Comparision of General Expense Provisions of U.S. and Korean Tax Law to Suggest Guildelines for Interpretation of Korean Tax Law
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This essay reviewed and analyzed the general provisions for a business deduction of the U. S. and Korea, and compared them to see if the interpretation of I.R.C. § 162(a) as confirmed and established by the U.S. courts can be useful as a tool to interpret the general provision of Korea. This essay has come to observe that: Generally, for a deductible expense, the Korean system adopts a negative method, allowing all expenses to be deductible unless otherwise provided. The U.S. system, however, adopts a positive system, which means an expense is deductible only if a separate provision to allow doing so is provided; just as “ordinary and necessary” are paralleled in I.R.C. § 162(a), so “ordinary and directly related to revenue” are paralleled in the Korean Corporation Tax Law(CTL). But the meaning of “necessary” and “directly related to revenue”are different; The interpretation to the meaning of “ordinary” by the U.S. Supreme Court may be applicable to the interpretation of article 19(2) of the CTL; the standards developed in the U.S. with respect to deciding what a “trade or business” may not be applicable to the CTL; and interpretation rules or precedents established as related to “in connection with” and “carrying on” in the interpretation of the meaning of ordinary in I.R.C. § 162(a) can be useful guidelines to interpret the meaning of “in connection with” in the CTL.
Abstract
This essay reviewed and analyzed the general provisions for a business deduction of the U. S. and Korea, and compared them to see if the interpretation of I.R.C. § 162(a) as confirmed and established by the U.S. courts can be useful as a tool to interpret the general provision of Korea. This essay has come to observe that: Generally, for a deductible expense, the Korean system adopts a negative method, allowing all expenses to be deductible unless otherwise provided. The U.S. system, however, adopts a positive system, which means an expense is deductible only if a separate provision to allow doing so is provided; just as “ordinary and necessary” are paralleled in I.R.C. § 162(a), so “ordinary and directly related to revenue” are paralleled in the Korean Corporation Tax Law(CTL). But the meaning of “necessary” and “directly related to revenue”are different; The interpretation to the meaning of “ordinary” by the U.S. Supreme Court may be applicable to the interpretation of article 19(2) of the CTL; the standards developed in the U.S. with respect to deciding what a “trade or business” may not be applicable to the CTL; and interpretation rules or precedents established as related to “in connection with” and “carrying on” in the interpretation of the meaning of ordinary in I.R.C. § 162(a) can be useful guidelines to interpret the meaning of “in connection with” in the CTL.
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