Article 39 (Tax Special Treatment for Assumption and Payment of Debt)

Where a shareholder or investor (limited to a corporation; hereinafter referred to as "shareholder, etc." in this Article) of a domestic corporation assumes or pays the debt of such corporation, and meets the requirements of any of the following subparagraphs, the amount of the corporation's debt assumed or paid by such shareholder, etc. shall be deducted (songeup) when calculating the shareholder, etc.'s income for the relevant year, within the limits prescribed by Presidential Decree. <Amended on Dec. 24, 2018, Dec. 28, 2021, Dec. 31, 2023> 1. To transfer all of the shares or equity interests in the relevant domestic corporation owned by the controlling shareholder or investor and their special relations (hereinafter referred to as "controlling shareholder, etc." in this Article) to a person other than a special relation, as prescribed by Presidential Decree, by Dec. 31, 2026, pursuant to a financial structure improvement plan (limited to one approved by a person prescribed by Presidential Decree; hereinafter referred to as "financial structure improvement plan" in this Article). 2. To submit a corporate liquidation plan to the head of the tax office having jurisdiction over the place of taxation of the relevant domestic corporation, as prescribed by Presidential Decree, and to conclude the liquidation of the relevant domestic corporation by Dec. 31, 2027.

When applying paragraphs (1) and (2), if a corporation subject to transfer, etc. that has received the application of paragraph (2) falls under any of the following subparagraphs, the amount that was not included in taxable income under Presidential Decree when calculating the income of the corporation subject to transfer, etc. for the tax year in which such reason occurs shall be included in taxable income. In this case, the corporate tax reduced for shareholders, etc. under paragraph (1) and the amount equivalent to interest calculated according to Presidential Decree shall be added to the corporate tax and paid, and such tax shall be deemed as the tax payable under Article 64 of the Corporate Tax Act. 1. Where the debt-to-equity ratio of the corporation subject to transfer, etc. increases beyond the standard debt-to-equity ratio within three years from the date of assumption or payment of debt (limited to a corporation subject to transfer, etc. falling under subparagraph 1 of paragraph (1)). 2. Where the business is closed down or liquidated within three years from the date of assumption or payment of debt, and the business is not succeeded by a merged corporation, a newly established corporation due to division, or a corporation that is the counterparty to a division merger (limited to a corporation subject to transfer, etc. falling under subparagraph 1 of paragraph (1)). However, if there are unavoidable reasons prescribed by Presidential Decree, such as bankruptcy, the corporate tax reduced for shareholders, etc. under paragraph (1) and the amount equivalent to interest calculated according to Presidential Decree shall not be added. 3. Where the requirements of subparagraph 1 or 2 of paragraph (1) are not met.

Any profit obtained by other shareholders, etc. of a corporation due to the assumption or payment of the corporation's debt under paragraph (1) shall not be regarded as a gift under the Inheritance and Gift Tax Act. However, this shall not apply to the special relations 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 details and approval criteria of the financial structure improvement plan, the scope of controlling shareholders, etc., the requirements and reporting method for asset shortfall, the submission of a statement of corporate transfer or acquisition, the submission of a corporate liquidation plan, the application for tax reduction, and other necessary matters shall be prescribed by Presidential Decree.