[Why&Next] The Small Ball Launched by Buyeong... Will Radical Tax Benefits Emerge for Companies Tackling Low Birthrate?

Consideration of Expense Recognition for Gift Payments
Discussion of Various Incentives Including Additional Tax Credit Benefits

Following President Yoon Suk-yeol's directive to prepare various support measures, including tax benefits for companies leading in childbirth support, the government has begun reviewing measures to resolve the issue of excessive taxation on corporate childbirth support funds. They are considering recognizing support funds provided by companies offering unprecedented childbirth benefits, such as Booyoung, as business expenses, as well as opening up additional tax credit benefits and devising various incentives.

On the 14th, the Ministry of Economy and Finance is reviewing corporate tax and earned income tax reduction measures for companies' unprecedented childbirth and childcare support policies. Since President Yoon personally ordered strong benefits the day before, it is expected that the financial authorities will actively prepare tax benefit measures despite an immediate decrease in tax revenue. A Ministry of Economy and Finance official stated, "We are reviewing all options with an open mind."

First, the Ministry of Economy and Finance is examining whether childbirth encouragement funds paid in the form of a 'gift' to the 'child,' as Booyoung did, can be legally recognized as a company's 'business expense.' Last week, Booyoung paid childbirth encouragement funds of 100 million won each to about 70 employees who gave birth since 2021 in the form of a 'gift to the child.' This was a measure considering that if the childbirth encouragement fund is recorded as 'earned income,' employees would have to pay up to 41.8 million won in income and local taxes. If the gift tax (10%) under tax law is applied, the tax employees must pay can be reduced to 10 million won.

The Enforcement Decree of the Income Tax and Corporate Tax Act, which the Ministry of Economy and Finance announced for legislative notice at the end of last month, includes provisions to add childbirth and childcare support funds for workers as business expenses. Under current tax law, if encouragement funds are paid in the form of a gift, the company cannot treat the gift as an expense. If the enforcement decree passes, companies that pay encouragement funds can reduce their corporate tax burden. However, this regulation only allows expense treatment for childbirth support funds given to 'workers.' Therefore, the Ministry of Economy and Finance is conducting an internal review on how to apply the Booyoung case. A ministry official explained, "We are reviewing how to appropriately reduce the tax burden based on the interpretation of Booyoung."

In addition to recognizing expenses for companies that pay childbirth encouragement funds, the possibility of providing additional tax credit benefits is also being discussed. Another Ministry of Economy and Finance official hinted, "In the case of research and development (R&D), labor and material costs for researchers are treated as expenses, and (under certain conditions) tax credits can also be received." Since President Yoon ordered strong benefits for companies that pay unprecedented childbirth encouragement funds, it is quite possible that additional tax benefits will be prepared alongside expense treatment.

As the culture of encouraging childbirth has been spreading among various companies recently, the dominant opinion is that unprecedented benefits, including tax credits, should be prepared. In fact, not only Booyoung but also private equity firm IMM has decided to support childbirth employees with a lump sum of 10 million won and 500,000 won monthly until the child reaches school age.

Kim Wan-il, CEO tax accountant of Tax Corporation Ghana, emphasized, "If tax credit benefits are added as well as expense treatment, companies will have more capacity to support low birth rates," adding, "It also means that companies and the state share the burden to solve the low birth rate problem together." It is also known that measures such as splitting the tax payment or deferring the payment timing for childbirth encouragement funds are being reviewed together.