1. Supreme Court’s Decision
The Korean Supreme Court recently held that the disability employment levy is not subject to non-deductibility for corporate income tax purposes (Supreme Court Decision 2024Du30809, March 12, 2026).
The key issue in this case was whether the disability employment levy constitutes a “public charge imposed as a sanction for failure to comply with obligations or for violations of prohibitions or restrictions under applicable laws,” as prescribed under Article 21(5) of the former Corporate Income Tax Act, and therefore should be treated as a non-deductible expense.
Prior to this decision, companies paying the disability employment levy under Article 33 of the former Act on Employment Promotion and Vocational Rehabilitation for Persons with Disabilities had generally treated such levy as a non-deductible expense in filing and paying corporate income tax, in accordance with the interpretation previously issued by the Ministry of Economy and Finance.
However, the Supreme Court held that public charges are, in principle, expenses incurred in connection with business operations and therefore deductible unless expressly excluded. The Court further stated that provisions denying deductibility should be interpreted strictly.
In particular, the Court noted that the disability employment levy is intended primarily to promote the employment of persons with disabilities and therefore has a stronger policy-oriented and regulatory character, rather than constituting a punitive sanction. The Court also considered that the levy is imposed automatically once certain statutory requirements are met, regardless of the employer’s intent or negligence, and that there are no separate penal provisions associated with the levy itself.
Based on the foregoing, the Supreme Court concluded that the disability employment levy should not be regarded as a “punitive public charge” subject to non-deductibility under the Corporate Income Tax Act.
2. Practical Implications and Considerations
Following this decision, companies that previously treated disability employment levies as non-deductible expenses may wish to consider filing amended tax refund claims (i.e., claims for correction) to recover overpaid corporate income tax for prior fiscal years. Under the Framework Act on National Taxes, such claims are generally permitted within five years from the statutory filing deadline. Accordingly, at this time, companies may need to review corporate income tax filings for fiscal years beginning in 2021 and thereafter.
However, it should be noted that the relevant wording of the Corporate Income Tax Act was amended effective from 2025. The prior provision referred to “public charges imposed as sanctions for failure to comply with obligations or for violations of prohibitions or restrictions,” whereas the amended provision now refers more broadly to “public charges imposed due to failure to comply with obligations or violations of prohibitions or restrictions.”
As a result, there may still be room for further interpretation as to whether the rationale adopted by the Supreme Court in this decision will apply in the same manner under the amended law going forward. Therefore, separate review with tax professionals may be advisable in determining the appropriate tax treatment for fiscal years from 2025 onward.
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