[Reporter’s Notebook] Cash Refunds Needed as a Catalyst for Advanced Industry Investment

LG Energy Solution received a cash subsidy of 100.3 billion KRW from the U.S. government in the first quarter, amounting to one-sixth of its operating profit (630 billion KRW). This money is entirely funded by American taxpayers. The U.S. taxes that LG Energy Solution is expected to pay this year will reach 800 billion KRW. Next year, it is projected to be 1.7 trillion KRW, and by 2025, it is expected to approach 3.3 trillion KRW.

The Inflation Reduction Act (IRA) currently implemented in the U.S. includes a provision called the Advanced Manufacturing Production Credit (AMPC) aimed at attracting manufacturing facilities for next-generation industries such as batteries. It provides a subsidy of $45 (approximately 59,400 KRW) per 1 kWh for battery modules produced and sold within the U.S. In other words, it is an incentive to encourage advanced industries to operate in the U.S. by offering cash payments.

Since the COVID-19 pandemic, the world has entered a major transition period, and starting with the U.S., countries around the globe are actively promoting the development of advanced industries. Not only central governments but also local governments are competing to nurture next-generation industries within their own regions. Direct Pay systems like AMPC are part of this effort. A major advantage is that companies can fully enjoy the economic benefits and profits of tax credits.

What about the situation in South Korea? Under current law, companies must generate operating profits to receive corporate tax credit benefits. If there is no profit, corporate tax is not imposed, and thus tax credits cannot be claimed. For companies investing in new businesses, tax credit benefits are essentially useless until they start making profits.

There is also a strong anti-corporate sentiment questioning why taxpayers should provide funds for companies’ profit-seeking investments. Social criticism of Korean conglomerates regarding past overexpansion and governance issues related to family ownership still holds some validity. However, as times change and interest in ESG (Environmental, Social, and Governance) grows, companies are also evolving. Shouldn’t we accept companies as important members of society, help them perform better, and share the fruits of their success together?

Recently, the ruling party proposed a bill to provide cash payments to companies that did not benefit from tax credits when investing in national strategic technologies. Although a bit late, this change aimed at promoting corporate investment is welcome. Considering the national and social roles of companies leading investments in core technologies that determine the country's growth, active discussions are anticipated.