Korea's NPS to get partial tax refund on US real estate sales

South Korea’s National Pension Service (NPS) is set to receive a tax refund of 30 billion won ($22.4 million) from the US Internal Revenue Service (IRS), according to pension fund sources on Nov. 16. The world’s third-largest pension fund, managing 917.2 trillion won in assets as of end-August, has also claimed tax returns of nearly 70 billion won from European Union nations, sources said.

The 30 billion won refund is from non-taxable gains that it has earned from the transfer of US-based real estate assets. The US federal tax bureau will return the amount once it gets final approval from the US Congress budget committee.

NPS' fund management arm applied for the tax refund via internal revenue code 897(l), which provides exemptions to gains or losses on certain dispositions of and distributions concerning US real property interests for certain foreign pension funds.

The rule is retroactively applied to income or capital gains earned from 2017. Before applying the rule, NPS had paid for up to 21% capital gains from its US-based real estate transfer to the US federal tax bureau.      

Through research for more than a year, NPS fund management found that the pension fund qualifies for the tax benefit and applied for the refund. Other Korean pensions and retirement funds are expected to follow NPS’ procedures to also seek partial tax returns.

NPS is also looking to receive approvals on tax refunds soon from some EU countries, including 20 billion to 30 billion won each from both Spain and Denmark. The Korean pension fund is insisting on the most favored nation (MFN) principle, which guarantees the same trade terms and tax benefits be extended to both domestic and foreign investors, sources said.

Write to Jun-Ho Cha at chacha@hankyung.com
Jihyun Kim edited this article.