Companies and tax authorities in South Korea are locked in legal battles over interpretations of tax law, with amounts at stake ranging from hundreds of millions of won to more than 100 billion won. Transaction structures and business models have grown more sophisticated, making tax issues more complex, and the legal interpretations of companies and tax authorities are colliding over them.
The Seoul High Court's Administrative Division 9-3, presided over by High Court Judge Kim Hyung-bae, held a second appellate hearing on the 15th in a suit SK (034730) filed against the head of the Jongno District Tax Office seeking to overturn a rejection of its corporate tax correction claim, according to legal circles on the 19th.
At issue was whether newly issued shares SK acquired through a rights offering count toward a tax credit, in the course of its 2021 acquisition of electric vehicle charger maker Signet EV, now SK Signet. In December last year, the first-instance court rejected SK's claim for a refund of about 26.7 billion won in corporate tax. The court found that the tax credit for technology-innovation share acquisitions is designed to encourage existing shareholders to recover and reinvest their money, and therefore cannot apply to the purchase of newly issued shares.
Whether investment losses incurred in absorbing a subsidiary can be deducted as expenses is another point SK is contesting with tax authorities. SK sought a corporate tax correction of about 136.8 billion won, asking that about 538.6 billion won in investment losses from its 2018 absorption of SK Shipping be counted as deductible expenses. But the courts of first and second instance sided with the tax authorities. The bench found that the extinguishment of existing shares in the absorption of a wholly owned subsidiary is substantively no different from retiring treasury shares, meaning the transaction has the character of an ordinary capital transaction. Even if treated as a profit-and-loss transaction, the court said, the losses are hard to view as ordinary costs directly tied to SK's business operations and so cannot be recognized as deductible expenses under tax law.
Income arising from overseas operations has also drawn litigation. In a suit by LX International (001120) seeking a corporate tax refund of about 5.8 billion won, the issue was whether gains from debt forgiveness tied to an overseas resource development project qualify as foreign-source income. The court sided with the tax authorities, reasoning that the direct cause of the debt forgiveness gains was a domestic government decision to reduce loan obligations, not the failure of the overseas business. GS Caltex also sued the customs office, seeking exemption from about 900 million won in penalty taxes on crude oil volumes subject to quota tariffs. The court sided with customs, saying the relevant rules do not distinguish the origin of the feedstock and that no legitimate grounds for waiving the penalty tax were established. GS Caltex has filed an appeal to seek a higher court's judgment.
Behind the tax disputes are increasingly sophisticated transaction structures and aggressive legal interpretation by tax authorities. Mergers and acquisitions, cross-border transactions, and the valuation of intangible assets such as brands and patents, along with the attribution of related income, now generate more complex tax issues than in the past. In that environment, analysts say, tax authorities emphasize the substance of a transaction over its form, bringing them into legal conflict with companies. Greater uncertainty for companies from unscheduled tax audits, and the tax authorities' use of big data and artificial intelligence to assemble precise grounds for taxation, are also cited as factors adding to the burden of tax disputes.
"Compared with the past, taxation is carried out aggressively by recharacterizing transactions under tax law in line with the substance-over-form principle, and in response, companies frequently file objections," said Kim Sung-hwan, an attorney at Lee & Ko.
Legal battles between companies and tax authorities also account for a significant share of cases at higher courts. Because tax cases center on disputes over legal interpretation, rulings can diverge from one bench to another. According to the 2026 Judicial Yearbook, tax cases accounted for 8.5% of all administrative suits at the first instance last year, 13.7% at the appellate level and 14.4% at the Supreme Court.
"If a company accepts taxation for a particular year, the tax authorities will press ahead with large-scale taxation of subsequent transactions or transactions at other affiliates under the same logic," said Jeon Young-jun, head of the tax group at Yulchon. Because the outcomes can directly affect financial results and liquidity, companies have little choice but to litigate aggressively, the attorney said.
As the legal fights grow more intense, the law firm market is moving to keep pace. Large firms are expanding their tax specialists and strengthening cross-practice collaboration to build out their response systems. Kim & Chang draws on about 250 tax specialists to assemble case-by-case teams with experts in related fields such as antitrust and criminal law. In cases where tax issues intersect with other areas of law, specialists from those fields review legal strategy together. Lee & Ko is strengthening collaboration among attorneys, certified public accountants and licensed tax accountants from the tax audit stage onward, focusing on a comprehensive review of legal issues and accounting and tax problems from the early phase of an audit rather than only after a tax assessment is issued. Yulchon runs a dedicated unit to respond quickly to unscheduled tax audits and has staffed it with former National Tax Service investigators. For large tax appeals, it deploys specialists who previously worked at the courts and the Tax Tribunal.
Officials at the tax groups of large law firms agreed that "given how complex and multilayered tax disputes have become, expertise in a single area of law has its limits," adding that "drawing out organic collaboration among specialists in each field, from tax audits through tax appeals and litigation, is becoming more important."