The government is strengthening the evaluation method for listed stocks to prevent artificial "stock price manipulation" aimed at reducing inheritance and gift taxes. If a company's price-to-book ratio (PBR) has remained in the bottom tier of its industry for the past six years or if its stock price drops by more than 30% following negative actions affecting its corporate value, the evaluation period will be extended to reassess the taxable amount.
On August 3, the Ministry of Economy and Finance announced the "2026 Tax Reform Plan" during a meeting of the Tax Development Advisory Committee held at the Bank Hall in Seoul.
Currently, the value of listed stocks for inheritance and gift tax purposes is calculated based on the average closing price on the stock exchange for two months before and after the evaluation date. This structure allows for a reduction in the taxable amount and tax burden if stock prices are lowered prior to inheritance or gifting.
The reform plan estimates stock price manipulation if a company meets one of two criteria: it has a PBR in the bottom 25% of its industry on the KOSPI or in the bottom 10% on the KOSDAQ over the past six years. This reflects the standards of the low PBR company disclosure system being promoted by the Financial Services Commission and the exchange.
For companies that experience a rapid decline in stock prices over a short period, separate criteria will apply. If a company has engaged in actions such as dual listings or issuing convertible bonds that could negatively impact its corporate value within the past year, and if the market value at the time of inheritance or gifting is more than 30% lower than the market value over the past three years, it will be included in the reassessment.
However, meeting these criteria does not immediately raise the taxable amount. The National Tax Service's evaluation committee will review the company's situation and the reasons for the stock price decline to determine whether manipulation occurred. If taxpayers can prove that the stock price management was not artificial, the current evaluation method will apply.
Long-term low PBR companies will be reassessed by comparing the highest average stock price over periods ranging from six months to six and a half years with the current evaluation amount plus 30%. This structure ensures that the taxable amount is at least 30% higher than the current level.
For companies that see a sharp decline in stock prices after dual listings or issuing convertible bonds, the highest average stock price over the last six months, one year, two years, and three years will be applied. This aims to reduce the impact of temporary stock price drops at the time of inheritance or gifting on the taxable amount.
The tax system related to treasury stock will be unified as capital transactions. This follows the amendment of the Commercial Act in March, which classified treasury stock as capital.
Under the current tax law, corporate tax is imposed on capital gains from the disposal of treasury stock. After the reform, these transactions will be classified as capital transactions and excluded from corporate tax. Instead, when a corporation acquires treasury stock, it will apply deemed dividend taxation to shareholders regardless of the purpose of acquisition, such as cancellation or disposal.
The reward system for reporting tax evasion and hidden assets of delinquent taxpayers has also been revised. The legal payment limits for tax evasion reporting rewards, set at 4 billion won for national taxes and 3 billion won for hidden asset reporting, will be abolished, and rewards will be based on the amount of tax collected.
The reward rate will increase from 20% to 30% for tax collections between 50 million won and 500 million won. For amounts between 500 million won and 2 billion won, the rate will rise from 15% to 20%, and for amounts exceeding 2 billion won, it will remain at 10%. Currently, the reward rate for amounts exceeding 3 billion won is 5%.
The threshold for starting reward payments will also be lowered, with national taxes reduced from 50 million won to 30 million won and customs duties from 20 million won to 10 million won. The government aims to encourage reporting of high-value tax evasion and hidden assets by eliminating or lowering legal limits and thresholds.
The government plans to announce these amendments by August 20, followed by a cabinet meeting, and submit them to the National Assembly on September 3.
* This article has been translated by AI.
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