Companies and South Korea's tax authorities are locked in legal battles over the interpretation of tax law, with amounts at stake ranging from a few hundred million won to more than 100 billion won. Deal structures and business models have grown more complex, widening the range of disputed issues, and tax authorities that emphasize the economic substance of a transaction are clashing with companies over how the law should be read. Companies are also mounting aggressive legal challenges because a single tax assessment can carry over into later transactions and raise the tax burden on affiliates.
The Seoul High Court's Administrative Division 9-3, presided over by Judge Kim Hyung-bae, held the second hearing on the 15th of this month in the appeal of a suit filed by SK (034730) against the head of the Jongno District Tax Office, seeking to overturn a refusal to correct its corporate tax assessment, according to legal sources on the 18th.
At issue is whether a tax credit can apply to new shares SK acquired through a rights offering when it bought Signet EV, an electric-vehicle charger maker now known as SK Signet, in 2021. SK sought a corporate tax refund of about 26.7 billion won, but lost at the trial court in December last year. The court found that the tax credit for acquiring shares in technology-innovation companies is designed to help existing shareholders recover and reinvest their money, and therefore cannot apply to the purchase of newly issued shares.
SK is also contesting whether investment losses incurred in the absorption of a subsidiary can be deducted from taxable income. The company argued that about 538.6 billion won in investment losses from its 2018 absorption of SK Shipping should be treated as a deductible expense, and sought a corporate tax refund of about 136.8 billion won. It lost at both the trial and appellate levels, and the case was filed with the Supreme Court on the 4th of this month.
Suits over how income earned from overseas operations should be taxed are also continuing. LX International (001120) filed a suit seeking a corporate tax refund of about 5.8 billion won, arguing that gains from debt forgiveness tied to an overseas resource development project should be recognized as foreign-source income, but lost. The court found that the gains arose from a decision by the South Korean government to reduce a loan, not from the failure of the overseas business.
GS Caltex also sued to be relieved of about 900 million won in penalty taxes levied on crude oil volumes subject to tariff quotas, but lost at the trial court. The court found that the relevant rules do not distinguish the origin of the raw material and that there was no legitimate reason to waive the penalty. GS Caltex has appealed.
Behind the run of tax disputes are increasingly sophisticated deal structures and differing readings of the substance-over-form principle. As mergers and acquisitions, cross-border transactions, and the valuation of intangible assets such as brands and patents have grown more complicated, so have disputes over whether and how they should be taxed. Tax authorities' emphasis on economic substance rather than the legal form of a transaction is also cited as a source of friction. Uncertainty from unscheduled tax audits and more advanced analysis of tax data using big data and artificial intelligence are adding to the burden on companies.
"Compared with the past, tax authorities are more aggressively recharacterizing transactions for tax purposes under the substance-over-form principle, and companies are frequently contesting those assessments in response," said Kim Sung-hwan, an attorney at Lee & Ko.
Tax cases account for a larger share of administrative litigation at each higher level of appeal, as disputes over legal interpretation often drag on. According to the 2026 Judicial Yearbook, tax cases made up 8.5% of all administrative suits at the trial level last year, 13.7% on appeal and 14.4% before the Supreme Court.
Companies take such cases to court because a single tax determination can shape how future transactions are treated. If a company accepts an assessment on one transaction, the same reasoning can be applied to subsequent deals or to other affiliates.
"If a company accepts an assessment for a particular year, the tax authorities will use the same reasoning to impose large-scale assessments on subsequent transactions and on deals at other affiliates," said Jeon Young-joon, head of the tax group at Yulchon. Because the outcome directly affects earnings and liquidity, he said, companies have little choice but to litigate.