[2023 Economic Policy] Dividend Exclusion from Taxation for Overseas Subsidiaries with Less Than 5% Stake... Resource Development 'Revival' Anticipated

Paradigm Shift in Resource Development... From Public to Private Sector
Strengthening Tax and Fiscal Support... 'Supply Chain 3 Laws' Enacted and Revised Next Year
Partial Revival of MB's Policies... Promotion of 'Meister High School 2.0'

A view of the Narrabri mine in Australia, in which Korea Mine Rehabilitation and Mineral Resources Corporation holds shares.
[Photo by Asia Economy DB]

[Asia Economy Sejong=Reporter Lee Jun-hyung] The government will significantly strengthen support for private companies' overseas resource development. Next year, the government plans to promote the enactment and revision of the 'Supply Chain 3 Acts' to further advance the supply chain management system.

On the 21st, the government announced the '2023 Economic Policy Direction' containing these details. First, the government decided to enhance tax and fiscal support for overseas resource development, including critical minerals. The plan is to use government support as a catalyst to boost private companies' investment demand in overseas resource development.

Specifically, the government will provide tax credit benefits when private companies invest in or lend to foreign corporations to acquire intangible assets such as mining rights and exploration rights. It will also allow losses from overseas subsidiaries that failed in resource development projects to be accounted for as losses in the domestic parent company's claims. The equity ratio requirement (5% or more) for not recognizing dividends from overseas subsidiaries engaged in resource development as accounting income will be significantly relaxed. This means that even if the overseas subsidiary's equity ratio is less than 5%, dividends received through resource development projects will be excluded from corporate tax.

Notably, the government has placed the emphasis of support measures on 'private companies.' This contrasts with the Lee Myung-bak (MB) administration, which was active in overseas resource development. The MB administration pursued a 'resource diplomacy' policy centered on public institutions such as the Korea Mining and Resources Corporation and the Korea National Oil Corporation. A government official explained, "The basic stance has been to actively pursue overseas resource development both during the MB administration and now," adding, "(However) the core of the current government's policy is to strengthen policy incentives for private-led resource development."

From the early days of the Yoon Suk-yeol administration, the emphasis has been that private sectors, not public ones, should lead resource development. During the MB administration, resource public enterprises like the Korea Mining and Resources Corporation aggressively expanded overseas projects, resulting in massive losses and insolvencies, which severely deteriorated their financial structures. Consequently, the Moon Jae-in administration completely banned overseas projects of the Korea Mining and Resources Corporation and undertook overseas asset restructuring.

The government also plans to promote the enactment and revision of the 'Supply Chain 3 Acts' to respond to the global supply chain crisis. The Supply Chain 3 Acts consist of ▲Economic Security Supply Chain Act (enactment) ▲Resource Security Act (enactment) ▲Basic Act on Materials, Parts, and Equipment (revision). The government aims to complete the enactment and revision of the Supply Chain 3 Acts by the first half of next year and establish the '1st Basic Supply Chain Plan' in the second half. Additionally, upon enacting the Economic Security Supply Chain Act, the government will establish a 'Supply Chain Stabilization Committee' to coordinate and link supply chain policies across ministries. The Minister of Economy and Finance will chair the Supply Chain Stabilization Committee.

Some MB-era policies such as Meister High Schools have also been partially revived. The government plans to prepare a 'Vocational High School Development Plan' by the first half of next year to advance vocational high schools and promote employment for high school graduates. It will also promote 'Meister High School 2.0,' expanding the designation of Meister High Schools in advanced industrial fields centered on national strategic industries such as semiconductors and secondary batteries.