In a recent case represented by Kim & Chang, the Supreme Court ruled that the Levy for Employing Persons with Disabilities (“Disability Employment Levy”) are deductible expenses under the Corporate Income Tax Law (“CITL”) (Supreme Court Decision No. 2024Du30809, rendered on March 12, 2026; the "Decision").

Historically, companies have treated Disability Employment Levy as non-deductible expenses for corporate income tax purposes.  This practice was based on an authoritative ruling by the Ministry of Economy and Finance (“MOEF”), which classified these charges under Article 33 of the former Act on the Employment Promotion and Vocational Rehabilitation of Persons with Disabilities (the "former Act") as non-deductible public imposts under Article 21, Subparagraph 5 of the former CITL.  However, this Decision is highly significant as it overturned the MOEF’s interpretation and determined that these employment charges do not constitute non-deductible public imposts, establishing them as deductible expenses.

The Supreme Court ruled that while Disability Employment Levy are public imposts levied for not meeting disability employment quotas, they cannot be deemed as public imposts “imposed as a sanction," and consequently, they do not fall under Article 21, Subparagraph 5 of the former CITL, which specifically denies deductions for punitive public imposts.  The Court provided three specific grounds for the Decision: (i) the requirements for non-deductibility under the CITL must be strictly interpreted in accordance with the principle of no taxation without law; (ii) Disability Employment Levy are fundamentally business expenses that arise from ordinary business operations, assets and transactions; and (iii) the obligation to pay these charges arises uniformly without any consideration of liability requirements such as willful misconduct or negligence, and constitutes an independent monetary payment obligation imposed to achieve the policy goal of promoting the employment of persons with disabilities.

Following this Decision, companies that previously treated Disability Employment Levy as non-deductible expenses for corporate income tax purposes may consider filing a refund claim.  Claims can be made within the standard five-year window from the statutory filing deadline.  Furthermore, the legal principles established in this Decision can be used as a valuable reference for determining the deductibility of various other mandatory charges borne by companies.

However, please note that Article 21, Subparagraph 5 of the CITL – the provision at the center of this Decision - was amended effective fiscal year 2025.
 

The Decision acknowledged that Disability Employment Levy constitute a public impost imposed ‘on the ground of non-performance of the obligation to employ the disabled under laws and regulations,’ but ruled that it was not a ‘public impost imposed as a sanction.’  However, the current law has removed the text ‘as a sanction’.  Therefore, starting in fiscal year 2025, when the amended Article 21, Subparagraph 5 of the current CITL applies, there is a possibility that Disability Employment Levy may be deemed non-deductible, even under the logic of this Supreme Court decision.  As such, it will be necessary to carefully examine further interpretive arguments and potential constitutional challenges, as well as to continuously monitor the tax authorities’ evolving position on the deductibility of Disability Employment Charges from fiscal year 2025 onward.
 

[Korean Version]