Can the Korean company deduct stock option costs reimbursed to its foreign parent?

The finance manager of a Korean company with an overseas parent got in touch recently. The US parent had been granting stock options to employees of the Korean company for several years, and this year the Korean company was told to bear the cost of the options the employees exercised. "These are not our shares. Can we still book this as our expense?"

The short answer is yes. But only if all four conditions are met. And one of them cannot be fixed at this point, because it is tested against a date that has already passed. Let us start with the case where it does not work.

How the shares are taxed on the employee's side was covered in an earlier article. This one is about the company.

Tested at grant, or at exercise?

A 2024 decision of the Korean Tax Tribunal.

A semiconductor company. Its ultimate parent in the United States was not listed at the time, and between 2009 and 2011 it granted stock options to employees in Korea. The parent later listed on the New York Stock Exchange, the employees in Korea exercised their options, and the Korean company paid the cost to the parent and then filed a claim for correction to have it treated as a deductible expense for corporate income tax.

The tax office rejected the claim and the Tribunal dismissed the appeal. Whether the parent was listed is tested at the time of grant, not at the time the options are exercised (조심 2023전8913, 26 September 2024).

The company argued as follows. If the listing condition exists so that the value of the shares can be measured objectively, then a listing at the time of exercise serves that purpose. The Tribunal did not accept the argument.

As a starting point, the cost of options granted by the parent belongs to the parent, not to the subsidiary.

An exception was introduced on 4 February 2009. With art. 19 subpara. 19 added to the Enforcement Decree of the Corporate Income Tax Act, an amount the subsidiary reimburses to the parent is deductible where the conditions are met.

The four conditions

There are four (Enforcement Rule of the Corporate Income Tax Act art. 10-2).

First, the parent must be listed on a Korean securities market or a comparable market opened outside Korea for the trading of securities.

Second, the parent must own, directly or through an intermediate company, 90 percent or more of the voting shares of the Korean company. Where the Korean company is itself listed in Korea, this route is not available.

Third, the parent must have granted the options within 10 percent of its own total issued shares. That 10 percent does not count only what went to employees in Korea. It aggregates what the parent and all of its subsidiaries granted to their officers and employees (법인세과-952, 31 August 2009). Options already exercised and extinguished are excluded from the calculation (사전-2023-법규법인-0037, 28 March 2023). The numbers visible in Korea will not give you the answer. You have to ask the parent.

Fourth, the parent and the Korean company must have agreed on the reimbursement in writing in advance.

Timing matters beyond the listing condition. Where the parent reached 90 percent of the subsidiary's shares only after granting the options, the National Tax Service took the view that the condition was not satisfied (서면법규과-236, 18 March 2014). A Korean company that joined the group through an acquisition runs into this. Even if the holding reached 100 percent after the acquisition, options granted before that do not qualify.

If the conditions are not met

Could the amount simply fall back on ordinary payroll cost? That is what the semiconductor company argued: the list of deductible items is illustrative, so an amount meeting the general test for employment cost should be deductible.

The Tribunal did not accept it. Because art. 19(2) of the Corporate Income Tax Act sets separate conditions, an amount that fails them cannot be treated as an ordinary deductible expense either.

Deal with the conditions before the fact. Otherwise the money has already left for the parent while the deduction is denied.

We told the finance manager to start by checking when the parent listed, and whether any options granted before that date are still outstanding. Note that this is a tribunal decision, not a court judgment.

Legal basis

Enforcement Decree of the Corporate Income Tax Act art. 19 subpara. 19(b): where an officer or employee exercises a stock purchase option or similar award granted by an overseas parent company prescribed by Ministerial Decree, the amount reimbursed to the granting company as the exercise cost is a deductible expense. Added by Presidential Decree No. 21302 of 4 February 2009 and applicable to costs first reimbursed after it took effect

Enforcement Rule of the Corporate Income Tax Act art. 10-2(2): the overseas parent must be a foreign corporation whose issued shares are listed on a securities market under the Financial Investment Services and Capital Markets Act, or on a comparable market opened outside Korea for the trading of securities; and it must own, directly or indirectly, 90 percent or more of the voting shares of the domestic corporation reimbursing the exercise cost (excluding a domestic corporation listed under that Act)

Enforcement Rule of the Corporate Income Tax Act art. 10-2(3): the award must be a right, similar to a stock purchase option under the Commercial Act, to subscribe for or purchase shares of the overseas parent at a predetermined price; the overseas parent must have granted it within 10 percent of its total issued shares; and the overseas parent and the company must have agreed in writing in advance on the reimbursement of the exercise cost

Corporate Income Tax Act art. 19(2): except as otherwise provided in that Act or other Acts, deductible expenses are losses or expenses incurred or paid in connection with the business of the corporation which are generally accepted as ordinary or directly related to revenue

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By JH Kim, Korean CPA (KICPA) · September 2026

This article is for general information only and is not tax or legal advice on any specific matter. Tax outcomes depend on the particular facts of each case. Accounting Corporation YOON accepts no liability for any action taken in reliance on this article. Always obtain individual professional review before acting. Based on Korean law in force as of September 2026; subsequent amendments may affect its accuracy.