“Earned Income” Definition under Korean Income Tax Act held constitutional by Korean Constitutional Court

The Constitutional Court of Korea ruled a provision of the Korean Income Tax Act defining the scope of benefits included in “earned income” as constitutional. The Court determined that the provision of the Income Tax Act, which defines earned income as “salaries, wages, remuneration, allowances, bonuses, and benefits of a similar nature received by providing labor,” does not violate the principle of clarity in tax requirements. (2024 HunBa 8384 and 2025Hyun100, etc.).

Case Summary

1. Two companies provided welfare points annually as a benefit to their employees. Based on the premise that these welfare points constitute taxable earned income, the plaintiffs withheld earned income tax and reported and paid the withheld earned income tax to the competent Korean tax office.
2. Petitioners filed a request for correction to the National Tax Service of Korea, arguing that “welfare points do not constitute earned income subject to taxation under the Income Tax Act.”
3. The head of the competent Korean tax office rejected the request for correction. The petitioners filed a lawsuit with the Korean Tax Tribunal seeking the annulment of the rejection decision and applied for a constitutional review of Article 20, Paragraph 1, Subparagraph 1 of the Income Tax Act, which defines earned income; when the application was dismissed, they filed a constitutional complaint to the Korean Constitutional Court.

Decision of the Korean Constitutional Court on the Clarity of Earned Income Definition

The Korean Constitutional Court ruled that the provision in question does not violate the principle of clarity in tax requirements.

The Constitutional Court stated that: “The meaning is clear when examining the dictionary definitions of the terms used in the provision subject to review.” However, the Court noted that “since the concept of ‘salary’ generally refers to all money or goods paid, making it difficult to determine the scope, the ambiguity of the phrase ‘salary of a similar nature’ may be an issue,” the Court further stated, “The provision subject to review does not define everything corresponding to ‘salary’ in a broad sense as earned income subject to income tax, but rather defines it as earned income only to those ‘received by providing labor,’ thereby more clearly limiting the scope . . . . Among the provisions subject to review, ‘payments of a similar nature’ refers to all payments that are in a reciprocal relationship with the provision of labor, regardless of the form or name of the means of payment.”

The Constitutional Court opined that: “It is difficult to view the earned income stipulated in the provision subject to review as being excessively abstract and unclear, making it difficult to predict what it refers to. Furthermore, it is difficult to regard it as an unclear concept subject to arbitrary interpretation or application by the tax authorities. Therefore, the provision subject to review cannot be seen as violating the principle of clarity in tax requirements.”

by Sean Hayes

Sean’s profile may be found at: Sean C. Hayes. To schedule a meeting with Sean Hayes, please Schedule a Call with Sean Hayes.

IPG Legal is a leading firm in Korea working on Korean tax matters involving foreign companies and individuals. IPG Legal advises multinational companies, investors, and expatriates on a wide range of issues, including inbound investment structures, tax treaty application, transfer pricing, permanent establishment risks, and disputes with the Korean tax authorities. IPG Legal is known for providing clear, practical, street-smart advice that reflects both Korean tax law and international standards, helping clients manage risk, stay compliant, and make informed decisions when operating or investing in South Korea.