Kim Young-gwon, a former national soccer player, has lost a final administrative lawsuit concerning the tax deduction method for taxes paid while playing in overseas leagues, amounting to over 800 million won.
According to legal sources on October 18, the Supreme Court's third division, led by Justice Oh Seok-jun, upheld the lower court's ruling that dismissed Kim's appeal against the Ulsan Tax Office regarding the cancellation of comprehensive income tax assessments.
The lawsuit centered on whether Kim could deduct the remaining amount of taxes paid in China from his domestic income tax during his time in Japan. Kim played for Guangzhou Evergrande in China from June 2012 to December 2018 and for Gamba Osaka in Japan from January 2019 to December 2021.
During the process of reporting his income tax for earnings in Japan from 2019 to 2021, Kim applied for a deduction of approximately 600.5 million won, which was carried over from taxes paid in China in 2018, exceeding the allowable deduction limit.
However, the Ulsan Tax Office did not accept this claim. According to current income tax law, when a taxpayer has business operations in multiple countries, the deduction limits must be calculated separately by country. The authorities determined that Kim violated this regulation and reassessed his tax liability, imposing an additional tax of over 830 million won for the years 2019 to 2021 in June 2023.
In response, Kim filed an administrative lawsuit after going through the tax tribunal process. During the trial, he argued that he primarily lived in Japan with his family and therefore should not be considered a 'resident' under domestic tax law. He also contended that applying country-specific deduction limits was unfair since he did not operate in both countries during the same tax period.
However, all courts, from the first instance to the Supreme Court, sided with the tax authorities. The first-instance court noted that Kim's family was registered as residents in South Korea and that most of his income earned in Japan was used domestically, concluding that he qualified as a 'resident' under income tax law during the relevant tax period.
The court also upheld the authorities' reasoning that the carryover of Chinese taxes could not be applied to Japanese income. The second-instance court pointed out that Kim was subject to tax rates of approximately 43.9% in China and about 20.4% in Japan, stating that allowing excessive deductions of foreign taxes through low-tax jurisdictions would contradict the purpose of the income tax law's regulations.
The Supreme Court also found no legal misunderstanding in the lower court's ruling and dismissed the appeal. The country-specific deduction limit method applies to the calculation of carryover deductions, and this principle holds even when a taxpayer has only one foreign business location during different tax periods.
* This article has been translated by AI.
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