Government to Expand Tax Benefits for Semiconductor and National Core Technology R&D... Large Corporations Likely Included

[Sejong=Asia Economy Reporter Son Sun-hee] The government plans to significantly expand tax benefits for national core technologies, including the semiconductor industry. Considering that higher levels of benefits than the current system are being reviewed, large corporations are expected to receive a tax credit rate exceeding 30%, and small and medium-sized enterprises (SMEs) over 40%.

According to the Ministry of Economy and Finance on the 9th, the government is reviewing a plan to establish a new track for national core technologies (tentative name) within the corporate tax credit system, providing greater tax benefits for R&D investments by companies belonging to this category than under the current system. This is a follow-up measure after Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki met with semiconductor industry officials on the 6th and stated, "To enable companies to actively secure core technologies and expand mass production facilities, we will create a separate track apart from general and new growth source technologies and review expanding tax credits for R&D and facility investments."

Under the current tax credit system, general R&D investments receive a 2% credit for large corporations, while investments in new growth source technologies receive up to 30% tax credits for large and medium-sized enterprises (including an additional 10% credit), and up to 40% for SMEs.

The government envisions introducing a higher-level track that applies a greater credit rate to national core technologies. In this case, large corporations can expect tax credits exceeding 30% of their R&D investment costs, and SMEs can expect credits exceeding 40%.

In particular, large corporations such as Samsung Electronics and SK Hynix, which have relatively fewer tax benefits compared to SMEs, are expected to gain additional benefits through the establishment of this new system. The semiconductor industry has requested a 50% tax credit rate.

However, there are concerns that expanding tax credits only for the semiconductor industry could violate the World Trade Organization (WTO) subsidy agreement. The WTO subsidy agreement prohibits member countries from providing discriminatory subsidies such as grants or tax credits to specific companies or industries. Such subsidies may be classified as prohibited or actionable subsidies, which could lead to a complete ban on the subsidy or retaliatory measures such as countervailing duties from other member countries.

Therefore, the government is likely to adopt a method of providing tax support for comprehensive national core industries and technologies, including the semiconductor industry within that scope.

Since this involves amendments to tax laws, it is expected to be included in the tax revision bill to be announced by the government in July. Given the current difficulties in semiconductor supply, it may also be announced in advance in the second half economic policy direction in June.