(1) Where an entrepreneur supplies goods or services subject to value-added tax, if all or some of relevant credit sales or other sales claims (referring to those which include value-added tax) become irrecoverable as bad debt due to the bankruptcy of or compulsory execution against the person who receives the supply or any other cause prescribed by Presidential Decree, an amount computed according to the following formula (hereinafter referred to as "bad debt tax amount") may be deducted from the output tax amount for the taxable period that includes the date the bad debt becomes fixed: Provided, That when the entrepreneur recovers the whole or part of the amount irrecoverable as bad debt (hereinafter referred to as "bad debt amount"), a bad debt tax amount related to the recovered bad debt amount shall be added to the output tax amount for the taxable period that includes the date of recovery:Bad debt tax amount = bad debt amount × 10/110(2) An entrepreneur who wishes to be eligible for the application of paragraph (1) shall submit a document attesting to the fact that a bad debt amount has occurred, as prescribed by Presidential Decree, along with the return under Article 49. <Amended on Dec. 31, 2019>
(3) In applying paragraphs (1) and (2), where an entrepreneur in receipt of a supply of goods or services has the whole or part of a bad debt tax amount deducted as an input tax amount under Article 38, if the supplier of such goods or services has the bad debt tax amount deducted under paragraph (1) before the relevant entrepreneur closes his or her business, the entrepreneur in receipt of the supply of the goods or services shall deduct the relevant bad debt tax amount from his or her own input tax amount for the taxable period that includes the date the bad debt becomes definite: Provided, That when the entrepreneur in receipt of the supply fails to make such deduction, the head of the tax office having jurisdiction over the entrepreneur shall correct such failure through a decision or rectification, as prescribed by Presidential Decree.
(4) Where the entrepreneur who has deducted a bad debt tax amount from an input tax amount (including where such deduction is made through a decision or rectification by the head of the competent tax office) under paragraph (3) refunds the whole or part of the bad debt amount, the bad debt tax amount involved in the refunded bad debt amount shall be added to the input tax amount for the taxable period that includes the date of refund, as prescribed by Presidential Decree.
(5) Matters necessary for the scope of and procedures for bad debt tax deductions, other than those prescribed in paragraphs (1) through (3), shall be prescribed by Presidential Decree.