Supreme Court rules dividends from tax-exempt firms ineligible for credit

The Supreme Court ruled that dividends received from corporations granted tax exemptions or reductions are ineligible for the dividend tax credit under previous income tax laws.

The decision, delivered in a case concerning the cancellation of a comprehensive income tax assessment and finalized on February 12 (case 2025Du34726), determined that Article 17, Paragraph 3, Item 4 of the former Income Tax Act excludes these specific dividends from the total revenue calculation required to qualify for the credit.

The justices reasoned that the exclusion applies because the dividend tax credit under Article 56, Paragraph 1 is predicated on the inclusion of such income in total revenue, a condition not met when the paying corporation benefited from corporate tax non-taxation, exemption, reduction, or income deductions during the relevant business year. The court stated that applying the credit to these payouts would contradict the legislative intent and textual structure of the statutes prior to their revision on December 19, 2017.

The ruling specifically defines the excluded scope as dividends received from entities that were subject to corporate tax benefits under the Corporate Tax Act or the Restriction of Special Taxation Act, as detailed in Article 27-3 of the former Income Tax Act Enforcement Decree.