ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Improvement Plan for Pre－screening System for Tax Credit for Research and Human Resource Development Expenses under the Restriction of Special Taxation Act

  • Kim, Youn－Hwa Tongmyong University
  • Shawn, Hyuk Keimyung University

Asian Tax Journal Vol. 24 No. 3 (2023), pp. 195-222

Abstract

As research and development(R&D) activities are a necessary element for creating added value and economic growth, each country is strengthening support for R&D activities. Korea also has a tax credit system for R&D activities under the Restriction of Special Taxation Act, but companies have difficulty meeting the actual requirements. For example, tax disputes between taxpayers and tax authorities regarding human costs of the R&D department continued to occur. Therefore, the tax authorities introduce a pre－screening system for tax credits for research and human resources development expenses from 2020. It is intended to enable companies to concentrate on research and human resource development activities by resolving the uncertainty of the relevant tax credit and increasing the tax reduction effect. This study examines the contents of the research and human resource development cost tax credit and preliminary examination system, confirms the overseas R&D pre－screening system, and proposes a plan to improve the pre－screening system. The improvement plan for the pre－screening system for R&D expenses proposed by this study is as follows. First, since the application deadline for the current pre－screening system is before the tax base return deadline, a certain deadline should be set after the end of the tax period in order to reduce the taxpayer’s burden of reporting and improve the efficiency of tax authorities. Second, in cases where tax deductions are applied for amended return, rectification request, and late return based on the Framework Act on National Taxes, it is reasonable to stipulate that the application for pre－examination can be requested through separate regulations. Third, if a company applies for pre－screening within the time limit stipulated by the tax law, but the tax authority fails to complete the examination of eligibility for tax credit, such as technical review, within the tax base reporting deadline due to a lack of professional manpower, application of penalty tax for underreporting postpone Fourth, the tax authorities need to train internal and external judges with considerable expertise in order to pre－evaluate the technical review of research and human resources development expenses. Fifth, in order to alleviate the difference in interpretation between taxpayers and tax authorities on the concept of research and human resources development costs, it is necessary to present elaborate guidelines such as human costs and open a dedicated window for taxpayers. This study will help prevent conflicts of interest between taxpayers and tax authorities and mitigate tax costs by suggesting ways to improve the pre－screening system for research and human resource development expenses.

Keywords

  • pre－screening system
  • the special tax treatment control law
  • research and human resources development expenses tax credit
  • tax benefit
  • tax credit

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