As major shareholders frequently press stock prices artificially to reduce taxes during the process of inheriting stocks to their children, the National Assembly has introduced the 'listed shares inheritance tax price-to-book ratio (PBR) 1x cap law.'
Currently, there is no cap on the stock price used to calculate inheritance tax and gift tax. The structure is such that the higher the stock price, the higher the tax. By setting a cap, the aim is to prevent listed companies from dropping their stock prices indefinitely.
On the 8th, Park Min-kyu, a member of the Democratic Party, introduced a partial amendment to the 'Inheritance and Gift Tax Act' to normalize the undervalued stock market and establish reasonable inheritance and gift tax for listed shares.
Under current law, when calculating inheritance tax and gift tax, the evaluation basis for listed shares is determined as the average of the final market prices published daily for two months before and after the evaluation date. This has created an incentive for controlling shareholders to reduce stock prices to evade taxes during inheritance and gifts.
According to the revised bill proposed by Park, when calculating inheritance tax and gift tax, the evaluated price of listed shares cannot exceed 1x the company's PBR. Park explained, "The aim is to prevent controlling shareholders from artificially lowering stock values and to favor shareholders of corporations that have increased stock values relative to the company's asset value."
Once the bill is implemented, the method of calculating the stock valuation for inheritance and gifts will remain the same, but the applicable stock price cannot exceed the company's net worth per share. Corporations with a PBR below 1x will be unaffected, but those exceeding 1x will have no reason to drop their stock prices.
Park noted, "I hope that the reform of the inheritance and gift tax on listed shares will contribute to rational tax reform and align the interests of major shareholders and individual shareholders to eliminate the Korea Discount."