Korean Tax Agency Warns of Gift Tax on Profits from Related Party Transactions

View of the National Tax Service building in Sejong City [Photo by Yoo Dae-gil]

The National Tax Service (NTS) has issued a reminder to individuals who benefited from transactions between related companies, such as profit shifting and opportunity allocation, to report their gift tax by June 30.

On June 8, the NTS announced that it had sent notifications to major shareholders and related shareholders of beneficiary companies that received work or business opportunities from related parties during the 2025 fiscal year regarding the gift tax obligations related to profit shifting and opportunity allocation.

The gift tax on profit shifting applies when a related party provides concentrated work to a specific company, resulting in increased profits for the beneficiary company. The tax is levied on indirect benefits received by major shareholders of that company. Conversely, the gift tax on opportunity allocation is imposed when a beneficiary company gains profits from business opportunities provided by a related party.

Using big data analysis, the NTS identified approximately 2,503 potential recipients and sent mobile notifications to them. Additionally, it is mailing notification letters and informational booklets to around 2,000 related beneficiary companies.

Companies with a fiscal year ending in December must report and pay by June 30. Those who self-report within the deadline can receive a 3% tax credit on the calculated tax amount. Failure to report or late payments will incur a 20% penalty for non-reporting and additional late payment penalties.

To assist taxpayers, the NTS has designated dedicated consultation staff at each tax office and distributed informational booklets. These booklets include criteria for determining tax obligations, methods for calculating gift benefits, and common mistakes. The NTS highlighted seven frequent errors during the reporting process, including misjudgments regarding small business status, calculation errors in stock ownership ratios, and omissions of related shareholders.

After the reporting deadline, the NTS plans to conduct a thorough analysis of non-reporters and those suspected of inadequate reporting to ensure compliance.

An NTS official stated, "We are providing various taxpayer support services to ensure that those required to report do so diligently within the deadline to avoid additional penalties."

* This article has been translated by AI.

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