[Edaily Reporter Shin Ha-yeon ] DL E&C CO., LTD.(375500)is rebounding by around 4% in early trading after plummeting more than 20% the previous day. This is interpreted as a partial recovery in investor sentiment following securities industry analysis suggesting that market concerns over the Saudi Arabia tax issue were excessive.

According to MP Doctor on the 24th, as of 9:13 a.m. today, DL E&C CO., LTD. is trading at 61,700 won, up 4.40% from the previous trading day.

DL E&C CO., LTD. announced after the market closed on the 22nd that it had received a corporate tax assessment notice totaling approximately 8553억 won from Saudi tax authorities; as a result, the stock closed at 5만9100 won the previous day, a sharp drop of 20.14% from the previous session’s close.

This tax assessment stems from the Saudi tax authorities imposing corporate income tax on design and procurement (EP) services performed by DL E&C CO., LTD.’s Korean headquarters for projects awarded by Saudi clients between 2006 and 2019.

However, analysts in the securities industry suggest that the likelihood of this actually leading to a tax payment is low. In a report released that day, Hana Securities pointed out that there are concerns regarding the appropriateness of the assessment—including the possibility of double taxation—since DL E&C CO., LTD. had contracted the design and procurement work performed at its headquarters separately from the on-site construction in Saudi Arabia, and the corporate income tax on the portion performed by the headquarters had already been paid to the South Korean government.

iM Securities also assessed that the likelihood of this Saudi tax notice becoming a reality is low. Bae Se-ho, an analyst at iM Securities, explained, “We view Saudi Arabia’s tax notice as unreasonable and believe the likelihood of it being enforced is low,” adding, “DL E&C CO., LTD.’s appeal is fully justifiable based on the relevant laws and regulations.”

The key issue is whether Saudi Arabia can assert taxing rights over income from engineering and procurement work performed in South Korea. Analyst Bae explained, “For this project, the engineering (E) and procurement (P) work was performed in Korea by personnel assigned to DL E&C CO., LTD.’s headquarters, and corporate income tax returns have already been filed and taxes paid in Korea.” He added, “Saudi Arabia’s claim to tax this income raises the potential for double taxation, which would violate the tax treaty between Korea and Saudi Arabia.”

The statute of limitations is also cited as a key variable. Hana Securities and iM Securities analyzed that, since the maximum period for imposing income tax under Saudi tax law is 10 years, excluding income generated between 2006 and 2015—for which the statute of limitations has expired—the tax liability would be reduced to approximately 16 billion won.

Kim Seung-jun, a researcher at Hana Securities, also stated, “DL E&C CO., LTD. plans to initiate an appeal process based on the tax treaty between the two countries,” adding, “During the appeal process, which typically takes about five years, there is no obligation to pay the tax.”