Article 121-27 (Tax Concessions on Assumption or Payment of Debt)

Where a shareholder or member of a domestic corporation (limited to cases where it is a corporation; hereinafter referred to as "shareholder, etc.") assumes or pays the debt of such domestic corporation, and in cases where, pursuant to a business reorganization plan prescribed by Presidential Decree (hereinafter referred to as "business reorganization plan" in this Article), the principal shareholder, member, and their special related persons (hereinafter referred to as "principal shareholder, etc." in this Article) transfer all of their shares or equity interests in such domestic corporation to a person other than a special related person prescribed by Presidential Decree by December 31, 2026, the amount of the domestic corporation's debt assumed or paid by the shareholder, etc. shall be included in expenses when calculating the income amount of the shareholder, etc. for such year, up to the amount prescribed by Presidential Decree. <Amended by Act No. 15952, Dec. 24, 2018; Act No. 18630, Dec. 28, 2021; Act No. 19955, Dec. 31, 2023>

Where the target corporation for transfer that has applied paragraph (2) falls under any of the following subparagraphs, the amount not included in gross income when calculating the income amount of the target corporation for transfer for the business year in which such reason occurs shall be included in gross income according to Presidential Decree. In such cases, the corporate tax reduced for the shareholder, etc. under paragraph (1) and the amount equivalent to interest prescribed by Presidential Decree (hereinafter referred to as "amount equivalent to interest" in this subparagraph) shall be added to the corporate tax and paid, and such tax amount shall be deemed to be the tax amount payable under Article 64 of the Corporate Tax Act. 1. Where the debt-to-equity ratio of the target corporation for transfer increases above the standard debt-to-equity ratio within three years from the date of assumption or payment of debt. 2. Where the business is closed down or dissolved within three years from the date of assumption or payment of debt, and the business is not succeeded by a corporation such as a merging corporation prescribed by Presidential Decree. However, if there are unavoidable reasons such as bankruptcy prescribed by Presidential Decree, the corporate tax reduced for the shareholder, etc. under paragraph (1) and the amount equivalent to interest shall not be added. 3. Where the shares or equity interests owned by the principal shareholder, etc. are not entirely transferred to a person other than a special related person prescribed by Presidential Decree according to the business reorganization plan. 4. Where the approval of the business reorganization plan is canceled for reasons prescribed by Presidential Decree.

For the profit obtained by other shareholders, etc. of a domestic corporation as a result of the assumption or payment of its debt under paragraph (1), it shall not be deemed a gift under the Inheritance and Gift Tax Act. However, this shall not apply to the special related persons of the shareholder, etc. who assumed or paid the debt, as prescribed by Presidential Decree.

When applying paragraphs (1) through (6), the scope of debt, the scope of principal shareholder, etc., the requirements and reporting methods for asset deficiency, the calculation of the debt-to-equity ratio and standard debt-to-equity ratio, the submission of a statement of account for corporate transfer and acquisition, the application for tax reduction, and other necessary matters shall be prescribed by Presidential Decree.