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Photo = Yonhap news |
[Alpha Biz= Paul Lee] Seoul, South Korea — July 8, 2025 — Samsung Securities and several other domestic brokerages in South Korea have been found to have incorrectly taxed investors in covered call exchange-traded funds (ETFs) for over 15 years due to a long-standing error in their taxation systems.
According to industry sources, the issue stems from brokerages' failure to properly implement revised taxation guidelines that were distributed in mid-2010, when the South Korean government introduced a new system for taxing ETF holdings based on investment duration.
In May 2010, a task force (TF) comprising the government, relevant institutions, brokerages, and asset managers distributed technical guidance to firms for the new system. However, after identifying a flaw in the initial guidance—namely that it failed to distinguish between taxable and non-taxable dividend components—the TF issued a corrected version in June 2010. The revised version instructed firms to base tax calculations on the reduction in the ETF’s standard tax base price, rather than on the total cash dividends received.
Despite this correction, some brokerages—including Samsung Securities—completed system development based on the original May guidance and failed to incorporate the June revision. As a result, these firms have continued to operate outdated tax systems for 15 years.
The issue came to light with the growing popularity of domestic covered call ETFs, which distribute income that includes non-taxable profits from options trading. However, due to the flawed systems, these option-related gains were incorrectly classified as taxable cash dividends, resulting in a 15.4% tax on income that should have been tax-exempt upon ETF sale.
The error remained undetected for years but was recently uncovered after investors submitted complaints regarding unexpected taxes on covered call ETFs. The matter was discussed during a meeting of tax specialists from major brokerages organized by the Korea Financial Investment Association (KFIA) on June 27.
While firms like Kiwoom Securities and Daishin Securities had correctly implemented the revised system from the beginning, others such as Korea Investment & Securities and Mirae Asset Securities updated their systems only in 2018 and 2019, respectively. Covered call ETFs have surged in popularity since 2022, although some—including TIGER 200 Covered Call OTM and TIGER 200 Covered Call—have been listed as early as 2012–2018.
As of now, Samsung Securities is confirmed to have been using the incorrect system through the present. A full industry-wide audit by the KFIA has not yet been conducted, and more firms may be implicated as the investigation unfolds.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
