The Supreme Court has recently delivered a landmark ruling, clarifying that the Disability Employment Levy is a 'compensatory contribution' in the nature of a business expense, rather than a 'punitive sanction.' Accordingly, the Court ruled that these levies are recognized as deductible expenses (Son-geum) under the Corporate Tax Act. Previously, tax authorities denied deductibility by classifying these levies as 'punitive public charges.' However, this ruling now allows for immediate reflection in FY2025 tax filings and enables tax refunds through rectification claims for the past five years. Key practical guidelines are as follows:
■ Practical Implications & Action Plans for Corporations
① Immediate Reflection in FY2025 Corporate Tax Filing
- Target: Levies incurred or paid during the 2025 fiscal year (for December year-end settlement).
- Action: In the upcoming tax filing due by the end of March 2026, record the levy amount as a 'Deductible Expense' (Son-geum-san-ip) during the tax reconciliation process to reduce corporate tax liability.
② Tax Refunds via Rectification Claims for the Past 5 Years
- Scope: Claims for refunds on levies previously reported as non-deductible (Son-geum-bul-san-ip) over the past five fiscal years.
- Critical Deadline: The window for FY2020 rectification claims expires on March 31, 2026. Companies that paid levies in 2020 must conduct an immediate review before their legal right to a refund permanently expires.
This ruling provides direct tax benefits and significant refund opportunities for the majority of corporations paying disability employment levies. In particular, for the 2020 tax year, the right to a refund will be lost forever if not claimed by the end of March.
Hyesung Accounting Corporation’s Tax Advisory Team offers a one-stop service, from calculating estimated refund amounts to establishing optimized rectification strategies tailored to each client.
