Ji-Hyun Yoon, A Study on Procedural-Legal Issues in Local Income Tax, Seoul Tax Law Review, Vol. 27(3) (2021), pp.427-477.
<Abstract>
The Korean Local Tax Act (“LTA”) provides that its Local Income Tax (“LIT”) is computed based on the same taxable income as the (national) Personal or Corporate Income Tax, but may apply its own rules when it comes to tax exemption or reduction, or credits. Taking into account this “sharing” of the “taxable income,” the LTA requires the national tax authorities to make a “notification” to its local counterpart after taking certain measures such as issuing of a tax assessment, for example. Then the local tax authorities are in turn obliged to “re-calculate” accordingly the relevant LIT liability and take ensuing actions. Against this statutory background, this article attempts to establish the general thesis that the national tax authorities systematically play a “leading role” over its local counterparts. This article submits that this understanding is supported by a number of factors：the fact that it coincides with the practice that has been long and stably in place, the general norm that the two tax authorities need or should not be required to make decisions over the same or overlapping issues, and the reality that the national tax authorities have far better expertise in computing taxable income, as well as the existence of such statutory provisions as so-called “notification” or “re-calculation” clauses in the LTA. The concrete implications of this “leading role” as far as issues relating to taxable income go include, this article argues, the exclusive competence of the national tax authorities to initiate tax audits and issue resulting tax assessments, their binding effects on the local tax authorities, and the lack of standing of the local tax authorities at court procedures. Considering that the local tax authorities often take the relevant measures only after its national counterpart has initiated first necessary steps to make either tax assessments or refunds, this article adds thereto discussions on whether to insert certain special rules that hinder statute of limitations from lapsing. Meanwhile, the Korean Ministry of Interior and Safety has made efforts to enact some autonomous rules that govern exemptions, reductions, and tax credits that apply to LIT, which are detached from the corresponding rules on the national income tax. If the LTA indeed incurs changes along with these paths, the local tax authorities will then have to make its own decisions in interpreting and applying the relevant statutory provisions to the extent that exemptions and reduction, and tax credits are concerned. In this regard, the foregoing Ministry should make adequate investments beforehand in both human and material resources so they may be up to the task of dealing with these legal issues without suffering too much difficulty.
<Keywords>
Korean Local Tax Act, local income tax, taxable income, tax audit and assessment, statute of limitation
Ji-Hyun Yoon, A Study on Procedural-Legal Issues in Local Income Tax, Seoul Tax Law Review, Vol. 27(3) (2021), pp.427-477.
<Abstract>
The Korean Local Tax Act (“LTA”) provides that its Local Income Tax (“LIT”) is computed based on the same taxable income as the (national) Personal or Corporate Income Tax, but may apply its own rules when it comes to tax exemption or reduction, or credits. Taking into account this “sharing” of the “taxable income,” the LTA requires the national tax authorities to make a “notification” to its local counterpart after taking certain measures such as issuing of a tax assessment, for example. Then the local tax authorities are in turn obliged to “re-calculate” accordingly the relevant LIT liability and take ensuing actions. Against this statutory background, this article attempts to establish the general thesis that the national tax authorities systematically play a “leading role” over its local counterparts. This article submits that this understanding is supported by a number of factors：the fact that it coincides with the practice that has been long and stably in place, the general norm that the two tax authorities need or should not be required to make decisions over the same or overlapping issues, and the reality that the national tax authorities have far better expertise in computing taxable income, as well as the existence of such statutory provisions as so-called “notification” or “re-calculation” clauses in the LTA. The concrete implications of this “leading role” as far as issues relating to taxable income go include, this article argues, the exclusive competence of the national tax authorities to initiate tax audits and issue resulting tax assessments, their binding effects on the local tax authorities, and the lack of standing of the local tax authorities at court procedures. Considering that the local tax authorities often take the relevant measures only after its national counterpart has initiated first necessary steps to make either tax assessments or refunds, this article adds thereto discussions on whether to insert certain special rules that hinder statute of limitations from lapsing. Meanwhile, the Korean Ministry of Interior and Safety has made efforts to enact some autonomous rules that govern exemptions, reductions, and tax credits that apply to LIT, which are detached from the corresponding rules on the national income tax. If the LTA indeed incurs changes along with these paths, the local tax authorities will then have to make its own decisions in interpreting and applying the relevant statutory provisions to the extent that exemptions and reduction, and tax credits are concerned. In this regard, the foregoing Ministry should make adequate investments beforehand in both human and material resources so they may be up to the task of dealing with these legal issues without suffering too much difficulty.
<Keywords>
Korean Local Tax Act, local income tax, taxable income, tax audit and assessment, statute of limitation