DL E&C has received a notification from the Saudi Arabian tax authorities regarding a corporate tax claim amounting to approximately 8.54 trillion won ($6.4 billion). The company has announced its intention to contest the claim, citing significant flaws in the tax assessment.
On June 23, the Financial Supervisory Service disclosed that DL E&C was assessed a tax penalty of 8,537,792,000,000 won by the Saudi tax authority (ZATCA). This amount represents 16.27% of the company's equity, which is 52.44 trillion won. The penalty, calculated in local currency, amounts to 2,086,530,000 SAR, including a base tax of 439.2 billion won and additional penalties of 414.1 billion won.
The tax assessment pertains to corporate taxes related to EPC (Engineering, Procurement, and Construction) projects awarded by Saudi clients from 2006 to 2019. The Saudi tax authorities classified the design and procurement services, which were conducted in South Korea, as income generated through a fixed establishment in Saudi Arabia, thus subjecting it to local corporate tax.
DL E&C has strongly opposed the tax assessment, asserting that there are serious errors in the tax ruling. A company representative stated, "The only work actually performed in Saudi Arabia was the construction aspect of the EPC projects; both design and procurement were carried out in South Korea. We have already reported and paid taxes on this income in South Korea."
The representative further explained, "According to international tax principles, tax jurisdiction can only be exercised over income attributable to a permanent establishment. Taxing the same income in both South Korea and Saudi Arabia constitutes double taxation. We believe this tax assessment is clearly illegal and we will proceed with the dispute process."
The company noted that the period for filing an objection is within 60 days from the date of the tax notification, and they plan to submit their appeal promptly within that timeframe.
DL E&C also pointed out that the Saudi tax authorities included tax assessments for business years that are beyond the statute of limitations. According to the company, the legal assessment period under Saudi income tax law is a maximum of 10 years, yet this assessment includes years from 2006 to 2015.
In its disclosure, DL E&C stated that excluding these years would reduce the assessed tax amount to approximately 16 billion won. However, the company has not yet confirmed the actual amount to be paid.
The representative added, "At this point, it is difficult to predict whether we will actually have to make a payment. In the worst-case scenario, if we are required to pay taxes, we estimate it would be around 16 billion won."
Additionally, the company argued that the tax authorities failed to provide justification for the tax base calculation, tax amount determination, and the grounds for recognizing a permanent establishment, indicating a lack of legitimacy in the tax assessment.
DL E&C stated, "We will actively assert the illegality and unfairness of this tax assessment based on the Korea-Saudi Arabia tax treaty and relevant laws, and we will explore all available legal options, including local dispute procedures and mutual agreement procedures (MAP) between countries."
The company concluded, "Considering the expiration of the assessment period, the absence of substantive tax grounds, and the issue of double taxation, we believe the likelihood of an actual tax payment is limited."
* This article has been translated by AI.
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