Article 121-27 (Tax Special Treatment for Debt Assumption and Payment)

Where a shareholder or investor of a domestic corporation (limited to cases where it is a corporation; hereinafter referred to as "shareholder, etc." in this Article) assumes or pays the debt of the domestic corporation, and in accordance with a business reorganization plan as prescribed by Presidential Decree (hereinafter referred to as "business reorganization plan" in this Article), the controlling shareholder, investor, and their special relations (hereinafter referred to as "controlling shareholder, etc." in this Article) transfer all of their shares or equity interests in the domestic corporation to a person other than a special relation as prescribed by Presidential Decree by December 31, 2026, the amount of the domestic corporation's debt that the shareholder, etc. has assumed or paid shall be recognized as an expense when calculating the income of the shareholder, etc. for the relevant year, within the limit prescribed by Presidential Decree. <Amended on Dec. 24, 2018, Dec. 28, 2021, Dec. 31, 2023>

If a target company for transfer that has applied paragraph ② falls under any of the following subparagraphs, the amount that was not included in gross income when calculating the income of the target company for transfer for the business year in which the reason occurred shall be included in gross income in accordance with Presidential Decree. In this case, the corporate tax amount reduced for the shareholder, etc. under paragraph ① and the interest equivalent garnish amount calculated in accordance with Presidential Decree (hereinafter referred to as "interest equivalent garnish amount" in this paragraph) shall be added to the corporate tax and paid, and the relevant tax amount shall be deemed to be the tax amount to be paid under Article 64 of the Corporate Tax Act. 1. Where the debt-to-equity ratio of the target company for transfer increases beyond the standard debt-to-equity ratio within three years after the debt assumption or payment. 2. Where the business is closed or dissolved within three years from the date of debt assumption or payment, and it is not a case where a corporation prescribed by Presidential Decree, such as a merged corporation, has succeeded the business. However, in cases of unavoidable reasons prescribed by Presidential Decree, such as bankruptcy, the corporate tax amount reduced for the shareholder, etc. under paragraph ① and the interest equivalent garnish amount shall not be added. 3. Where the shares or equity interests owned by the controlling shareholder, etc. have not been entirely transferred to a person other than a special relation as prescribed by Presidential Decree in accordance with the business reorganization plan. 4. Where the approval of the business reorganization plan is canceled due to reasons prescribed by Presidential Decree.

For profits obtained by other shareholders, etc. of a domestic corporation due to the assumption or payment of its debt under paragraph ①, it shall not be considered 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 scope of controlling shareholder, etc., the requirements for insufficient asset amount and the method of reporting, the calculation of debt-to-equity ratio and standard debt-to-equity ratio, the submission of a statement of details regarding corporate transfer/acquisition, the application for tax reduction and other necessary matters shall be prescribed by Presidential Decree.