol. 22 No. 4 (2021), pp. 31-65
Abstract
Korea’s R&D expenditure is world－class, and the tax authorities provide various tax incentives for R&D. One of them is the tax credit for research and human resource development, which is an important factor in Korea’s corporate tax reduction. In particular, since this benefit is not subject to the minimum tax for small and medium－sized enterprises(SMEs), it is an important incentive for the companies to perform R&D activities to receive tax benefits. However, there are cases in which a large amount of additional tax or the cancellation of tax deductions due to the concurrent employment of the staffs of the R&D activities, and it may be the cause of tax disputes between the tax authorities and the taxpayer. This study presents problems and solutions of tax disputes on personnel expenses in the tax credit for R&D expenses. In recent years, the tax authorities install a preliminary review system for R&D expenses to resolve uncertainties about the applicable tax credits based on mutual trust and induce faithful reporting. Nevertheless, in the case of Korea, personnel expenses account for a significant portion of R&D activities, and the tax authorities need to provide clear guidelines as well as follow－up management when temporary or accidental concurrent employment occurs unavoidably in the reality of SMEs. This study helps to alleviate the tax cost between the tax authorities and the enterprise by identifying the problem of determining the personnel expenses among the tax credits for R&D in Korea.
Keywords
- Tax credit for research and human resource development expenses
- Restriction of Special Taxation Act
- Research and development expenses
- Research department
- Personnel expenses
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