Income, deductions, and why capital is set apart

Ikgeum, in this reading, is the amount by which a company’s net assets rise through a transaction, counted as income — except for capital paid in, and except for items the law keeps out of income. The Enforcement Decree only illustrates typical income, the writer says; any rise in net assets is in principle income even if it is not listed.

Songgeum is the counterpart: a fall in net assets, counted as a deductible cost, except for capital paid back, a distribution of surplus, and items the law will not deduct. Those costs, unlike income, must be ordinary and tied to the business or to the earning of income. Even so, a fall that relates to the business is in principle deductible even if it is not listed in the Decree.

The essay then asks, from a capital-theory view, why a rise that comes from a capital transaction is kept out of both income and deductions. No statute year is given in this reading, and none is added here. The rules stay in the legal frame this reading describes.

Share premium, a reduction of capital, and a merger

Share premium is the amount by which the issue price of a share exceeds par. It is not legal capital, this reading says, but it is in substance part of capital, so company accounts book it as capital surplus, and corporate tax does not treat it as income. If the issue price is above market, and market is itself at or above par, only the gap between market and par is share premium; the gap between the issue price and the market is treated as debt-forgiveness income and is included in taxable income.

Capital-reduction gain is the excess of the cut in capital over what was spent to cancel shares or repay shareholders, and over what was used to cover a deficit. Because that remainder is still paid-in capital, it is kept out of income, like share premium.

Merger gain is the excess of net assets taken over from the absorbed company over the merger consideration paid to its shareholders, not counting a revaluation gain. Consideration is cash plus the par of shares issued. A revaluation gain on land or buildings may be deferred, this reading says. When the gain is calculated, issued shares are taken at par under commercial law; later calculations of a deemed dividend or of liquidation income may, if the conditions are met, use market value instead. Split gain is described in the same shape, as the excess of net assets taken over by a new company over the split consideration, not counting a revaluation gain.

Gifts, carryforward losses, and costs the law will not deduct

A gift of assets, or a forgiveness of debt, used to cover a tax carryforward loss is kept out of income. A carryforward loss, this reading says, is a tax loss not yet deducted in a later year’s base, with no limit on when it first arose. Once it has been used in that way, it is treated as already deducted. A five-year window for deducting such losses is mentioned; the expiry of that window, this reading adds, does not by itself wipe the loss out. It disappears only when a gift or forgiveness covers it, or when the company itself ends. That five-year window stays in the legal frame this reading describes, not as a later official rule. Losses confirmed by a court in a reorganisation, a composition, or a creditors’ vote under a restructuring law may, this reading says, receive the same exclusion even if they were not in the tax return.

Among costs the law will not deduct, even though accounts may have treated them as expenses, this reading names the discount on shares issued below par; amounts booked as expenses that are really a distribution of surplus — because a surplus distribution is a sharing of income already fixed, though a performance bonus paid from surplus may still be deducted; and a construction-period dividend, which is treated as a return of capital or an advance dividend.

The same Korean essay, at fuller length, is on CampusDown.

Sources

1. A student essay on corporate-tax items kept out of income or refused as deductions, including share premium, capital-reduction gain, and merger gain.
2. Rules as described in this reading, without a statute year in this reading, left in that legal frame.
3. Gifts used against carryforward losses, a five-year deduction window mentioned in this reading, and non-deductible capital-type costs.

Last updated: 14 November 2026