Kim Younggwon Loses Suit to Cancel 800 Million Won in Comprehensive Income Tax; Supreme Court: "Country-by-Country Credits"

Claimed a credit in Japan for 600 million won in taxes paid in China
Sued after tax authorities rejected the claim; lost in the final appeal
Supreme Court: "Foreign taxes must be credited separately by country"

Former national team soccer player Kim Young-gwon has lost his final appeal in a lawsuit seeking to deduct from his Korean comprehensive income tax the portion of taxes he paid in China that he was unable to claim as a credit. The Supreme Court ruled that taxes paid in China and Japan must be credited separately, even though he moved his playing career from China to Japan.

According to legal sources on October 18, the Supreme Court's Third Division, presided over by Justice Oh Seok-joon, upheld the lower court's ruling against Kim in his lawsuit seeking to overturn the assessment of comprehensive income tax brought against the head of the Ulsan Tax Office. The Supreme Court found that the lower court's ruling contained "no error affecting the judgment due to a misunderstanding of the legal principles governing the carryforward of foreign tax credits."

Yonhap News Agency

Kim played for a Chinese professional soccer team from June 2012 through December 2018, then transferred to Japan in 2019 and continued playing until the end of 2021. He returned to a South Korean professional soccer team in 2022. Kim filed Korean comprehensive income tax returns for income earned while playing in Japan from 2019 to 2021. In doing so, he claimed not only taxes paid in Japan but also approximately 606.02 million won carried forward from taxes paid in China in 2018 that exceeded the credit limit. He calculated the taxes paid in China and Japan together, without separating them by country.

The Ulsan Tax Office, however, rejected the carryforward, arguing that taxes paid in China and Japan could not be combined for the credit. In June 2023, it additionally assessed Kim a total of 830.84 million won in comprehensive income tax for 2019 to 2021. Kim challenged the assessment and filed a lawsuit, arguing that he was a nonresident of South Korea and that applying separate credit limits for each country was unjustified.

Both the first and second trials rejected Kim's claims. They found that he qualified as a South Korean resident and that the amount of foreign tax credits carried forward had to be calculated separately for each country. The appeals court particularly noted that Kim had been subject to tax rates of approximately 43.9% in China and 20.4% in Japan. It ruled that combining the taxes paid in China with his Japanese income for purposes of the credit would run counter to the system's purpose of preventing excessive foreign tax credits.

The Supreme Court also found no legal error in the lower court's ruling. It held that Kim qualified as a South Korean resident under the Korea-Japan tax treaty and that the enforcement decree requiring the foreign tax credit limit to be calculated separately for each country was lawful. The Court ruled that "the country-by-country credit limit method also applies to carried-forward credits" and "applies even when a taxpayer had overseas places of business in two or more countries during different tax periods."

The foreign tax credit system allows taxes paid overseas to be deducted from domestic income tax up to a certain limit. Before an amendment to the enforcement decree took effect in 2015, income from multiple countries could be combined when calculating the credit limit. Since the amendment, however, income has had to be treated separately by country.

This content was produced with the assistance of AI translation services.