Where a company paid remuneration to an executive who is a controlling, shareholder (including an executive who is a special related party to the
executive), if such remuneration is determined - based on the factors listed below
- as a distribution of retained profit simply taking the form of a remuneration
instead of a payment for the executive's service, the remuneration is considered
disposal of profit, which is identical to bonus in its nature, and therefore not
included in deductible expense as prescribed by Article 43 of the Enforcement
Decree of the Corporate Tax Act.
※ Factors to be considered
- The amount of the remuneration and how much it accounts for the company's
operating profit
- Whether the remuneration is significantly higher than that of other executives of the
company or executives of
other companies in the same field
- Whether it is likely that the remuneration will be paid continuously on a regular
basis
- Increase/decrease from previously paid remuneration and relation with change in the
company’s operating profit
- Whether dividends were paid to other shareholders
- Whether there is a subjective intent to unjustly reduce the company's profit
Source: Supreme Court of Korea (Sep. 21, 2017)