Rhee Hyung-il: "Wondering If Inheritance Tax Reform Alone Can Resolve 'Stock Price Suppression'"

Rhee Hyung-il, nominee for Deputy Prime Minister and Minister of Economy and Finance, stated today (the 2nd), "There are concerns over whether amending the Inheritance and Gift Tax Act alone can resolve 'stock price suppression'."

During a press conference at the Government Complex-Sejong this morning, Nominee Rhee shared this perspective, saying, "For this to be resolved, the development of the capital market must take precedence, and the answers will emerge together in that process."

"Stock price suppression" refers to the practice of companies intentionally lowering their stock prices to reduce inheritance and gift taxes during the management succession process.

In last month's tax reform proposal, the government outlined conditions presumed to indicate stock price suppression, introducing an amendment to the Inheritance and Gift Tax Act to levy taxes by increasing the stock valuation by at least 30 percent if these conditions are met.

This countermeasure applies when a company's price-to-book ratio (PBR) falls into the bottom 25 percent by KOSPI sector or the bottom 10 percent on the KOSDAQ for 12 out of the most recent 13 semi-annual periods, or when the stock price has dropped by 30 percent or more compared to the three-year average alongside actions such as dual listings or the issuance of exchangeable bonds over the past year.

However, the market and political circles have pointed out that loopholes exist, as companies could evade regulations simply by managing their PBR rankings during certain periods, and that a 30 percent surcharge is too weak.

The government has expressed its stance that it "plans to formulate rational improvement measures during the National Assembly's review process."

Nominee Rhee emphasized that to ultimately resolve stock price suppression, the comprehensive development of the capital market must precede, including the institutionalization of strategies such as "bear hugs."

A bear hug is a method where a corporate takeover hopeful directly makes a public offer to a target company's management to "buy shares at a higher price," rather than secretly accumulating stakes in the market.

Because companies with low PBRs that have suppressed their stock prices become prime targets for this bear hug strategy, the incentive for stock price suppression is naturally mitigated.

He explained the expected effects of the bear hug strategy, stating, "If stock prices are excessively low, merger and acquisition (M&A) threats will emerge, and making companies vulnerable to those threats itself contributes to the development of the capital market."

Nominee Rhee further emphasized, "How we can further vitalize such systems, coupled with our inheritance system, will jointly achieve the development of the capital market."

In response to a question asking whether he believes the current stock market is undervalued, he replied, "Basically, it is desirable for PBR to be evaluated according to asset value, which is why I think stock price suppression is also a task that must be resolved."

(Photo: Yonhap News)
※ Please note: This article was translated by AI and may contain errors.