THE TAX TREATMENT OF COOPERATIVES IN KOREA: A LACK OF CONSIDERATION OF COOPERATIVES’ STRUCTURAL CHARACTERISTICS AND SUGGESTIONS FOR IMPROVEMENT
This Article comprehensively analyzes the history of cooperative legislation and tax policies for cooperatives in Korea, including the current legal situation caused by legislators’ misconceptions. Korean tax law divides cooperatives into two categories: non-profit corporations which are entitled to tax benefits and for-profit corporations which are not. Due to this dichotomy, general cooperatives, which account for the largest number of Korean cooperatives, fall into the latter category and are not entitled to any related tax benefits. This problem results in the double taxation on the surplus of general cooperatives. The Article regards this double taxation as a core problem for cooperative legislation and suggests legal measures to solve this problem systematically. The tax laws applied to cooperatives are complexly connected to cooperative laws, which is why they constantly affect one another. Therefore, this Article presents not only a proposal for a tax law amendment but also a reform of the legal framework of cooperatives, based on the analysis of the interconnection between them. To overcome double taxation of the cooperative’s surplus, this Article proposes a series of possible changes to the tax law, based on the recognition that the cooperative’s income ultimately belongs to its members. As a prerequisite for this revision, the Article demonstrates that it is essential to systematize the legal rules governing patronage dividends and to clarify the legal concept of “use” of cooperatives.